Kacee

In about 10 minutes of research, I found that DL in 2009 assessed "fair value" of its miles at .54 cents each. DAL Revenue Recognition

And that UA's "breakage" rate - the estimate of percentage of miles that will go unredeemed - is 24%. Accounting for Airline FFP.

This last piece is particularly interesting and talks about how airlines can manipulate financial results using their FFP.

I suspect an hour or two reading 10K's and related materials would yield quite a bit more info.

We now know UA's definition of a HVF - someone who averages over 18 cpm.

sogboulder

What letter?

pinniped

OK, so I get the very near-term thinking on the part of the airlines... Cut capacity, reduce dependency on loyalty programs, and basically get out of the business of carrying leisure/discretionary passengers. Business travel has been strong enough that they've been successful at removing most if not all leisure-type fares from many markets, and now they'll hoping to follow through with a gradual exit from such huge dependency on FFP's. (Hotels, for what it's worth, seem to be doing the same thing.)

My two questions are this:

- What happens where there genuinely is a paradigm shift of some sorts that causes business travel to drop rapidly? Who knows what it will be...maybe someday videoconferencing won't suck like it typically does now. Maybe some kind of disruptive charter business model will emerge. Maybe something else entirely. Maybe it's as simple as some sort of new financial crisis that we can't envision right now. In any case, it seems like there is some risk in putting your eggs *entirely* in the business-travel basket. "High-value passengers" are great, but does it have to be at the expense of the "regular-value passengers"? I'm thinking of the people who might have bought your standard S or T fare to Orlando 5-6 years ago who are now *completely* excluded from the market, not the hardcore mileage-running Flyertalker looking to maximize RDM.

- As the airlines back away from FFP's, don't they run the risk that the Citibanks and Chases of the world won't want to pay as much for the miles? If credit card customers stop valuing miles the way they do today, they'll expect more to respond to a new CC offer. But since they aren't really *worth* more to Chase, then isn't Chase going to say "Hey United, you devalued the whole program, so next time we renegotiate, we're going to want to pay a lot less." Since selling miles to credit cards is a huge profit center for airlines, isn't there a risk here that they kill the golden goose at the same time they're pushing more and more travelers out of the system? In the credit card game, the highest-value cardmembers might *not* be the same set as the highest-value fliers, as many of those people are using corporate cards for their travel expenses.

Anyway, I'm finding it interesting to see hotels and airlines collectively try to reel in this monster they created 30+ years ago.

bldr1k

The hotel and airline loyalty program benefits will continue to be reduced until they are basically nothing. I'm top tier are 3 hotel chains and if I'm lucky I'll get on a higher floor and they will have a lounge for breakfast. I suspect the next move will be to eliminate CPUs for everyone except GS and 1Ks will be hoping to get upgraded to economy plus (while everyone else will have to pay).

bldr1k

If United's CASM is around 12 cpm, hoping people 18 cpm is actually not unreasonable. That's a 50% gross profit margin which is typical of a many businesses.

Kacee

Not "unreasonable" in the abstract. Heck, in the abstract, it would be reasonable for UA to target pax generating 50 cpm. The problem is their current product doesn't support anything close to that pricing. It's like JC Penney pretending it's Bloomingdales. Anyone recall how that one worked out for Mr. Johnson? Hint: JC Penney Erases Almost All Traces of Ron Johnson

Tchiowa

$7,500 is not all that much. My tickets are about $6,400 each and I buy 6 or 8 per year (me and my wife). That's not enough money to get me into GS. There are a whole lot of people who spend a whole lot more than me.

And this is the big issue, IMO. The airlines didn't realize just what they were getting in to when they started this. I read somewhere that if they took the full value of all outstanding miles as a liability on their books, most airlines would be bankrupt.

Of course that's why they make using miles so difficult. There was a court ruling a number of years ago in California that if the airlines made their miles too difficult to use they effectively were making them worth nothing and awarded damages to some passengers. At which point they all made changes in the Ts & Cs to get around that.

That's odd. I'm Lifetime Platinum with Marriott and I get upgrades rooms, often a suite, virtually every time I stay with them.

LilAbner

Does anyone have any idea what vandrei is talking about?

This is all the info that I can find, and I never got any e-mail about E+ changing for 1K's or Plat's!

"Advance complimentary access to Economy Plus is available to Premier® Platinum members and higher (for themselves and up to eight companions), and Premier Gold members (for themselves and one companion). Premier Silver members and one companion continue to enjoy complimentary access to Economy Plus seating, when available, upon check-in."

Don't worry about it, they don't fly to BKK any more!

ibuyyoufly

But...airlines are a commodity business. Low profit margins, having many competitors in the same industry AND customers unwilling to pay for your services when they don't measure up to the competition are a couple telltales.

That's what Smi/J meant when he said they were going to run the new UA like a business. He is single-handedly trying to model UA outside the realm of what it really is and the industry it resides in. The only way for this model to survive in this industry is if it is a low-cost producer and is known among consumers as that. That's why Smi/J made the statement he did at the Shareholders meeting, that it's too early to tell how bad/well we are really doing.

It's obvious what his plan is for this company and all the customer complaining about the cuts while he is still in office won't deter him from taking this company where he wants it to go. Until he gets removed from his chair and is replaced by someone who has a different vision, fasten your seat belts. There are many many more cuts to come.

It's very sad "the smartest man in the room-just ask him" has chosen these two companies to test his far-fetched high-risk, high-reward business principle and being allowed to do it by the BOD. At least the BOD at JC Penney had the intestinal fortitude to remove Ron Johnson, even though they had to bring back the previous CEO. The net is, at least that BOD did something.

He's referring to this. This will undoubtedly be the next "change you will like".


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acesflyerSFO

Everyone should by just 1 share of ual stock and arrive into the next shareholder meeting in Chicago with an AA boarding pass and take the mic one at a time...asking Smi/J to step down!!

What do you think? + 1 if you like this idea

LilAbner

Oh, now I remember, the e-mail came the same time that a I was notified that beginning on March 1st, 2015 my promised "Lifetime" UC, and "Lifetime" Platinum may be rescinded in order to make changes that I will like!

They knew how happy I was to get screwed out of the "Lifetime" Silver Wings B.S. program that I paid over $400.00 to enjoy for about two years before they silently ended it.

These people are truly lower that a whale's shart!

BearX220

Days Inn.

There will be some FTers who come around to tell you what small potatoes you are compared to them, because corporate flyers who spend $7,500 a month are out there. There's more of you, though (and my UA profile was just like yours until the bottom fell out in 2012), and in aggregate your type counts for a lot. In truth you are exactly the kind of mid-range customer that airlines compete for: influenced by loyalty marketing, bringing the airline consistent revenue and moderate profit, that a smart airline doesn't want to replace with a Kayaker (or several Kayakers), and that United just punched in the teeth.

CAL PHL FLYER

I think its fair to reward spending..Just buying tickets to sit in a seat and spend very little money is not what I would want to reward if.. I were running an airline..Reward those who spend money with you..Makes sense..

LaserSailor

I read it in a WSJ ad I think, something about being Jeffed up...

IainC

Yes, I feel that there would be few on this board who would disagree with this philosophy and it is the way that all FF programs seem to be heading. However, not all of us are able to cough up on F,C, or even Y and B fares but we do the miles, 75K, 100K or more and give our loyality whether paying from our own wallets or OPM and it seems to me that UA had a real opportunity here to introduce an innovative and competitive value-based miles earning program that also recognised not only spend but also miles and loyalty. However, so predictably now, Smisek and his CO cronies hatred of the "over-entitled" were not capable to come up with an innovative and competitive alternative to DL's sledgehammer.