I’m not the first to break the news about the most recent devaluation (of many) for United Airlines’ MileagePlus, nor am I the first to remark that United is simply copying Delta’s changes to its own Sky Miles program. My feelings are on par with Wandering Aramean’s, who believes it was simply a matter of time.
Amol previously wrote a good post on the changes to Delta’s loyalty program. But since I used to be a United customer before leaving them for American Airlines and Alaska Airlines, I’ve invested a little more in criticizing this change than simply providing a copy-and-paste treatment. And one benefit of being on vacation and delaying my response is it gave me more time to reflect before sitting down to write.
Consequences of a Revenue-Based Program
Earning award miles with MileagePlus will be based on the cost of your ticket, not the distance flown. This change takes effect on March 1, 2015 (so you can still earn some distance-based miles during the 2015 program year), and is very similar to the changes that Delta recently introduced to its Sky Miles program. In fact uses the same multipliers for each elite tier. Worth noting: United’s Premier 1K tier is a bit easier to earn than Delta’s Diamond Medallion tier, so you’ll be getting 11 miles per dollar that much sooner.
- General Member: 5 miles per dollar
- Premier Silver: 7 miles per dollar (40% bonus)
- Premier Gold: 8 miles per dollar (60% bonus)
- Premier Platinum: 9 miles per dollar (80% bonus)
- Premier 1K: 11 miles per dollar (120% bonus)
Depending on your perspective, these award rates might actually look attractive. The current program awards Premier Silver members only a 25% bonus, and Premier 1K members get a 100% bonus. Now those customers get bonuses of 40% or 120% over general members, so either general members are being penalized or elites are being better rewarded.
I’m inclined to say both are being punished.
A general member who flew a couple times a year might at least get, say, 12,500 miles (enough for a free one-way domestic award) after two round-trip transcons purchased for $250 each with plenty of advance notice. Now, that $500 in ticket purchases will earn only 2,500 miles. Infrequent customers — especially leisure customers who buy tickets in advance and are price-sensitive — are hugely penalized under the new rules.
An elite member is also penalized, but in two different ways. First, the marginal bonus between elite tiers has diminished. A Premier Gold member who earned 50% bonus miles currently earns 100% more bonus miles than a Premier Silver with a 25% bonus. Now that differential has dropped to 50% more. Premier 1K members currently earn 4X more in bonus miles than Premier Silver but will soon earn only 3X more.
The second way elite members have been penalized is that this is a subtle way to increase even further the amount customers spend to keep pace with historical benefits. When I started in this game I could wait for cheap fares for visiting family and taking vacation, throw in a few mileage runs, and get Premier 1K status for about $6,000 per year. I even got ridiculed by those who said I was spending too much. But now PQDs require roughly $12,000 in spend. (Although the official number is $10,000, this excludes mandatory government taxes and fees.)
Consider that as a Premier 1K, flying 100,000 miles to earn 100,000 EQMs meant I also earned 200,000 award miles with a 100% bonus. In order to earn those same 200,000 award miles I now need to spend over $18,000. The minimum cost of Premier 1K status — to get everything, including the elite benefits as well as the award miles earned – first doubled and will soon triple. And there’s no foreign address or MileagePlus credit card PQD waiver to save you this time.
What’s Not Changing
Earlier last year, United announced it was revising how members earn elite status. It now considers both Elite Qualifying Miles (the old way) as well as Elite Qualifying Dollars (the new addition). While EQMs suggest, in theory, that elite status is based on distance, the EQD component reminds United’s customers that their value to the company is only as great as their pocketbooks. This aspect of the program is not changing as a result of the recent announcement. All that was announced this week were changes to how redeemable award miles are earned, not the miles that count toward elite status.
In another announcement last year, United said it would begin charging many more miles for award flights on its partner carriers, such as Lufthansa, Thai, and Singapore. (In fact, United no longer lets you search for Singapore’s award space on its website, requiring that you call in or search elsewhere. It still charges the phone booking fee despite the inability to book online.) Again, the most recent announcement this week does not say anything about further changes to the redemption side of the equation. We might see those changes in the future, perhaps even a five-tier award chart like Delta plans, but for the time being we only know that new miles are going to be harder to earn for most customers. I would not be too worried about redeeming existing miles.
There will be no fare class multiplier. Currently more expensive fares earn an extra 25-150% more miles on top of the 100% award miles all fares earn based on the distance flown. Now that award miles are based on price, and because more expensive prices are baked into higher fare classes, there’s no need to add an additional multiplier.
There will be a maximum cap of 75,000 award miles per ticket. Ironically, this penalizes United’s most frequent customers. If you are a Premier 1K flying on full-fare business or first class tickets, anything above ~$6,800 will be a wasted opportunity given the 11X multiplier. This will also have the greatest effect on international Global First, for which tickets can easily cost over $10,000 round-trip. This was less of a problem for Delta, which doesn’t have an international first class cabin, but it could spell the beginning of the end for three-cabin service on United if these rules prevent it from rewarding those customers willing to pay more.
There will still be an opportunity to earn miles based on distance flown at the cost of elite status. Currently only tickets for flights operated by United or issued on United ticket stock (starting with 016…) are eligible to earn the Premier Qualifying Dollars now needed for elite status, although you can earn Premier Qualifying Miles without 016 ticket stock. Under the new system for award miles, flights on partner carriers not issued on 016 ticket stock – meaning they don’t earn PQDs – will earn award miles based on distance flown and fare class as under the current system.
As I said at the beginning, I’m not surprised to see these changes. United is playing catch up with Delta, either because it thinks Delta is truly leading a new model for airline loyalty programs or because its management is flailing and doesn’t know what else to do to please investors as they continue to lose money. (United couldn’t very well copy Alaska, which is even more rewarding to customers, or American, which recently escaped bankruptcy.)
Some have said that United is wrongly penalizing its customers when it should be penalizing the manufactured spenders who get their miles from banks and redeem them for free travel. I agree. But what’s done is done. Now that United has taken this approach, I recommend that you double down on manufactured spend for travel on United. If you have to buy tickets on United for work or other reasons, you might want to look at crediting those miles to another Star Alliance carrier.
United tried to throw in some goodies with this announcement by saying it will create ways to redeem miles for checked baggage fees, Economy Plus upgrades, and more. Another way to interpret this is that they have reduced the number of free checked bags and restricted access to Economy Plus for elite members in past announcements, made it harder to earn that elite status, and are now providing a way to get those lost benefits by redeeming your hard earned award miles — of which you’ll soon have even fewer. It almost looks good on paper until you consider it in historical context.
Impending Doom at American and Alaska?
I don’t have anything against revenue-based loyalty programs. They are one of the most conservative ways for a company to track and reward the value that customers bring to the business. They may not be the best way – for example, there’s nothing obviously wrong with allowing a customer to book a longer but cheaper routing on flights that otherwise would have had empty seats — but I will concede that it’s easier to hand out benefits when you have a consistent measure of the revenue delivered by those customers.
My preference, of course, is for those programs that still allow me to exploit their system by earning miles more cheaply than I redeem them. I can respect United’s decision from a business perspective even if I recommend against it from a customer’s perspective.
American Airlines (including US Airways) and Alaska Airlines are the two biggest U.S. carriers that still provide loyalty programs that award miles based on distance flown, plus a fare multiplier. American may go this route eventually but must wait at least a year if it hopes to avoid upsetting too many customers during the inevitably bumpy process of an airline merger. Alaska Airlines has a knack for doing things differently, but it has brought up the topic of a revenue-based program in some customer surveys.
At the moment I would say try not to worry too much about what might happen. If you continue to play the arbitrage game like me, do what you can while you can, and re-evaluate the situation when the time comes. I re-evaluated my loyalty to United when PQDs were announced and thought it was enough to shift my business to American and Alaska. (I actually fly Alaska more often despite having a lower goal of 40,000 miles this year vs. 100,000 for American.)
Some stayed behind at United, convinced that PQDs would thin the ranks and make upgrades easier. Have they? Everything I read on FlyerTalk suggests this is still up for debate. My point: You can’t predict how changes in a program are going to affect you in the long run two or three years down the road when the dust settles. You need to make your decision now as best you can. Fortunately both American and Alaska have very generous status matches, which I’ll rehash soon in future posts.