Interesting perspective on UAL etc program changes as PRO consumer--but, not for the usual reasons.

What do you think?

http://www.bloombergview.com/article...gram-let-it-go

The problem I have with little articles like this, which are not real economic studies, is that the articles assume that getting miles from flying are still the most significant source of mileage accumulation. A few hours on Flyertalk or any miles blog would have shown them that the mileage game is mostly credit card sign-ups and various manufactured spend transactions. With respect to credit card sign-ups, the most miles can be obtained from exploring a program that a person has not previously used, which creates disloyalty by the consumer.

I think there are plenty of interesting economic studies that can be done regarding these programs, namely the consequences of the change itself from rewarding frequent spending instead of frequent flying, the airlines using the selling of miles as a fixed income revenue source, and the deflationary effect of the miles that occurs when the market is flooded with them (both the obvious issue of the lack of seat availability at lower reward levels and the imposition of greater cash penalties when dealing with using miles).

Since miles from flying are not as important of a source of total mileage accumulation, I do not think that the honey trap effect of consumers choosing to fly one airline over another is as great as the authors believe.

The problem with that statement is that you assume that the majority of members use credit cards or MS to get miles... And that is most likely not true either. Most members don't play the mileage game.

True, but to me those members are a lot more damaged by those who do than they are by the change from mileage-based accumulation to fee-based accumulation when the deflationary effects of the marketplace being flooded with miles.

So I still think the authors come across like old people in a sitcom who ask a grandchild what moving picture show and ice cream parlour they are going to on their date, when in fact the young people are going to a rave.

To me, these programs have changed into an elaborate coupon system. Many of us effectively purchase miles and later attempt to effectively use those "coupons" to acquire flights and hotels at a discount. Navigating the fewer and fewer opportunities to really get a discount and trying to avoid cash penalties when plans change is a problem. The airlines and hotels get a relatively larger portion of their revenue from selling coupons, which is particularly valuable to them during economic downturns. They of course give into the temptation to make these coupons harder to use during economic upturns.

Gone are the days when the programs gave someone a truly free flight as a reward for fling a certain number of miles or segments. The change in providing more coupons to someone who pays more for a flight than to someone who paid less for that same flight is consistent with this coupon system. It should makes us less loyal to any specific airline, and make them less loyal to us, but that to me is just a part of the overall change from a frequent flier system to this coupon scheme.

As with all coupon systems, I do not think they really save anyone a dime. Most coupon users end up purchasing a lot more than they otherwise would have if they did not have coupons at all. And as Andy Rooney on 60 Minutes always pointed out, people underestimate the amount of time they spend clipping the coupons and keeping track of them. But if the use of the coupons generate satisfaction to the customer and allows him to do some things he or she otherwise would not have done, they certainly serve a great purpose. The purpose of life is not to see how much can be accumulated at death.

But the author's premise that customer's should consider ignoring the programs merely because of the honey trap element of needing to spend more to accumulate more miles from just flying is a pretty small component of evaluating whether to take a specific flight on a specific airline, in my opinion.

The article even starts off being inaccurate and can't get basic facts communicated correctly. For example, it says Delta already made the switch earlier this year; and yet, when it comes to earning miles from flights to be used for flights, all that DL did was announce that the switch would be made next year. DL signaled to its competitors what it was going to do and wanted them to do too. UA took DL's bait, hook, line and sinker.

That said, I do agree that lots of consumers took the FFP bait and overpaid as a result of poor valuations of the returns -- which they were (not) getting from their participation in the program of choice -- and thinking it worthwhile to pay a premium to collect miles and/or elite status and/or the benefits arising from those miles and/or elite status had by having a willingness to pay a slight premium for that.

I suppose in fairness that Forbes, a business publication, does have some interest and obligation in pointing out the change in this mileage-earning policy. No doubt that many companies will give greater scrutiny to expense reports, and start limiting an employee's right to buy the airline tickets himself, in order to ensure that the lowest-priced ticket is purchased.

Cracking down on the employees' allowances to book the tickets themselves seems to have risen faster than increasing scrutiny of expense reports to interdict overpaying for tickets -- at least in the US, with regard to SMEs, since DL and its fellow industry cartel kingpin UA made the move to further incentivize customers to overpay for tickets in order to hit the elite status qualifying dollar thresholds.

The article is fundamentally flawed, in that it conflates two things: accruing miles in an FFP and certain actions that some people take because of real or perceived rewards from those FFPs.

There is no cost or penalty to sign up for an airline's FFP and accrue miles in it (in the U.S. - I realize there are a few foreign programs that may charge an enrollment fee). It is only when a flyer makes irrational decisions because of that FFP membership, that there is a potential for a net negative. Yet the article mostly implies that merely belonging to an FFP will cause most people to engage in these behaviors. And implying that one should not even accrue miles in any program because of this.

Will my miles in a given program be worth less due to devaluation one day? Yes, but does that necessarily mean I shouldn't bother accruing them at all, assuming one doesn't make stupid decisions because of it? I don't think so.

Also, the article uses poor decision-making regarding elite status to conclude that FFPs are a fool's game in general. Do some people make poor economic decisions because they're trying to hit an elite level, for example? Sure. Does that mean everyone should ditch FFP mileage accrual? Nope.

Early termination fees and FFPs are not identical. I understand the potential psychological equivalency in some minds. However a cell phone termination fee is an absolute penalty that is quantifiable and legally enforceable. A perceived loss of a reward program benefit isn't. The article provides no substantiation for its assertion that most or all consumers behave as if the reward loss is the same (surely some do, but how many?).

This sentence isn't grammatically correct, but if I get your gist I don't agree. The change to fee-based FF miles has a clear and direct impact while we have no idea how much of an impact MSers make in award availability.

The article is full of nonsense.

Sorry, but there is no "implicit" penalty, there is no "denying of a reward".
In fact, if you are short x amount of miles but no longer fly with that particular airline, just open a credit card to snatch the points required, get the award and cancel the cc.

I think the nub of his argument is that "Flying Spirit instead of United would set you back on these reward goals, so you decide to pay a higher ticket price, or fly at a less convenient time, just to remain in United's network." Maybe for some people it was to accumulate miles, but I tend to think that the main goal of the frequent flyer is usually to make their business travel less of a hassle. Miles are only useful to the extent that they do that. And the main feature that did that was an upgrade. If UA or another airline could offer me an upgrade for miles at booking, I might get that ticket even if a little less convenient or a little more money (though even there, within limits). Since it has become more difficult to upgrade at booking, loyalty has waned.

I think this is another way of saying what I had posted in the Delta thread, namely that if the airlines want to make it only about revenue for them, then for many customers it'll become only about price.

I'm set to be one of the hardest-hit, with 2-3 of my trips in a given year being Asia trips. Instead of up to 35,000 miles (if bonuses are included), it would be more like 9,000 on the ticket I'd usually get. Delta typically would be $200 or so above the floor (usually set by some Asian carrier with miles useful only in its own FF program). The miles won't drive the decision like before.

We still don't know what the fallout of this will be for DL or UA. The article basically agrees with those of us who've warned that the cuts are so severe that they disincentivize brand loyalty. People who fill sale seats at slow times have the most choice of any flyers, including sometimes the choice not to take the trip at all. DL is looking at the fare amounts and saying they don't deserve the benefits, which is the same mistake casinos have repeatedly made in looking down on low rollers. They learn the hard way that they need to attract both the high spenders and low spenders.

This is one of those cases where they have to feel the damage to change the thinking. There's plenty of precedent for negative changes having to be rolled back, but they think this time's different because of supply/demand and lack of competition due to mergers.

As someone who is a (very overpriced, IMO) route captive, I tend to regard FF programs as 'hey, at least they're hiding the roofies in a little higher quality and tasty beverage'.

I completely agree with the above astute and coherent summary of the situation.

If the airlines want to make this about ticket price, then more customers will make this about the lowest ticket price too and the frequency of paying a loyalty/brand premium to UA and/or DL will drop.

I don't know why you're attributing this to economists. The article was written by two law professors and doesn't even appear to quote any economists. OTOH, the points made are rather obvious and well known IMO.