Many of our larger customers are the least profitable, but without them filling the pipeline with orders, the whole production cost for the remaining customers goes way way up. Pretty simple stuff to figure out if you think long term in the least.

that's a pretty big if!!!! you're creating the baseline using all customers, then applying the variance within GS ranks to that broad baseline.

in reality, sure, there are a few GS's who are negative. UA gives GS to a corporate bigwig. they print a card, mail it, and lose $1.33 when that GS never talks to united again. but on the whole, GS members are selected for their unequal contribution to revenue, and in turn, profit.

I don't disagree. But it doesn't take into account willingness-to-pay.

Although he might not have any "evidence" to support his position, unless an analysis is done on each and every transaction, there is no evidence to show that his statement is not accurate.

Statistical sampling saves time but only yields an acceptable "confidence level" that one can use to support certain assumptions. Absent examining every transaction, most transactions merely yield trends.
-

UA is not any different. You have a valid point.

I do, however, disagree with the "across the board" severe demotion to UA's frequent flier program and the rude and insulting comment made by the CFO of UA telling elites that they are "over entitled." The entire merging of the frequent flier programs was so crudely and unfairly crafted.

Again, without an examination of each and every transaction, it is possible to draw inaccurate conclusions.
-
This is quite a leap to conclude without a larger analysis of the mix of various fares and actual customer trends. Clearly other factors were involved in yielding such a small amount of net income. It is entirely possible the mass exodus of UA customers to other airlines had a major factor in the minuscule net income reported for 2012.
-

Exactly my point. If. That's an illustration of just how thin their margins are.

Anyone outside of UAL Finance can take a stab at who provides that whopping six million bucks in net income on ten billion in revenue. if it's all passengers, that's $30 profit for every $50k revenue. Okay, so let's go 50/50: half of all passengers lose the company 6m, and the other half make a profit of 12m. Hang on, that doesn't feel right: maybe it's 75/25. Maybe it's 90/10. Who knows. The point is: wherever you draw the line is likely to be somewhere the elite ranks.

Everything posted here suggests that GS is base don a revenue metric (as well as corporate bigwigs, as you mention). You're the first person to assert that there's a margin component to the selection process.

I understand sampling. But a sample of one doesn't give any confidence level, which is the point with which i was taking issue.

I'm not supporting the over-entitled comments. That's terrible PR - a gaffe, a mistake. That guy should probably never speak in public again.

The mere fact that some other business might have a high revenue customer with negative margins does not come close to explaining how a GS, in particular, makes a negative contribution to UA by spending $50K on full fares.

Still waiting for you to provide a scenario that explains how this can be possible.

Still waiting for you to provide a scenario that explains how this couldn't be possible.

i was careful to say "revenue, and in turn, profit". but of course there is a margin component -- they count only the highest fare buckets, which are those drawing the largest margins. so, while the number they quote is revenue, they're only counting high-yield (i.e. comfortably profitable) revenue.....

wherever you draw the line, there will be 1K's below it, and GM's above it.

Nice response. Can't even be bothered to defend your own position?

GS rewards the top spenders on high yield (full or nearly full) fares. Simple logic would dictate that spending $50K on fares that are typically 2-3x higher than "lowest possible" fare has go to be more profitable than flying the same seat, in a fare that's 1/3 the price. So, if someone meeting GS criteria is a net negative, then by definition, everyone else must be more of a net negative.

Disclaimer: My post is meant to be sarcastic/humorous

Now hold on a minute. United has shown amazing creativity to see no value where there is value since the merger. Maybe they have stumbled on a way to make full fare customers unprofitable. Could easily be done by assuming that customers who fly full fare are such a PITA that 99 cents of every dollar spent on any employee is devoted to full fare customers so they allocate 99 percent of labor costs to full fare pax. Then you also have to consider that those pesky full fare customers are going to DEMAND that the plane they fly on has gas in the tank. So let's allocate 99 percent of the fuel cost to them. Then of course those on full fares are most likely to be sitting in those big schmanzy fancy seats at the front of the plane so we better allocate 99 percent of fixed costs to those pax as well. Did I miss anything? I may have so I will just add a contingency expense as a catchall. Of course it would be easier to just not sell full fares to drive away those full fare customers. Yeah. That will solve the problem. :D

I've posted plenty in this thread, so "can't be bothered" clearly isn't true. I don't have inside information from UAL, and if I did, I wouldn't post it here. What I'm saying is from my professional experience as a pricing consultant. There are always big customers who are negative margin. There are always pricing mistakes. The fundamental construction of awarding future benefits for past performance is counter to modern thinking about providing incentives for customers - but I recognize that there's no way around it in the airline business.

I've consistently made two points: I'm willing to bet that there are GS and 1k members who are negative margin over a period of time, and that scaling back benefits to the lower tiers of the elite ranks is a rational move for the organization and was probably backed-up by fairly weighty what-if analysis.

Your argument isn't logical, I'm afraid. It is entirely possible for a full-fare on a given day to be negative margin; of course it is.

Let's be clear, I'm not throwing mud at GS and 1k members. So don't be personally affronted.

Even if they had the numbers to back up their decision to dial back benefits, how they handled it demonstrates their incompetence. Publicly stating that your customers are over-entitled is as tone deaf a statement as I've every heard.

Given how UA's PRASM has fared over the last six months, I'm guessing that they didn't factor in how much that scaling back was going to impact the bottom line.

Totally agree with your first statement.

On your second: correlation does not indicate causality.

Well, when your competition is doing better than you are during the same period, it's hard to come up with another logical explanation. Was it all due to the MP scale back? Of course not, but it would be foolish to think that the MP changes didn't add to their poor performance.

Typically large customers get volume discounts. That can lead to unprofitable large customers. The discussion about this in the airline industry would be around the corporate discounts that United or any airline gives. No doubt in some cases United prices those discounts wrong and winds up with large unprofitable customers.

For GS there are some GSers who get the status because they control a large travel spend. And they as an individual may in fact be unprofitable.

For the GS who earn their status by flying full fare miles (this is most GS) that count towards some unknown revenue threshold it is tough to fathom them being unprofitable throughout the course of the year on a consistant basis. They may be unprofitable on any given flight but in that situation all of the fare classes below B would also be unprofitable on that flight. The airline would just rather cancel the flight.

If United can't make a profit on a full fare customer how can they make a profit on any customer?