United CFO Rainey Implies Certain Elites were "Over Entitled".
May 19, 2012, 5:48 pm
#181
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UA is the only airline with a sizable hub at SFO (Virgin is headquartered here, but just a few destinations). That wouldn't be much different than AA flyers looking for alternatives at DFW. UA doesn't provide a lot of service there. If convenience is your highest priority, and nonstop flights fall in that parameter, there isn't anyone at SFO that can compete against UA on that scale. I notice a lot of FTers are willing to take those AA connections now and quite a few I personally know in the Bay Area have done AA status matches.
I easily could have flown AC LGA-YUL-YQB or LGA-YYZ-YQB for about $650.
But I didn't do it because I had back-to-back trips and the connection on the way back at YUL or YYZ with the pre-clearance for U.S, customs, which meant that the 1 hr 10 min trip YQB-EWR, would have turned into a 4-hour ordeal, which would have caused me to miss my next trip.
May 19, 2012, 5:50 pm
#182
Join Date: Jun 2004
Location: Washington, D.C.
Posts: 282
UA is the only airline with a sizable hub at SFO (Virgin is headquartered here, but just a few destinations). That wouldn't be much different than AA flyers looking for alternatives at DFW. UA doesn't provide a lot of service there. If convenience is your highest priority, and nonstop flights fall in that parameter, there isn't anyone at SFO that can compete against UA on that scale. I notice a lot of FTers are willing to take those AA connections now and quite a few I personally know in the Bay Area have done AA status matches.
Lot's of times I have to connect anyhow to go most places out of San Francisco on United. So it doesn't matter to me if the connection is in DEN/LAX/IAH/IAD or DFW/ORD/JFK.
May 19, 2012, 5:50 pm
#183
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I agree that this is likely their mindset. They think that with their route network, and with load factors as high as there are, there is only so much room on the plane. And if an Elite doesn't buy that seat, someone else will, so they'd much rather sell it to someone else who may also buy things that Elite would not (e.g., bag fees and E+ or upgrades because Elites get them free, club access that already comes with your status/int'l ticket, etc.), and doesn't cost them as much in terms of bonus miles or other utilized services (e.g., drinks or shortbread cookies at the club).
Had they been running 60% load factors like they were 20+ years ago, then sure, they'd want both that Elite and non-Elite customer, as there's room for more. But now with ~85%+ LFs they are choosing to be selective in which customers they want to fly around.
The fact that so many have acknowledged moving to AA and AA has even hinted at some numbers of UA 1Ks that have moved over may actually make UA happy, as that means UA may now have fewer Elites who will tie up inventory with costly mileage bonuses and without ancillary upsells.
Bottom line, it seems the more you fly, the less UA wants you as a customer. And this comment was not a faux-pas by the new CFO, rather it was a calculated statement to enrage the very customers who they are deliberately trying to drive away.
Had they been running 60% load factors like they were 20+ years ago, then sure, they'd want both that Elite and non-Elite customer, as there's room for more. But now with ~85%+ LFs they are choosing to be selective in which customers they want to fly around.
The fact that so many have acknowledged moving to AA and AA has even hinted at some numbers of UA 1Ks that have moved over may actually make UA happy, as that means UA may now have fewer Elites who will tie up inventory with costly mileage bonuses and without ancillary upsells.
Bottom line, it seems the more you fly, the less UA wants you as a customer. And this comment was not a faux-pas by the new CFO, rather it was a calculated statement to enrage the very customers who they are deliberately trying to drive away.
Their CFO's comments don't really make any sense though because the cost to United of the Elite program is very little. They only give upgrades now (especially international) if we buy an expensive fare and nobody else wants to pay more. Except for a once a year vacation, I never check bags. I never use the check-in counter. I never call the 1K line unless there is something I can't do online or it is their screwup. I pay for my RCC membership every year. I blow all my miles on full awards for short domestic trips for my kids. What exactly are they spending on me as a 1K?
May 19, 2012, 5:54 pm
#184
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In fairness, CO's position was that they never had a level above Platinum because they believed that their 75K+ customers flew them anyway if they made Platinum, so there was no reason to provide further incentive to fly more.
Now it's possible that CO was being more tactful back then than what we've seen out of Smisek et al. in the current regime. Or they've changed their view since then.
And also, economic conditions change this substantially. This kind of stuff we're seeing from this management team would never fly in a down economy where they're having to fight for customers to fill their planes. But now they seem comfortable that they have enough customers for their capacity that they can tinker with this stuff.
It remains to be seen what happens as more customers become disgruntled and leave. Or if the economic situation worsens, and they no longer have a loyal customer base to carry them through the down times.
May 19, 2012, 5:55 pm
#185
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I think it is simpler then this. UA does want the elites but believes they will keep them regardless of how watered down the benefits are. A typical flight from IAD to SFO is more than 50% elite. They would NOT fill these seats with tourists every weekday all year long. Although the number of 1K/GS/Platinum fliers is a small percentage it is probably 20% or more of their revenue.
Their CFO's comments don't really make any sense though because the cost to United of the Elite program is very little. They only give upgrades now (especially international) if we buy an expensive fare and nobody else wants to pay more. Except for a once a year vacation, I never check bags. I never use the check-out counter. I never call unless there is something I can't do online. I pay for my RCC membership every year. I blow all my miles on full awards for short domestic trips for my kids. What exactly are they spending on me as a 1K?
Their CFO's comments don't really make any sense though because the cost to United of the Elite program is very little. They only give upgrades now (especially international) if we buy an expensive fare and nobody else wants to pay more. Except for a once a year vacation, I never check bags. I never use the check-out counter. I never call unless there is something I can't do online. I pay for my RCC membership every year. I blow all my miles on full awards for short domestic trips for my kids. What exactly are they spending on me as a 1K?
They're not against elites, but they only want to retain them if they will not create a drag on the company's bottom line.
Second, the fact is that high-level elites used to have a pretty extensive and costly infrastructure and system at PMUA, from dedicated CS, representatives, to SWU's, to discounted RCC memberships. And of course, high-level elites never paifd for any of the "unbundled" services, including checked bags, SDC, change fees, etc.
It all added up. And if CO dba UA calculated that a big enough group of these elites were buying inexpensive fares anyway, the advantage to the company was hard to quantify, especially, as Channa wrote, in light of the fact that capacity has been reduced and LF's are consistently very high.
Last edited by TWA Fan 1; May 19, 2012 at 6:05 pm
May 19, 2012, 5:57 pm
#186
Join Date: May 1999
Posts: 1,627
Sure.
I'll give you an example. In 2011 I had no status with PMCO. Yet I flew with them on 16 segments (not enough for OP Silver), and yet only registered 7,088 miles.
All my miles were EWR-YQB exclusvely.
On some of those trips, I was forced to buy the full-fare Y on this short trip.
How much does that cost? $1,799! That's $2/mile in an ERJ-145.
At that cost, EWR-HKG would have cost me $32,000. And on my flight I had one glass of soda 80% filled with ice, no food, no IFE, nuthin'.
Now that's a "high-value" flyer, in other words, one who pays a lot for very little in return...
And what makes me especially valuable is that I didn't qualify for any bottom-line-depleting elite perks...
I'll give you an example. In 2011 I had no status with PMCO. Yet I flew with them on 16 segments (not enough for OP Silver), and yet only registered 7,088 miles.
All my miles were EWR-YQB exclusvely.
On some of those trips, I was forced to buy the full-fare Y on this short trip.
How much does that cost? $1,799! That's $2/mile in an ERJ-145.
At that cost, EWR-HKG would have cost me $32,000. And on my flight I had one glass of soda 80% filled with ice, no food, no IFE, nuthin'.
Now that's a "high-value" flyer, in other words, one who pays a lot for very little in return...
And what makes me especially valuable is that I didn't qualify for any bottom-line-depleting elite perks...
I'm a 1K MM where United has been my primary airline for almost 25 years. I'm truly sorry that United is saying they're not going to reward my business unless I'm taveling full fare, but I've heard the message loud and clear and moved on. My domestic travel is now on Southwest, and I'm moving my international travel to AA.
May 19, 2012, 6:03 pm
#187
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Their CFO's comments don't really make any sense though because the cost to United of the Elite program is very little. They only give upgrades now (especially international) if we buy an expensive fare and nobody else wants to pay more. Except for a once a year vacation, I never check bags. I never use the check-in counter. I never call the 1K line unless there is something I can't do online or it is their screwup. I pay for my RCC membership every year. I blow all my miles on full awards for short domestic trips for my kids. What exactly are they spending on me as a 1K?
The cost of your Elite-ness is actually quite large. You are earning a healthy bonus on your flights, you are pre-assigning E+ seating they cannot sell to someone else, and you admitted that you're flying on very Elite-heavy flights, flights where they probably would love to have an extra E+ seat to upsell to some E- customer in the back.
Although you pay for your club membership (as do I), the frequency of use on a 1K member is probably very high that it's not a great deal for them (I often bring a guest in the club on my membership, so they really don't like me). Plus 1Ks get the biggest discounts on the membership, so it's really a lose-lose for the airline.
And your use of miles, if by "full" award tickets, you're referring to Standard awards, those are the worst ones for an airline to sell because you are depriving them of a seat they believed they could have otherwise sold for cash. And since you're using them for your kids, I'm guessing you're flying with them, checking their bags for free, bringing them up to E+ with you when you can, and guesting them into the club. Kids can eat a lot of raisin bran and mini muffins, ya know.
It all adds up.
May 19, 2012, 6:03 pm
#188
Join Date: Jun 2007
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AA welcome all United members who are over-entitled
From
http://ir.unitedcontinentalholdings....ventID=4779518
From their web site:
Investor Relations > Event Details
United Continental Holdings, Inc. at Bank of America Merrill Lynch Global Transportation Conference
05.17.12 10:10 a.m. ET
Webcast Presentation
Click here for webcast
Title United Continental Holdings, Inc. at Bank of America Merrill Lynch Global Transportation Conference
Date and Time 05.17.12 10:10 a.m. ET
Location Boston, MA
Unauthorized recording or downloading of this event is not permitted.
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Last edited by Bacai; May 19, 2012 at 6:32 pm
May 19, 2012, 6:03 pm
#189
Join Date: Sep 2003
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I liked the bit about good bandwidth internet
What are they going to charge I wonder?
The "over-entitled" part was not exactly the best thing to say out-loud - even if true. My earphones did not work in E+ SEA-NRT the other day - bad connector in the seat - lucky I had five seats to myself and that I was so tired I slept the whole way - better than C class, which was empty by the way. So much for yield management. Surely there were a bunch of senior citizens in SEA on a UA email list that could have been persuaded to fork out $500 each on 24 hours notice for a weekend in NRT? That's what I would call real yield management. Meantime I will enjoy F class beds in E+.
The "over-entitled" part was not exactly the best thing to say out-loud - even if true. My earphones did not work in E+ SEA-NRT the other day - bad connector in the seat - lucky I had five seats to myself and that I was so tired I slept the whole way - better than C class, which was empty by the way. So much for yield management. Surely there were a bunch of senior citizens in SEA on a UA email list that could have been persuaded to fork out $500 each on 24 hours notice for a weekend in NRT? That's what I would call real yield management. Meantime I will enjoy F class beds in E+.
May 19, 2012, 6:04 pm
#190
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may be an overstatement but with the CFO's talk,
with UA Insider's explanation of upgrades, http://www.flyertalk.com/forum/18590619-post1532.html
the discussion chinatradermr had with Senior VP of Sales, http://www.flyertalk.com/forum/18585613-post236.html
the desired relationship of the new UA with it customers and elites is becoming clear.
While there had been much speculation, these instance are all painting a much clear situation -- a Brave New World.
with UA Insider's explanation of upgrades, http://www.flyertalk.com/forum/18590619-post1532.html
the discussion chinatradermr had with Senior VP of Sales, http://www.flyertalk.com/forum/18585613-post236.html
the desired relationship of the new UA with it customers and elites is becoming clear.
While there had been much speculation, these instance are all painting a much clear situation -- a Brave New World.
No one should believe that the comment by the CFO was made without conscious thought. This is marketing and communications strategy.
What I find funny is that when the new rules came out, 1K's were happy! Silvers and Golds got shafted but 1K's told us how great UA is! If the 1K flyers (which I was until 3 years ago) had joined forces with the Silvers, who got the major shaft! Now it's too late. UA is laughing at us!0
I agree that this is likely their mindset. They think that with their route network, and with load factors as high as there are, there is only so much room on the plane. And if an Elite doesn't buy that seat, someone else will, so they'd much rather sell it to someone else who may also buy things that Elite would not (e.g., bag fees and E+ or upgrades because Elites get them free, club access that already comes with your status/int'l ticket, etc.), and doesn't cost them as much in terms of bonus miles or other utilized services (e.g., drinks or shortbread cookies at the club).
<snip>
The fact that so many have acknowledged moving to AA and AA has even hinted at some numbers of UA 1Ks that have moved over may actually make UA happy, as that means UA may now have fewer Elites who will tie up inventory with costly mileage bonuses and without ancillary upsells.
Bottom line, it seems the more you fly, the less UA wants you as a customer. And this comment was not a faux-pas by the new CFO, rather it was a calculated statement to enrage the very customers who they are deliberately trying to drive away.
<snip>
The fact that so many have acknowledged moving to AA and AA has even hinted at some numbers of UA 1Ks that have moved over may actually make UA happy, as that means UA may now have fewer Elites who will tie up inventory with costly mileage bonuses and without ancillary upsells.
Bottom line, it seems the more you fly, the less UA wants you as a customer. And this comment was not a faux-pas by the new CFO, rather it was a calculated statement to enrage the very customers who they are deliberately trying to drive away.
Last edited by goodeats21; May 19, 2012 at 6:16 pm Reason: formatting
May 19, 2012, 6:07 pm
#191
Join Date: May 2001
Location: Portland, OR, USA
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Posts: 1,401
Couple of observations:
1. Shedding 1Ks seems not to be sensible as a goals for them. Assume that the 1K made it with 20 trans-cons then to replace that flyer with kettles who fly 2x per year they have to find 10 kettles for every 1K they lose. Load factors are high because airlines have cut capacity (the thing they control) but not necessarily because there are dramatically more folks that want to fly at any cost (a thing they don't control). Biz flying is up but the kettle still only takes a couple of vacations per year. So I don't quite see how that math works out.
2. The notion of the dirt cheap 1K is much overblown. Sure there are folks here that absolutely minimize the cost of getting 1K but look again at a typical biz flyer. Even if they are buying far out trans-cons (probably the most cost efficient way to earn the miles) a reasonable guess for a typical flight (I just looked at a few examples out of PDX) is in the $500 range. Even 20 of those is $10K per year. Realistically a lot of those biz flyer mix trans-cons with short hauls where the mileage efficiency is much worse. It would be interesting to know but I'd be willing to wager that the typical 1K actually represents more than $10K revenue to UA per year (and likely more than 15K). On the other hand, a kettle isn't flying only to biz destination but to highly cost competitive leisure destinations. So again - how many 2 or 3 trip per year new kettles do you need to attract to replace a single 1K that you lose on the revenue side. Again - perhaps I a being dense but the math doesn't seem to work.
So - while I accept what UA is doing is their idea of how to reduce their costs I don't think it is because they think they are going to lose 1Ks. If they lose 1Ks in any number the numbers just don't work. They must think that they won't be losing the 1Ks. The thing is (as someone earlier noted) an awful lot of trips in a hub and spoke airline are already connections and it doesn't matter that much where you connect. (Even if the connection city is way off line from a straight line route it may not add all that much time ultimately.) So other than O/D traffic from hubs themselves I think there is more actual alternatives available than folks think. Certainly for those of us that live in non-hubs have choices.
1. Shedding 1Ks seems not to be sensible as a goals for them. Assume that the 1K made it with 20 trans-cons then to replace that flyer with kettles who fly 2x per year they have to find 10 kettles for every 1K they lose. Load factors are high because airlines have cut capacity (the thing they control) but not necessarily because there are dramatically more folks that want to fly at any cost (a thing they don't control). Biz flying is up but the kettle still only takes a couple of vacations per year. So I don't quite see how that math works out.
2. The notion of the dirt cheap 1K is much overblown. Sure there are folks here that absolutely minimize the cost of getting 1K but look again at a typical biz flyer. Even if they are buying far out trans-cons (probably the most cost efficient way to earn the miles) a reasonable guess for a typical flight (I just looked at a few examples out of PDX) is in the $500 range. Even 20 of those is $10K per year. Realistically a lot of those biz flyer mix trans-cons with short hauls where the mileage efficiency is much worse. It would be interesting to know but I'd be willing to wager that the typical 1K actually represents more than $10K revenue to UA per year (and likely more than 15K). On the other hand, a kettle isn't flying only to biz destination but to highly cost competitive leisure destinations. So again - how many 2 or 3 trip per year new kettles do you need to attract to replace a single 1K that you lose on the revenue side. Again - perhaps I a being dense but the math doesn't seem to work.
So - while I accept what UA is doing is their idea of how to reduce their costs I don't think it is because they think they are going to lose 1Ks. If they lose 1Ks in any number the numbers just don't work. They must think that they won't be losing the 1Ks. The thing is (as someone earlier noted) an awful lot of trips in a hub and spoke airline are already connections and it doesn't matter that much where you connect. (Even if the connection city is way off line from a straight line route it may not add all that much time ultimately.) So other than O/D traffic from hubs themselves I think there is more actual alternatives available than folks think. Certainly for those of us that live in non-hubs have choices.
May 19, 2012, 6:09 pm
#192
Join Date: Jun 2011
Location: Colorado
Programs: United MM (formerly 1K), Marriott Lifetime Gold
Posts: 551
Sure.
I'll give you an example. In 2011 I had no status with PMCO. Yet I flew with them on 16 segments (not enough for OP Silver), and yet only registered 7,088 miles.
All my miles were EWR-YQB exclusvely.
On some of those trips, I was forced to buy the full-fare Y on this short trip.
How much does that cost? $1,799! That's $2/mile in an ERJ-145.
At that cost, EWR-HKG would have cost me $32,000. And on my flight I had one glass of soda 80% filled with ice, no food, no IFE, nuthin'.
Now that's a "high-value" flyer, in other words, one who pays a lot for very little in return...
And what makes me especially valuable is that I didn't qualify for any bottom-line-depleting elite perks...
I'll give you an example. In 2011 I had no status with PMCO. Yet I flew with them on 16 segments (not enough for OP Silver), and yet only registered 7,088 miles.
All my miles were EWR-YQB exclusvely.
On some of those trips, I was forced to buy the full-fare Y on this short trip.
How much does that cost? $1,799! That's $2/mile in an ERJ-145.
At that cost, EWR-HKG would have cost me $32,000. And on my flight I had one glass of soda 80% filled with ice, no food, no IFE, nuthin'.
Now that's a "high-value" flyer, in other words, one who pays a lot for very little in return...
And what makes me especially valuable is that I didn't qualify for any bottom-line-depleting elite perks...
May 19, 2012, 6:12 pm
#193
Join Date: Oct 2001
Location: Chicago
Programs: UA 1P (1MM), AA PLT (2MM)
Posts: 709
I voted with with my feet and my wallet starting last year (only 3 trips on UA this year) everything else booked on AA. Did not trust them from day one.
1.5MM BIS on UA, BIS now all on AA whenever possible.
1.5MM BIS on UA, BIS now all on AA whenever possible.
May 19, 2012, 6:19 pm
#194
Join Date: Apr 2011
Location: Treasure Coast, FL
Programs: DL Diamond, Marriott LT Plat, HH Diamond, Avis Preferred Plus, National Executive
Posts: 4,578
Elite benefits seem to be getting diminished by airlines and hotels all the time. Flights are full and airlines still can't make money it seems.
Flying is becoming more and more mass transit by the day. I am an elite on two different airlines and I rarely if ever get worked up anymore. What's the point? I have to travel and being based in PDX I am limited on who to fly. AS has me by the proverbial balls and I ain't going to WN.
Also for all those switching to AA will be interesting to see what happens to their Explat benefits when they leave bankruptcy or get bought out by US Airways. Giving a 1st class seat to an Explat who bought the cheapest ticket possible 6 months out 7 days prior to departure doesn't seem sustainable to me in the long run. This is how our DFW based sales reps work the system.
Last edited by apodo77; May 19, 2012 at 6:24 pm
May 19, 2012, 6:19 pm
#195
Join Date: Mar 2011
Location: Colorado
Programs: Lifetime UA 1K, Lifetime Hilton Diamond, Lifetime Marriott Bonvoy Titanium
Posts: 1,261
You're essentially proving their point. Every interaction you have with the airline costs them more than the average Joe off the street.
The cost of your Elite-ness is actually quite large. You are earning a healthy bonus on your flights, you are pre-assigning E+ seating they cannot sell to someone else, and you admitted that you're flying on very Elite-heavy flights, flights where they probably would love to have an extra E+ seat to upsell to some E- customer in the back.
Although you pay for your club membership (as do I), the frequency of use on a 1K member is probably very high that it's not a great deal for them (I often bring a guest in the club on my membership, so they really don't like me). Plus 1Ks get the biggest discounts on the membership, so it's really a lose-lose for the airline.
And your use of miles, if by "full" award tickets, you're referring to Standard awards, those are the worst ones for an airline to sell because you are depriving them of a seat they believed they could have otherwise sold for cash. And since you're using them for your kids, I'm guessing you're flying with them, checking their bags for free, bringing them up to E+ with you when you can, and guesting them into the club. Kids can eat a lot of raisin bran and mini muffins, ya know.
It all adds up.
The cost of your Elite-ness is actually quite large. You are earning a healthy bonus on your flights, you are pre-assigning E+ seating they cannot sell to someone else, and you admitted that you're flying on very Elite-heavy flights, flights where they probably would love to have an extra E+ seat to upsell to some E- customer in the back.
Although you pay for your club membership (as do I), the frequency of use on a 1K member is probably very high that it's not a great deal for them (I often bring a guest in the club on my membership, so they really don't like me). Plus 1Ks get the biggest discounts on the membership, so it's really a lose-lose for the airline.
And your use of miles, if by "full" award tickets, you're referring to Standard awards, those are the worst ones for an airline to sell because you are depriving them of a seat they believed they could have otherwise sold for cash. And since you're using them for your kids, I'm guessing you're flying with them, checking their bags for free, bringing them up to E+ with you when you can, and guesting them into the club. Kids can eat a lot of raisin bran and mini muffins, ya know.
It all adds up.
Rainey is a brand new CFO and sounded clueless in that investor meeting. I'm sure he regrets making that statement.
The best example is the hotel industry. I use to stay 200+ nights at Hilton. They treated me well and upgraded me frequently. That all stopped a few years ago and as a result I stay exactly 60 nights (probably less this year). It is far better to be the 2nd level at 6 hotel chains then give all of you business to one. United might find the same thing happens to them. In which case instead of my $2500 last week they will sell those tickets for $800 (they were all short).