davidsfo

Others who are probably overentitled include those who posted here and elsewhere about using mileage runs to make 1k status using denied boarding certificate currency instead of paid revenue flights and being out of pocket less than $1,000 per year for the status.

MarkedMan

gleff explained quite well when the whole "status for revenue" brouhaha sparked up last year why in fact the typical analysis is wrong headed. A GS who gets status by flying company tickets which will be bought in the same way no matter what (C on a negotiated fare, say), will do so regardless of what MP does. Nothing in MP will change the way they act. So the benefits they receive generate zero profit. Conversely, the person who buys a 200 dollar seat which would otherwise go empty costs the airline a small incremental amount in fuel costs, say, that's it. The other costs are incurred either way. So most of that 200 dollar is pure economic profit. A program which encourages people to buy seats that would otherwise go out empty is doing its job.

Standard failure to differentiate between marginal cost and average cost --> demonization of the 200 dollar elite flier. I can't think this is lost of C level executives, so the only conclusion has to be they have an alternate strategy to sell marginal seats.

TWA Fan 1

Agreed...except:

The $200 seat as marginal revenue only works as a model if the corporate contract with the GS in C is already a definite.

If the corporation/frequent flyer does not provide that solid backbone of dependable revenue--even if it comes at the cost of needing to provide costly incentives--the marginal yield on that $200 seat becomes far less attractive.

That's not really accurate. Yes, elite benefits are not part of the basic CoC, of getting you from point A to point B.

But there is an MP "contract," in which the airlines agrees to provide benefits to customers who have made certain thresholds defined by the company. Those benefits are changeable, but the MP relationship is also contractual.

zombietooth

Bolding Mine.

Not only don't the benefits generate profit, they also don't generate any loyalty.
So, stealing these customers with better CS and treatment would be quite easy.
Since CS has suffered greatly since the conversion, and SHARES has proven to be real fiasco with the TOD UG situation, I believe that these GSs are able to be harvested by a proactive competitor.

escapefromphl

So I listened to the whole talk by John Rainey and one thing he mentioned is that UA's PRASM is the best in the industry (around the 4 minute mark). When I get to the gate and see the upgrade list is 40 deep on a 319 I can't help but wonder what helps them get those numbers. I know I have often spent more than I could have to stick with United. I hope they aren't cooking the goose that lays the egg...

fastair

What happens when the $200 passenger buys the seat 2 months out, and the demand forecast is off, the flight books up ahead of the projected demand curve, and the $1000 coach seat to the corporate traveler cannot book it? There is a displacement cost to every seat that is sold. Gleff's theory assumes that either a) displacement cost don't exist, b) they rarely come into play, or c) ua's demand forecast is 100% accurate on every flight and UA only makes available the exact right number of seats at each price point. We know these things are not true, as people year after year make a killing on vdb opportunities on discounted tickets during spring break.

The cost of carriage (fuel/labor/distribution) are big, but forgetting about displacement costs where supply is finite and demand is an unknown ignores an important piece of the equation.

sxf24

Regardless of the population size, people flying with the goal status are probably not the kind of customers any airline wants since they're likely, well, over-entitled.

In the long run, it is much better to focus on gaining and retaining customers because of a sustainable competitive advantage, not because you're having to buy them off.

I'm not trying say that those type of customer didn't exist. Rather, expecting that type of behavior to be rewarded is irrational.

catocony

So Rainey has whatever head-in-anus disease that Smisek has? I guess it's spreading.

iquitos

So you fault these probably very rare birds for taking advantage of market conditions when the carrier does the same? They are not breaking any rules and they work hard to get what they get.

TWA Fan 1

I'm not sure what you mean by "irrational."

Plenty of consumer behavior is irrational, and much of the advertising and marketing industries are aimed at that irrationality.

Would you really buy a Budweiser because you saw the guy with a Budweiser in the commercial cavorting with two beautiful girls?

Why do people buy a $80,000 car, when the $15,000 car gets you there just as well? Sure, I understand the need for prestige, ego-stroking, and status-seeking.

But those are all "irrational" motives.

Additionally, I would venture to say that an airline customer's quest for elite privileges is more rational than the examples cited above.

If I fly one airline and the result is at least occasional free upgrades to FC, free checked bags, reduced unbundled fees, what's irrational about that?

N9MD

Wow! This is the end of UA flying for my wife and me ... lowly Silvers for well over a decade, based on monthly back and forth travel from our Northeastern NJ residence (EWR) to our Boca Raton residence (FLL or PBI) throughout the year. On top of that we've been using CO exclusively for all of our other trips ... at least one Trans-Atlantic vacation every year; trips to SFO, LAX, LAS, HNL and other US/Canada destinations for golf (not to mention fine wining and dining). We are not business travelers. And I'm sure UA will not miss our annual revenue or our loyalty.

Under the "new rules", there is absolutely no incentive for us to stay with UA.

I understand the thousands of posts/viewpoints/spins in FT since (and before) March 3 about all of our expectations and that we have all been spoiled in the past. I get the economics of the situation ... UA wants to make more profit. I appreciate the "war" between the lowly Silver and Golds (and pmUA equivalents) and the Billion Mile BIS flyers.

But it seems that the entire system is being stacked against all of us ... impacting our varying levels of expectation. And that's what is apparently causing large numbers of "elites" at all levels to abandon UA.

Today's flight will be our last booked on UA. Our upcoming EWR/FLL (or PBI) flying for the rest of the year into 2013 is now being booked on JetBlue. The downside for us, as Lifetime PC members, is the inability at many airports to take advantage of the United Club. Fortunately the JetBlue Terminal at EWR seems to have a United Club.

I'll continue to lurk in the UA FT Forum because it's like reading an unending non-fiction novel ... which I had hoped would have turned out to be a work of fiction. But our "flame of passion" for Continental Airlines has been snuffed out.

Silver Fox

Every CxO I have met has a tremendous sense of over entitlement so they speak from a position of authority. Regardless of what he thinks he should keep his mouth shut.

bldr1k

Many of those fliers who purchase international C (flying for their company) might not have as much loyalty to United if it wasn't for GS. There are airlines with better service in C and also with better schedules in many cases. The biggest benefit of GS is domestic upgrades. The same company that allows employees to purchase C for international travel is likely to require the cheapest coach ticket domestically. I don't think this is raining too many benefits on the GS fliers but was a smart move by United.

CenterWaters

It's okay if the management at UA feels this way... it's their right to maximize
profit and p*ss off loyal customers. The customers who don't like it can just
take their business to another airline.

Unfortunately, airlines seem to prefer to copy each other. If all airlines start
to develop this hatred towards elite customers, where are you going to go?
All major airlines now charge checked bag fees, but waive the fees for elite
members. If UA starts to remove this benefit and the other airlines follow,
who are you flying with next? JetBlue?

FlyWorld

Interesting comment. I think that's precisely what UA has been doing. With an international product that's widely regarded as inferior to foreign carriers and limited direct route network in some instances compared with certain foreign carriers and prices that I've often seen to be higher than any other carrier, "buying off" customers with upgrades may be the only way UA can get fliers to fly with them on international routes where they're up against carriers with better product at lower price. And, the domestic situation is such that UA is not often the lowest price option and doesn't always have the best routing, so similarly, they're "buying off" customers with MP program benefits. Now that those benefits have been dismantled, what's the point of flying them?

So, if UA has stopped buying customers, and yet they haven't developed a sustainable competitive advantage to attract them without the buy-offs, then what's going to attract flyers to UA?