fly18725

I was making a general statement about the current management at major airlines compared to previous management at major airlines. By historical US airline standards, UAL is doing awesome.

entropy

did you read my argument? Loyalty is but one way (and one entirely within their control) with which one might arrive in F. I'm not generally in F because I got a 'free upgrade'. Other airlines treat F like F, UA doesn't. When I'm in Y I generally buy a meal (IF its available). I find the pay for meals to be better/healthier than a lot of the garbage they serve in F, if you go back and search you'd probably see me saying the same things when they introduced them. UA BoB was vastly superior to CO free meals, and given garbage for free, or pay a nominal amount for decent food, I would and did pay.


its CO's choice to market 'unlimited domestic upgrades', and loyalty isn't useless.

halls120

Best Network, Yes.

Competitive Product, it's a toss-up.

Operational Performance, so far it's a No.

DELee

Do you travel at all? Just wondering if you're a member of any of the above mentioned FFPs (or fall into the corporate traffic descriptor)? If so, why? Perhaps there's more to the programs than what these analysts have "relevant opinions" about.

David

Kacee

These are good points. I do wonder though whether there isn't a bit more subjectivity in corporate travel decisions. UA certainly seems to think so, witness its reported strategy of granting GS status to those who make those decisions.

fly18725

As noted in my first post, I am a 1K. I also fall into the managed corporate traffic category.

I don't fly UA because of MileagePlus. I fly UA because it can take me where I want to go faster and easier. Granted, I enjoy the benefits of MP, but the FFP doesn't play a significant role in making my travel decisions.

If FFP programs were a big a driver as some portray, most of the foreign carriers serving the US would be at a disadvantage to their American peers.

FlyWorld

Before the CO team reduced both MP benefits and earning rates, one could fly foreign carriers and earn good rewards.

tom911

Good news for United as they could cut benefits even more and hold onto you.

The changes to Mileage Plus were the sole reason I moved 100% of my flying to AA. Prior to that I flew both AA and UA. I'm clearly expendable.

Isn't that what alliances are all about, though, particularly when revenue is shared? I could fly BA from SFO and get 100% AA miles and those carriers share the revenue under their joint venture. How is BA as a disadvantage?

Tom in Hong Kong

FlyWorld

I am undoubtably one of the expendable ones, too.

The thing is - when I look at flights, I'm not seeing heavy loads. I also know they've cut capacity. So, they've expended all the over-entitled expendable HVFs, they've squeezed capacity to raise prices, and all of this means they are flying fewer people but presumably getting a few more bucks from those who remain, either through higher fares that are a result of the capacity cuts or through the add-on fees.

It's clear they are focused on margins. If we think back to our first economics class, we'd recall that there is a curve which plots marginal profitability of a given choice, and there is a point at which the marginal profitability of the next customer becomes lower than that of the one before it.

What I'm seeing here is a very clear strategy that is attempting to find the point of highest marginal profitability, then to truncate the business at that point.

In other words, they want to make x% on the last customer. If they have to offer incentives or cut prices to get the next customer, and that results in a profit of x-y%, then they'd rather not have the incremental profit, so that x remains maximized.

This is different from profit maximization. A profit maximizing firm would seek to add customers and revenue as long as the marginal profit of each transaction is positive.

This strategy dovetails completely with SMI/J's compensation plan, which I analyzed a while ago and posted about here.

So, what this really means is not that we (the expendable ones) are unprofitable. It means we are less profitable than the most profitable customer, and the company doesn't want anyone who is less profitable than the most profitable customer. Those people are being pushed to OALs.

At the end of the day, this leads me to a question:

Is a $150 million company with 4.5% margins worth more or less than a $110 million company with 3% margins?

In other words, is the value of the firm (share price) maximized by maximizing profit in absolute dollars or by maximizing margin, even if it results in less profit?

As an aside, this regime has produced nothing but losses, but let's not go there. I don't want to fan the flames with facts like that.

exerda

It depends on the city pairs in question. If UA and another carrier or carriers are competitive in timing and pricing in getting me to a destination for work, I am going to choose entirely based on FFP. That's the case for the vast majority of places I have had to travel for work. YMMV, of course.



You're assuming pax simply credit to the operating carrier's program. The global alliances really alleviate that concern.

fly18725

If you are saying that you would pay more and/or fly a less convenient schedule because of the FFP, I think you would be in the minority of airline customers (though perhaps representative of FT).

If you were UK based, would BA's FFP motivate you to be loyal to BA?

While you have some interesting opinions, it is hard to give them much credibility when you are getting such basic facts wrong.

fly18725

I don't think the concept of loyalty is dead; however, I don't think the majority of airline passengers are going to have FFP as a primary driver in the decision making process.

Outside on flights to from ORD or LAX, I don't think there are too many markets where there is 'perfect competition.' On most other domestic routes, one carrier will probably have a superior product or schedule. Most passengers will gravitate towards the airline that offers the best network, product, and operational performance on the majority of routes they travel.

tom911

I don't see that I'm paying more on AA vs UA, but with SFO not being an AA hub, pretty much the whole schedule is inconvenient if you're not flying to any of the 5 AA hubs. AA does not have anywhere near the quantity of nonstops at SFO that UA does.

I know a few AA flyers in the Bay Area and, like me, they're willing to make the tradeoff of those nonstops for better benefits (things like high domestic upgrade rates and systemwides without buy-ups). We also have a pretty nice lounge at SFO.

Am I representative of FT? Who knows. I am a leisure traveler, always have been and always will be. There are a lot of us here racking up miles the best we can. I'm just racking up 100% on AA now that UA has lost me as a 1MM flyer. Until the merger I was willing to split those miles with 100K to AA and generally 50K to UA each year. Now it all goes to AA. Tried to keep 1K but 200K a year between two carriers was way too much time in the air.


I don't socialize with any BA flyers to allow me to really answer that with certainty. I do know an Australian FTer that I saw at OzFest this weekend and he puts his miles on AA instead of Qantas. A major factor in his decision is lower award redemption levels. I don't know what BA charges, or, for that matter, what Lufthansa, a UA partner charges, to tell if their redemption ates are lower or higher and don't know much about the ins and outs of their programs. I suspect the majority of flyers keep their miles in the carrier based in their home country, when applicable (UK to BA and Germany to Lufthansa, as examples).

Don't you think credit card marketing factors in there? UA is still working on me with another 50K offer on the table at home. I must be one of millions of UA flyers at various elite and non-elite levels getting these offers. Once you have that card, aren't you going to focus on UA?

UA-NYC

Going from 6 trad'l majors to 3, where they ALL have a great route network and can get you anywhere, I'd argue the FFP is more important than before.

You'll notice that AA has now beat out UA for the best FFP a couple years in a row now. AA was also projected to lose ~$1B last year, but instead made that much money (proving all the analysts greatly wrong), despite having a FAR worse "hand" than UA. Don't think part of that is due to their now-superior FFP? They don't have the best hard product, by a long shot, on premium routes. They're light to Asia.

BearX220

Those that aren't part of a miles-earning alliance, like Emirates, are at a big disadvantage against those that are.

Sounds like hub myopia, I'm afraid. Outside fortress hubs the majority of domestic markets are one-stop, change-of-plane trips served by multiple carriers. I have about five ways to get from Seattle to Pittsburgh, for example. In this context loyalty can drive extra revenue -- the whole point of FF programs is to incent additional spend on a favored carrier rather than just choosing the lowest-priced option. When it works it works like crazy. How much worse off would UA be from a RASM standpoint if MP, despite all the whacks it's taken, weren't still perceived as adding value? OTOH, combine UA's bad operational profile with a feeble DL-class mileage program and I think their situation would worsen further. If the perceived value of miles/status fall below a certain point, might as well book Frontier, where at least they're friendly.

I agree completely.