beachmouse

Flying Blue seems to have been making the flash sale concept work for a while now

GUWonder

zombietooth

I recently experienced some outstanding UA customer service when they re-booked me on Delta for an IRROPS situation to get me home on time (I believe that my status determined my excellent recovery because everyone else in line got rebooked on UA flights the next day), and you are right-Delta has a better product than UA. I couldn't take my business over to them because their route network wouldn't work as well for me, but I sure was impressed.

jsloan

Frequent flyer programs have thrived because they offer a product that has a different value to the consumer than it does to the airline. In an era of 60% load factors, the marginal cost of a redemption was very small -- especially when you could get someone to redeem for an aspirational award. For example, I used miles to fly LH F, which isn't something I'd ever actually pay for -- so LH didn't lose any revenue; they just had to cater an extra meal.

However, in today's eras of 85%+ load factors and monetized front cabins, there's a real cost to redemptions: every seat redeemed is a seat that the airlines can't sell, and it may well be the last seat available on the plane when all is said and done. That's what's leading to these spending-based reward systems -- and, I agree, it may be a death knell for the concept of frequent flyer programs in general.

If I can't plausibly earn enough miles to redeem an award, why should I care about earning any at all? And if I have to spend $100K to earn an award that would cost me $1K in cash, why shouldn't I just use a cash-back card, or the CSR at 1.5 cents per point?

If UA wants MileagePlus to remain relevant, they need to walk back some of the changes that they've made. The fact that they're complaining about Chase is a good sign, as far as I'm concerned. Perhaps they'll eventually realize that the status quo isn't going to get the job done indefinitely.

findark

This is an interesting point. It's long been my opinion (disputed by others here though) that the relative value of status and redemption benefits on airlines (especially US airlines) are extremely lucrative compared to other industries with loyalty programs. I can't imagine getting what is easily a 30+ percent rebate on $12,000 of spend pretty much anywhere else (at least not where I'm buying a relatively low-margin product -- "30% off" department stores not included). Lower load factors were a great reason why airlines could afford it though, which makes it interesting what the future holds.

Cledaybuck

Anecdotally, I will say yes, that AmEx acceptance has increased in the US in the last 5 years.

GUWonder

jsloan

Not really. If you value GPUs at $400 each, RPUs at $150 each, and miles at $0.01 each, a 1K flyer is getting a minimum of $4,320 in value. You can quibble about the specific amounts, but it's not an unreasonable valuation for passengers who are able to use the certificates.

J.Edward

It's related to the cost breakdown of air travel: high fixed costs vs. low variable cost.

The plane will fly from A > B regardless of how many seats are filled and you'll have the same fixed cost for the crew, the FAs, the fuel, the landing fees, the airport fees, etc., meaning the only variable costs are those relating directly to what a passenger would consume (can or two of coke, maybe a biscoff, whatever the FFPs are worth, etc.).

If the fixed cost to fly one Y seat from A > B is $100 (the airline is paying this regardless or not if the seat is occupied) and the variable costs is $10 (this is the extra the airline has to pay only when the seat is occupied) than as long as the airline scores at >$10 in revenue, they're coming out ahead. Sure, selling the seat for $11 does not make them profit but it reduces there losses by $1, and once the door to the plane closes with the seat empty, the seat spoils. Why? Because the airline has exceeded the $10 of variable costs to service the passanger.

So taking this all back to United and Chase's relationship - UA going to a revenue earning (miles_earned / $ vs miles_earned / distance) and revenue burning (miles_redeemed / $_fare vs miles_redeemed / distance) allowed the average customer to see the true value of a mile in terms of revenue vs the more opaque distance model. Once the average customer understood miles-in-terms-of-$'s vs. the more enchanting miles-in-terms-of-distance, the behavior shifted to favor the more lucrative bank programs with their no-nonsense $0.0150 travel value floor (or the flexibility to transfer to whatever partner on demand). Even worse for UA, this is not a unique-to-FT issue. This is something the average customer can (and did!) pick up on.

tl;dr - UA changed M+ from a travel reward program into a spending reward program but is struggling to balance 1. the cash-generating-cc-spend-value proposition against the 2. "free"-liability-generating-mileage-for-buying-tickets. The former aspect of M+ is not compelling enough to compete with pure spending programs (UR / MR) but UA's constrained in how generous it can be by the latter and all the while the banks continue to improve their offerings as they compete with other banks.

findark

My thought process was running pre-devaluation, but using the old conservative mile valuation of $0.015, my 1K qualification last year was at a minimum

12k PQD x 11 = 132k RDM ~= $2,000 of flight credit
GPU x 6: The value of a GPU is quite debatable; I have used mine mostly to Australia in the past couple years, making a $5,000 J ticket into a $2,000 Economy ticket, but of course YMMV. $500 seems to be a common float for a GPU, so call it $3,000 of GPU.
RPU x 4: RPU are tough to value as well, but call it $200 each as it's not too hard to find a route somewhere with a fare differential of $200 that clears an RPU.
CPU x ??: I actually don't use my RPUs because I clear CPUs whenever I would consider it, but the non-GPU upgrades I have received as a 1K collectively have saved me something like $1,000 out of pocket.

That's not to include savings on award fees, SDC fees, bag fees, etc. Even if you want to tally that up with a skeptical eye it's pretty clearly higher than 30% of my 12k that I'm getting in free stuff from United.


Sure, most customers aren't doing that well, but many top-tier elites are.

GUWonder

jsloan

Agreed; MileagePlus is designed to give better benefits to higher-tier Premier members. I wouldn't have thought that was surprising.

You can get a much better deal from nearly any company if you're doing $12K in business with them annually than if you're doing $1200.

GUWonder

katan

Remember there is a cap per reservation. 75k miles. So after $6818 PQD it doesn't much matter except for qualifying for GS. Unless of course you are buying one ways you might be able to get 75k x2, but I believe there are fare structuring issues with going that way.

findark

I achieved 1K over the course of more than one ticket though

My original point, though, is that airline loyalty programs are extremely generous on a rebate basis compared to the loyalty programs in other industries (rental cars, hotels, grocery stores, take your pick). Part of that is because I will regularly buy F out of pocket so I value upgrades at full price, whereas I would never pay x thousand for some top-floor suite (although I hear you don't usually get those anyway). But part of it also is that the FFPs historically have been very generous due to financial conditions that are much less true now than they were 25 years ago.