Who are UA's "best customers?"

Old Jan 29, 20, 11:38 pm
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Who are UA's "best customers?"

Originally Posted by dilanesp View Post
A couple of observations:
2. It should be obvious that paying J passengers are higher on the totem pole than Golds flying Y. As I said, this IS a devaluation, but I don't object in principle to the idea that business class passengers get into lounges not available to Golds. This already happens at Polaris lounges.
I agree with this except for upper-tier UA's. For someone low tier elite like me, I agree, the J passenger is more valuable than me. But when you reach 1K and GS, I feel the 1K and GS who spend over $20K with the airline and $50K for GS (rough ballpark figure) are more valuable than someone who might be paying a one time $2-3K for J with UA. This kinda axes those people if in economy. Understandably more people at that tier are probably flying more F and J than lower tier elites, but for those that are flying economy, it kinda sucks for them.
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Last edited by WineCountryUA; Jan 30, 20 at 5:28 pm Reason: created a new thread on this sub-topic
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Old Jan 30, 20, 12:05 am
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What's really disgusting about all these benefit cuts is they're being made at a time of record profits.

Vote with your wallet.
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Last edited by WineCountryUA; Jan 30, 20 at 5:37 pm Reason: spit post
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Old Jan 30, 20, 1:38 am
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Originally Posted by Kacee View Post
What's really disgusting about all these benefit cuts is they're being made at a time of record profits.
That's what got me too.
​​​​​​I am so pleased that I recently got an AMEX Platinum card: have already made good use of its benefits (PP and Centurion lounges).

All this means is, that there's just one more reason not to fly UA.....and those reasons are mounting!
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Old Jan 30, 20, 2:45 am
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Originally Posted by Kacee View Post
What's really disgusting about all these benefit cuts is they're being made at a time of record profits.
There are some in the airline industry who argue that cuts to amenities are best made in good times when demand is strong and little pushback to service level deterioration. Unfortunately....

Last edited by WineCountryUA; Jan 30, 20 at 5:29 pm Reason: cleanup from move
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Old Jan 30, 20, 2:58 am
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Originally Posted by Kacee View Post
What's really disgusting about all these benefit cuts is they're being made at a time of record profits.
Totally agree with ya. Seems like a major *G devaluation. If this trend going in the direction that I think it's going, I'm not even sure what's the point of *G.

Last edited by WineCountryUA; Jan 30, 20 at 5:35 pm Reason: cleanup after move
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Old Jan 30, 20, 3:01 am
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Originally Posted by narvik View Post
That's what got me too.
​​​​​​I am so pleased that I recently got an AMEX Platinum card: have already made good use of its benefits (PP and Centurion lounges).

All this means is, that there's just one more reason not to fly UA.....and those reasons are mounting!
​​​​​​People need to actually do it rather than just voice their frustrations online. I'm not accusing you of only talk.

Last edited by WineCountryUA; Jan 30, 20 at 5:34 pm Reason: OMNI content removed
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Old Jan 30, 20, 7:54 am
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Originally Posted by uanj View Post
There are some in the airline industry who argue that cuts to amenities are best made in good times when demand is strong and little pushback to service level deterioration. Unfortunately . . . .
Agree, purely as a matter of microeconomic theory, since demand is less elastic.

But IMO "shaft your best customers when you can" is not a smart long term strategy for running a successful business. Unfortunate indeed.
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Old Jan 30, 20, 9:13 am
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Originally Posted by Kacee View Post
Agree, purely as a matter of microeconomic theory, since demand is less elastic.

But IMO "shaft your best customers when you can" is not a smart long term strategy for running a successful business. Unfortunate indeed.
UA's assessment of customer value is skewed heavily toward individual transactions. Their "best customer" today may merely be their "Y customer" flying out of BOM tomorrow. UA doesn't want to spend one more dime in benefits than absolutely necessary to the latter -- because that dime will show up on the spreadsheet.
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Old Jan 30, 20, 10:47 am
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Originally Posted by Kacee View Post
Agree, purely as a matter of microeconomic theory, since demand is less elastic.

But IMO "shaft your best customers when you can" is not a smart long term strategy for running a successful business. Unfortunate indeed.
I think a mistake is made around here, a lot, as to who an airline's "best customers" are.

Yes, a *G, under the new formula, spends $10,000 a year on United and partners' airline tickets. That's not bad.

But if that *G spends that money in economy class, what is the profit margin on those tickets? Bear in mind, some of the cheapest airline tickets are probably sold at a loss once overhead is factored in (because it is better to get some revenue than to fly an empty seat). That's actually one reason why Basic Economy tickets don't earn full frequent flyer benefits.

But even if we factor out Basic Economy and loss leader tickets, many, many economy class tickets are transporting you at just above cost. Maybe not if you live in a market with little competition, but definitely if you live in markets with lots of competition to keep fares low. Which means, even though you may spend $10,000 and say "I'm a great customer", United might have made $500 on you for the entire year.

Whereas, a paid international longhaul business class passenger is the best customer an airline can have. That person pays $4,500 roundtrip for her ticket. While obviously, her seat takes up more space and she receives some amenities for that money, the profit margin on the ticket is still huge. United may be making $3,000 of profit on that ticket, or more. Which means that if you have a customer who buys two of them in a year, spending $9,000, that customer is worth a ton more to United than our *G customer who spends $10,000 in economy class. That occasional paid longhaul J customer is a much better customer.

Now I realize there are other factors here- you want to reward loyalty, that *G customer may eventually buy a business class ticket, or may stay with the airline for 20 years, or whatever. That's all true. But you have to be a super-good, super-loyal *G customer to be as valuable to the airline as one customer who buys 2 roundtrip tickets a year in Polaris.

And that's the lens to view these sorts of devaluations through. (And again, this devaluation specifically hurts me. It's not as though I like it. But I understand the economics.)
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Old Jan 30, 20, 10:56 am
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Originally Posted by dilanesp View Post
I think a mistake is made around here, a lot, as to who an airline's "best customers" are.
Your analysis is as overly simplistic as the one you're rebutting, though.

The fact of the matter is that an airline needs both types of passengers: paid business class passengers are highly profitable, but there aren't enough of them to sustain the flight. Economy passengers are not profitable individually, but collectively they can make an unprofitable flight profitable.

IMO, the best way to look at the recent changes is that UA believes that there is a readily-available stream of passengers who will fill the economy seats, so that if one customer leaves, he'll be replaced by another. I have no idea if it's true, but I believe it's the best interpretation of their changes.
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Old Jan 30, 20, 11:02 am
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Originally Posted by dilanesp View Post
I think a mistake is made around here, a lot, as to who an airline's "best customers" are.
Not really. The "very best" are corporate customers and GS.

Gold through 1K would then fall into the tier below, who I would refer to as "best" customers. These are repeat customers, flying at a volume much higher than the vast majority of UA's customers, many of them with a decades-long history of choosing UA for their air travel.

btw, this change doesn't affect me, as I don't fly Y long-haul. I'm just troubled by the endless penny-pinching and the accelerating slashing of benefits during a period of record profits. I've been a loyal UA flyer since the early 90s. This is not a company I wish to do business with anymore.
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Old Jan 30, 20, 11:04 am
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Originally Posted by jsloan View Post
Economy passengers are not profitable individually, but collectively they can make an unprofitable flight profitable.
Ok, after reading this 3 times I think I know what you mean, but you might want to phrase it differently.

Really, it depends what portion of the flight costs you assign to the economy passenger vs the business class passenger. I'd argue that they are profitable individually (but not if you calculate it by just dividing costs by seats)
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Old Jan 30, 20, 11:06 am
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Originally Posted by jsloan View Post
Your analysis is as overly simplistic as the one you're rebutting, though.

The fact of the matter is that an airline needs both types of passengers: paid business class passengers are highly profitable, but there aren't enough of them to sustain the flight. Economy passengers are not profitable individually, but collectively they can make an unprofitable flight profitable.

IMO, the best way to look at the recent changes is that UA believes that there is a readily-available stream of passengers who will fill the economy seats, so that if one customer leaves, he'll be replaced by another. I have no idea if it's true, but I believe it's the best interpretation of their changes.
I think it is true. A critical mass of economy class travelers just choose the cheapest seat, which is why Spirit is making gobs of money. So it's rational to calculate that you can almost always fill up Y if you price it cheap enough, and if you get a bunch of paid J, you make bank.
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Old Jan 30, 20, 11:12 am
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Originally Posted by VegasGambler View Post
Ok, after reading this 3 times I think I know what you mean, but you might want to phrase it differently.

Really, it depends what portion of the flight costs you assign to the economy passenger vs the business class passenger. I'd argue that they are profitable individually (but not if you calculate it by just dividing costs by seats)
I meant what I said.

The issue is that the fixed costs of operating a flight are much greater than the marginal costs of taking on one additional passenger. You have to calculate per-passenger costs by dividing the fixed costs by the number of seats / passengers. How else could you do it?

So, if you look purely at the fare paid vs the costs amortized amongst the passengers, most (not all) economy passengers are individually unprofitable. However, in aggregate, they're profitable, because each is marginally profitable (compared to the cost of flying the seat empty).
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Old Jan 30, 20, 11:22 am
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Originally Posted by dilanesp View Post
Whereas, a paid international longhaul business class passenger is the best customer an airline can have. That person pays $4,500 roundtrip for her ticket. While obviously, her seat takes up more space and she receives some amenities for that money, the profit margin on the ticket is still huge. United may be making $3,000 of profit on that ticket, or more. Which means that if you have a customer who buys two of them in a year, spending $9,000, that customer is worth a ton more to United than our *G customer who spends $10,000 in economy class. That occasional paid longhaul J customer is a much better customer.
I don't think those J numbers are realistic - numbers in the 777 IAD-SFO thread suggest costs of around $800 for 1-way domestic J. Scale that up, and profit on that 4.5k long-haul is way less than 3k (especially given the higher costs for food, lounges, more staffing, dealing with intl regulations, etc).

Still, there's likely to be a higher profit margin than Y, but nowhere near what you suggest.
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