Of course I think the most popular explanation is that United is greedy, but the explanation offered by VFTW has a glaring error in it:
The deferred revenue is not an asset, it is a liability. They can't sell the 'deferred revenue' to anyone for $5 billion, that number represents the portion of revenue from selling and issuing miles that they can not recognize until the miles are redeemed, which by the way leads us to one of the biggest inaccuracies I've seen repeated on Flyertalk too many times to count: Award tickets are 'non-revenue' tickets. That is false, they are revenue tickets to the airline, when you redeem an award they recognize revenue from that redemption by the conversion of deferred revenue to current revenue.
I have never believed that credit card bonuses are borne solely by the credit card companies, I believe the airlines themselves subsidize the sign-up bonuses.
Chase has prepurchased their miles anyway, so they can't charge more to Chase any time soon, but say United threatened that when Chase has burned through it's prepurchased miles, then Chase responds by saying, no problem, we'll award cardmembers .75 miles/dollar instead of 1 mile/dollar, I think United would ultimately lose revenue on such a decision.

There is no specific reserve for the liability of miles, though if you devalued them enough you could decrease your deferred revenue and recognize it as current revenue, it doesn't actually generate any cash for the airline.

Ah, NOW we are getting somewhere.

So...by increasing miles required for awards, is United decreasing that $5B deferred revenue liability? If so, is it by the same percentage as the miles required increased!?

IOW, does this change cook the books in Smisek's favor?

In six months (after they release Q1 earnings and the balance sheet reflects 3/31/14 liability for the deferred revenue) you should have a good indication of that if there's a big decrease in the deferred revenue.

In reality I think the more likely explanation is that partner awards cost UA more than the incremental cost they can use for their own metal awards, so the award chart change really just better reflects the true cost to UA of those different awards and has little affect on the liability for those awards.

The bank doesn't care what the value of the award ticket you redeem is; they only need to make sure that their cut of the swipe fees, annual fees, and other fees from the card exceed their costs to purchase and administer the miles.

The airline obviously cares what their costs for award tickets are, compared to what they earn from the miles business side of it - both for their own metal and partner redemptions.

Digging through their annual report now to see what I find, maybe this can help:

Loyalty Program. United’s MileagePlus program builds customer loyalty by offering awards and services to program participants. Members in this program earn mileage credit for flights on United, Continental, United Express, airlines in Star Alliance and certain other airlines that participate in the program. Members can also earn miles by purchasing the goods and services of our network of non-airline partners, such as credit card issuers, retail merchants, hotels and car rental companies. Members can redeem mileage credits for free, discounted or upgraded travel and non-travel awards.

Under the Company’s Consolidated Amended and Restated Co-Branded Card Marketing Services Agreement dated June 9, 2011 (the “Co-Brand Agreement”) with Chase Bank USA, N.A. (“Chase”), loyalty program members accrue frequent flyer miles for making purchases using co-branded credit cards issued by Chase. The Co-Brand Agreement provides for joint marketing of the Company’s credit card program and provides Chase with other benefits such as permission to market to the Company’s customer database.

In 2012, 4.7 million MileagePlus travel awards were used on United and Continental. These awards represented 7.4% and 6.8% of United’s and Continental’s total revenue passenger miles in 2012, respectively. Total miles redeemed for travel on United and Continental in 2012, including class-of-service upgrades, represented 83% of the total miles redeemed. In addition, excluding miles redeemed for travel on United and Continental, MileagePlus members redeemed miles for approximately 1.6 million awards in 2012 as compared to 1.8 million in 2011. These non-United and non-Continental travel awards include United Club memberships, car and hotel awards, merchandise and travel on another air carrier. The decrease in the number of non-United and non-Continental travel awards redeemed in 2012 compared to 2011 was due to a decrease in hotel, car and United Club redemptions.

NOTE 19 - ADVANCED PURCHASE OF MILES
The Company previously sold frequent flyer miles to Chase which the Company recorded as Advanced Purchase of Miles. UAL has the right, but is not required, to repurchase the pre-purchased miles from Chase during the term of the agreement. The balance of pre-purchased miles is eligible to be allocated to MileagePlus members’ account by 2017. The Co-Brand Agreement contains termination penalties that may require United and Continental to make certain payments and repurchase outstanding pre-purchased miles in cases such as the Company’s insolvency, bankruptcy or other material breaches. The Company has recorded these amounts as advanced purchase of miles in the liabilities section of the Company’s consolidated balance sheets.

Revenue in 2011 was also impacted by certain accounting changes, as described in Note 2 to the financial statements in Item 8 of this report. In conjunction with these accounting changes, the Company recorded a special adjustment in 2011 to decrease frequent flyer deferred revenue and increase revenue by $107 million in connection with a modification to The Consolidated Amended and Restated Co-Branded Card Marketing Services Agreement dated June 9, 2011 (the “Co-Brand Agreement”) with Chase Bank USA, N.A. (“Chase”).

Other operating revenue was up $226 million, or 6.8%, in 2012 as compared to 2011, which was primarily due to a change in the deferral rate related to the sales of credit card miles in conjunction with the modification of the Co-Brand Agreement in accordance with Accounting Standards Update 2009-13, Multiple-Deliverable Revenue Arrangements - a consensus of the FASB Emerging Issues Task Force (“ASU 2009-13”), which was adopted in 2011. Other operating revenue also increased due to additional sales of aircraft fuel to a third party.

There is a thread on the Delta forum where there were multiple posts by someone who really didn't understand this concept of miles being a liability, being considered revenue when redeemed, etc.

But the dollar cost of UA to give away seats that they calculate they will not sell is close to zero, right?

Does UNITED pay cash money to Lufhansa when I fly LH F on MP miles?

There are bilateral agreements between the airlines on the cost/price of redemption for any particular bit of travel. This applies to awards just like it does to revenue tickets. And to lounge access and other benefits. And, yes, the numbers are reconciled from time to time. I don't know the frequency of such transactions but they definitely have to "true up" the accounts from time to time.

It is also worth noting that just because two airlines are partners that doesn't mean there is necessarily an agreed upon price/rate for an award redemption. Because DL SkyMiles cannot be redeemed for AF F there might not be a line-item for that option in their agreement, for example.

Got this unsolicited email today with a perspective on the OP:

Pretty stupid email, if you ask me. When it comes to miles-earning credit cards the email writer is clearly talking about things he knows little about (as he admits himself), and ultimately United's responsible for how many miles it sells to credit card companies and how much it charges those companies for each mile.

Similar sentiments have shown up elsewhere, not just with this UA issue. I find it silly though... a few random thoughts on it:

- Does any airline, especially U.S. carriers, really care who is in their F seats? I know some pax, including some FT'ers think F should be the domain of only those with enough class or whatever. I doubt the airlines do.

- The airlines certainly like to market and brag about their premium products. I don't know why it's inherently bad that blogs do as well.

- Some writers such as the email koko received above act as if the airline is continually forced to hand over free seats at ridiculously low saver levels to everyone who wants them, thanks to so many miles having been issued. However the airline controls the amount of such seats made available - and presumably isn't making more available than its rev mgmt determines it makes sense to do. That process doesn't change, regardless of how many outstanding miles exist. Sure, they may end up having more people ultimately redeem for those seats than might have if fewer people had fewer miles...but it's not quite the dynamic that some folks portray it to be.

Sometimes they do, now that i think about it. look at aeroplan. I'm pretty sure that deval was NOT as a result of the lboggers.

"some" - obviously yes, but if you want to blame people, technically airlines sell to credit card companies and credit card companies pay for signups

Some insight on the topic: http://www.flyertalk.com/forum/miles...l#post21731400

Basically LH is OK with people using loopholes, but when it gets viral they tend to close the gap pdq.