Originally Posted by
pdx1M
It is certainly the case that the "fees" income would seem to have very high margin compared to seat revenue. But that assumes that in generating the fee income you are able to keep the seat revenue the same in mix and quantity. If you lose a person who buys F directly and substitute a person who buys cheap and the takes a TOD you may actually wind up with lower overall margin for that seat. So in reality the situation is dynamic to the extent that none of us here is likely to be able to actually say whether overall margin is better or worse just by looking at the pieces. The general argument has been that UA has lost some number of HVFs which would translate to lower per seat revenue on average. They then make more on the upsells etc. I can't say how that equation evaluates overall, although their netted out performance of revenue/cost metrics would certainly suggest that it net isn't creating a higher margin mix else they should be earning more bottom line.
Seems right - the gamble was to monetize what they used to give away to drive repeat, loyal business that would book United all other things being equal. I would argue that United bet wrong in two ways - they were wrong when they assumed that the great bulk of their VFF could not be lured to competing airlines, and they were wrong in the timing. The worst possible time to tighten the FF program, was in the middle of a bloody IT merger that gave plenty of reasons to book away even if the FF program was not touched, just when they needed those reliable bookings the most. I recall reading somewhere that United's outside consultant on the merger advised United that customer retention was the number one challenge, it appears to me that they ignored that advice. What must horrify the Houston crew the most, is how badly the revenue equation got thumped by what they thought would be relatively modest changes, IMO. It is a double hit when you compare United to peers, because whatever negative impact a departing VFF/HVF has on United, is additive to a competing airline - these people are going to fly on some airline, they just are not flying United.