lsquare

Doesn't seem like it's imminent.

Be careful with what you wish for. There are always unintended consequences. While I believe this current economic expansion can't last forever, I'm wary about the ripple effects and how it'll affect me. Life is good right now. I'm comfortable with the known. It's the unknown that should worry a lot of people.

AceReport

In a backwards way I'm starting to be thankful to UA for the changes. as a soon to be former 1K OPM international J flyer It's really freed me up to try out some products that I wouldn't have formerly gone towards in the status race. I just took the new NH 'room' and it was fantastic, would highly recommend over any other international J I've tried thus far. Would never have been on that plane if UA hadn't changed the game. next up Q-suites! Thanks UA!

ExplorerWannabe

In many cases, the cash J fare is many times that of Y. I've see 5x often when I've been checking speculative fares but rarely 10x. However, the only times I've bought cash J for personal travel, the J fare has been 2x Y or less. The only time I made 1K, it was due to a last minute ticket that my company booked in J -- but the only reason they put me in J was that I had to travel immediately and the Y fare on the same flight was $1000 more than J. Had I been able to book the fare a few days earlier (for the same day of travel), the both fares would have been lower and I would have ended up traveling in Y. Last minute fares really do make a difference.

spin88

This is wrong on some many levels. First, a J seat takes up the space of 3+ Y seats. A PE seat takes up the space of 1 1/2 Y seats. A Y passenger paying $1000 on a given route is more valuable than a J passenger paying $2500. This changes a little bit on ULH flights (e.g. SIN-NYC, SIN-SFO) where the extra weight of three Y passengers + bags vs on J (with a heavier seat) impacts who is most profitable. Plus the soft product costs more, and perhaps more expensively, the J passenger gets more FA time...

Yes, there are some routes where J prints money. But the usual situation is that each cabin is sold at a variety of fares, profit comes from each cabin. I may pay far more for my last minute Y or PE fare than the guys sitting on discount J at the front of the plane. On some routes Y is far more profitable both overall and as to margin.

The most valuable passengers who are those who buy last minute tickets and are relatively price insensitive. E.g. pre "changes you will like" I would often pay UA $5000+ for a E+ seat last minute (SFO-HKG/ICN/LHR/PVG, etc) sometimes I was upgraded, sometimes I was not. But I would also routinely pay $1000+ to fly SFO-ORD RT, sitting in E+, sometimes F on upgrades. I was GS because I was paying 40-50 c/mi for my travel when it was all averaged out.

This is the passenger that UA thinks it can attract: but someone flying only 50K miles per year, on these last minute fares. (which would be $20-25K in spending). Theoretically, these folks benefit under the new system. However, the reality is that there are not a lot of these folks, let alone a lot of them who would leave Delta (a better airline) or AS (better where they have network) for UA.

The more usual pattern is someone who flies on a wide range of fares. E.g. I go SFO-SEA a lot. Sometimes I book a few weeks out, pay around $130one way. Usually it is a few days out, $300ish each way. One is 20 c/mi, the other 44 c/mi. And the other day I paid $430 one way (63 c/mi). But note, all of these are profitable fares. All are well over the airlines PRASM (what they get for their seats on average). I am not buying the $79 or $59 one way fares...

By definition, no seats that an airline sells are designed to not be profitable. The airline will decide how many "last minute" fares they can sell (say 10%) and hold those seats back, then figure that they will sell 20% in the week before the flight, so hold those back, then figure they will sell another 30% in the two weeks before that. So they will release 40% at discount prices, then raise them, to the 30% mark, and if they don't fill those seats either hold that price longer or raise the prices to try to get higher prices for the last minute travelers. This is an art and when it works, a science.

But the key thing is that the airline is ONLY releasing cheaper seats because it knows from history, projected forward, what it will sell NOT sell that seat last minute at higher prices.

There is no magic substitution of higher value (higher PRASM/spending) if one gets rid of lower value fliers. It is NOT like the airline needs to thin the heard to clear off space for the big spenders. The only way is to do the kind of things that will attract high value traffic.

As one of the desirable fliers, I can tell you that what has caused me to bail for a new airline has been (a) a benefit package that was much better on another airline, (b) the benefits I was getting from the airline being reduced in ways that impacted me, (c) horrible IRROPS/OT performance, (d) sucky product and service.

More high value fliers are not going to magically appear because United increases what it takes for elite status. My guess is that what happens is that those who are valuable fliers (say paying 20-30 c/mi) not flying a lot of segments will have some incentive to give up on UA before their status falls.

vaguba

United has a captive audience due to their giant route network to China. I would love to switch to American or Delta, but none of them offer direct flights from Chicago to Beijing anymore (American did until 2017).

Kacee

Where's the "raises hand" emoticon?

gene2632

I did it. Retired now and travel is mostly for vacations. Before UA announced the new Premier qualifying for 2021 I had booked a LAS to DUB RT in PE, about $3k total for 2 of us. I also booked LAS to YVR and ANC to LAS with miles because they were just piling up and there are 6 of us on that trip Once the changes were announced I needed to book LAS to FCO and VCE back to LAS for our fall trip UA could only offer me E+ or very expensive J seats. I am not flying all of those miles in E+ and I am not paying for expensive J and trying to do a MUA is a joke soooo, AA has some nice PE seats on those routes. All nicely booked and put away for the fall. So after 32 years I won't have any status with UA and they won't have as much of my money. Sounds like a fair deal to me.

lhrsfo

Interesting calculations. Let's now look at the reality facing UA and choose IAD or EWR to LHR. (EWR is slightly shorter). The reality on both those routes is that UA is selling a good portion of J at around $4000 and a good portion of Y at around $600, meaning that it's making money on J and losing money on Y on your numbers for IAD. But chances are that there Y will be going out with spare seats, sometimes with many spare seats. The marginal cost of a spare Y seat is minimal (just extra fuel for extra weight, and one more meal), so selling the extra marginal tickets at $500 is hugely attractive to UA.

Now let's look at EWR-LHR instead. Assume costs are the same for EWR (shorter route but using a 767 so perhaps higher CASM), it will be selling Y for perhaps a bit less (more competition) but J for perhaps a bit more (more demand). UA flies its high J 767s on this route because it knows that it can't sell enough Y but it can sell large numbers of J. It doesn't have as many Y seats to fill so it feels less need to sell Y at $500.

But the reality is that most routes don't have nearly as much J demand and most UA planes are inflexibly Y heavy. So the valuable customer to UA on the IAD route could well be the Y customer who flies often and precisely when the plane is empty. Whereas, if UA can fill that J cabin reliably, then the marginal J customer may not be nearly as valuable.

So we come down to the basics - UA sells cheap fares for a reason which is because it wants and needs that revenue. The customer providing a significant amount of that sort of revenue is valuable to UA, and much more so than a customer who buys a single J seat in a year, which J could have been sold twice over.

Cledaybuck

Are they though? I have a feeling a large portion of international J is sold to companies with contracts with UA that get it for a much lower price than what you see when you search United.com

JimInOhio

UA is smart enough to assign higher fixed costs to F seats than Y seats. In fact, I can imagine the difference is substantial.

wxguy

MIT offers a course on Airline Revenue Management.

Here's the course material from MIT Open CourseWare. It's about ten years old, but still relevant. Enjoy. Discuss.

jsloan

I agree entirely.

LHR has its own economics. Some of the IAD flights are only on the winter schedule to preserve the slots for the summer schedule. Looking at today's IAD-LHR seat maps, I suspect they're losing money on each of those flights today, but they're planning to make it back up in July when the planes will be full (at substantial higher fares).

UA is convinced that there is a steady stream of Y passengers available. I don't know whether they're right or wrong, but their actions clearly indicate that's what they believe. I don't think either of your customers is more important than the other, because UA can't make money without both of them.

I suspect most contracts are like my company's -- there's not a big discount on P fares, but there's a fairly substantial discount on C/J fares. On routes with good P availability, then, we're not doing much better than the man on the street, but if you're looking at a route where UA seems to be selling everything for full fare, my company (and, likely, most others) are able to purchase it at a substantial discount, but still more than the P fare would be if it were available.

I addressed that later. It doesn't change the reality; most Y passengers are individually unprofitable.

USA_flyer

Are there companies that buy a specific number of seats on a plane on specific routes whether they use them or not? IIRC, American Airlines had the RDU-LON route that was basically funded by a Pharma company buying a specific number of seats.

JimInOhio

I'm probably misunderstanding your point (in bold). Y passengers must be profitable otherwise Spirit wouldn't be ending up 2019 with an expected half billion dollars in operating profit. Spirit isn't doing anything United doesn't know about and can't do themselves.

jsloan

Spirit's business model is entirely different from UA's, and they're doing quite a few things that United can't do themselves, like pay their employees substantially less than UA does. Spirit's cost per available seat-mile is about half of UA's, meaning that they can actually profit on economy passengers -- but most of their profit is coming from ancillary charges. $55 -- each way -- for a carry-on paid at the airport, for example.