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The Winners and Losers of United’s New Revenue Program

by on June 13, 2014 · 36 comments

in Airline Industry, United

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This week United dropped the bombshell that their MileagePlus frequent flyer program would be moving to  a revenue-based earning model starting in 2015. Long story short, moving forward you’ll earn miles based not on how far you fly, but on how much you spend.

At a high level, those who spend a ton on their tickets and fly shorter distances may be poised to rake in more miles. However, for a fair comparison, you need to take into account the amount you earn currently (including any elite and fare class bonuses) and then divide that by the number of miles per dollar you’ll earn in the 2015 program to see how much you’d have to spend then in order to equal your present earnings.

Let’s take a look at four different routes- from short haul Boston to DC to very long haul Houston to Tokyo- and see how non-elite (General) through 1K members fare (no pun intended) in this year’s program and the one that was just announced. Note: this model is based on a discounted economy class ticket purchase that earns 100% of miles flown; for the short haul flight, this takes into account the 500-mile minimum that United offers premier members.

The break-even point is how much you’d need to spend in the 2015 program on the specified route to earn the same number of miles that you’d earn today.

Comparison of 2014 United mileage earnings vs. break even fare for 2015 revenue-based system. Mileage is for roundtrip fares. Dollar values are rounded.

As you can see, the break even point is much lower for short haul travelers, and non-elite members who fly routes that are under 500 miles per segment also stand to gain a lot, because they get a pittance in today’s program.

So, even though there may be a lot of rabble-rousing (I may be a little guilty of doing some myself), there are definitely going to be some winners in the 2015 program. This chart is just a simple exercise to help people understand who those winners will be.

The Final Shoe to Drop… Revenue Redemptions in the Future?
My biggest concern is that since United has added revenue components to elite status and mileage earning, they will try to do the same to mileage redemption, which will truly take the glory out of traditional frequent flyer programs. On one hand, they’ve already gutted redemption value with devaluations (like charging a ton more miles for partner airline flights), but if the model moves to a traditional revenue redemption format, it could get worse. For example, if they move to a model of 1 mile = 1 cent towards any flight, that 115,000 Saver Award in business class to Europe could jump to 500,000 miles if the actual cost of the ticket is $5,000.

I”m not a doomsdayer, but it seems like the airlines are trying to squeeze so much value out of their programs that there’s none left for flyers. I’d like to caution them that if they cut too deep, consumers will wise up and simply switch to cash back cards that offer more simplicity and less deception. Consumers have a breaking point, and I sense it’s close (if not already here) for the more savvy among them.

Disclaimer: The responses below are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.

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  • Ron

    Southwest already has a redemption system based on the actual cost of the ticket, so why would it be so bad if the other airlines did the same? At least its easy to understand, and makes the likelihood of devaluation less likely all the time.

  • Al

    Southwest is completely different than legacy carriers. You can’t compare.

  • Aaron

    I find this transition to revenue interesting, from Delta and now United. I’m no Economics expert; but with competition going away with mergers and fuel/food/labor prices rising, it seems like this will actually hurt the airlines within a few years. Ticket prices are not going to go down, it’d be interesting to see a graph showing the inflation of airline ticket prices over the last few years projected over the next few years to see if/how this will eventually hurt the airlines. I’m guessing they’ve done the math on that, and that is why the revenue based reservation side is inevitable.

  • Ed

    United will not be able to compete with Southwest if they offer exactly the same type of loyalty program and redemption system. Southwests service and ancillaries are superior to those of United. The only thing for now that is a positive for United is their valuable MileagePlan redemption options. If that is gutted, United will fall.

  • Shana

    Thank you, Brian, for posting some words of sense about these changes! I’ve gotten tired of reading all of the “rabble-rousing”, especially when short haul flyers like me never did all that complaining about the current system that is very unfair to us. Actually, I never complained because I always assumed that longer flights cost more money and therefore long haul flyers got more miles. Now that I know that is not true, I welcome these changes! I only wish Delta would make similar changes for elite status qualifications so that people like me who fly 50 roundtrips each year for 100 segments and easily meet the spending requirements can finally get Diamond status :)

  • jimmy

    Can you tell me any instance using award miles for a domestic flight that cost less than $500 makes sense, versus buying a ticket with 2% cash back credit card…(1 exception being a corporate travel person with miles to burn)

  • Kimberly Rotter

    The thing that definitely worries me the most is the last issue you raise, that an award ticket will be based on the full purchase price. I usually use my United points to fly first class on United Airways, coast to coast. Only 50,000 round trip. At today’s price of $1600+ for SAN to BOS, that would triple the cost of the ticket.

  • Juno

    As a Non-elite UA member, paying $1000 for Newark to LA and earning 5k miles is asking a lot. Family of 4 flying.. we try to find the best price.. So yes, we will be earning a lot less miles with the new system..but then again, it is what it is and we have to adjust to the new rules of play. I am not going to gripe about it. (UNLESS they change or increase the redemption side by a LOT) At least they did not change the MQM for elite status so that’s still good.. (so far) so I’ll wait for the other shoe to drop before I decide on changing allegiance.

  • G

    It would be “so bad” because you are further losing the entire point to frequent flyer programs. It would screw over every flyer out there. For example, I will not redeem miles for a flight unless I get good value out of it. Good value is around 2 cents per mile. If the carriers all decided to start making you redeem at 1 or 1.5 cents per mile, you the consumer are now spending 50% to 100% more for those tickets (at least). As TPG pointed out above, what is now 115,000 mile trip could turn into a 500,000 mile trip. In other words, that kind of change would change the amount of redemption miles from what used to be almost 4 trips into 1 trip. Or, for a more real world example, if you have a family of four that was planning on using all of those miles to go on a vacation on that route, too bad. Now one of you can get a free ticket and the rest must pay. Or, lets say you want to fly from DC to LAX. Flights are typically over 400 on that route. It would cost 25,000 to redeem if there was award available under the current system, but under the revenue system outlined by TPG, it would cost 40,000 for that same flight–almost double

    The other place it is really, really, really bad is on the last minute expensive flights or other expensive routes that individuals might use miles for. Let’s say your grandmother died and she lived across the US. Maybe a last minute ticket costs $1000 in coach but there is miles available for either 25,000 or 50,000 roundtrip redemption. Under the prospect TPG outlined above, that turns the mileage cost of that trip into 100,000 miles, instead of 25,000 or 50,000–2x to 4x the cost.

    Now, is it possible that it could cost less miles for certain routes? Absolutely. For instance, maybe you see a discounted price on a flight. So, maybe the domestic flight ends up only costing 15,000-20,000 miles roundtrip on the redemption example outlined above. You might think, “Great. I just saved 5-10K miles.” However, you are still only redeeming at 1 cent per dollar. There is a strong liklihood that you would not have redeemed points on that flight, and saved the miles for a more expensive flight later, meaning you need to take into account the opportunity-cost. The point is, changing to revenue based redemptions is the final nail in the coffin to screw travelers that airlines feel like they have complete control over.

  • sunglassesadvil

    Well, many cards earn miles at a greater rate than 1 point per $ spent, so you have to incorporate that into the equation too. Depending on your spending habits, for example, you might earn something like 1.5 points per dollar on the Sapphire Preferred (I think I probably earn even higher than this, since almost all of my spend on this card is travel and dining). Then if you transfer to United and spend 25k miles on a $450 ticket (1.8 cents per mile), you would be getting a total of 2.7 cents per dollar spent (1.5 point per $ x 1.8cpm). In this scenario, the breakeven point vs. a 2% cash back card would be a $333 domestic ticket. Then again, that ticket would earn miles of its own, so the breakeven is actually somewhat higher, but you get the point.

    There are also other ways to redeem for domestic tickets (Avios via UR points), and domestic tickets aren’t always 25k – sometimes they are 20k on UA and AA – so this can also impact the equation.

  • sunglassesadvil

    Well for one, Southwest doesn’t have premium cabins. Many people accumulate points to fly premium cabins they otherwise couldn’t afford, or wouldn’t want to pay. Not an issue with Southwest.

  • Worm

    Exactly. Southwest turns a profit and has much more customer loyalty. Funny how both customer and company can be happier at the same time, isn’t it?

  • G

    I was just using it as an example. I’m not saying that I would redeem at that price. But again, by using the example of $500+ on a redemption, you make my point.

    And obviously a distance based award makes sense (i.e. redeeming Avios on American Airlines on a short flight–for example, DCA to ORD is only 9000 Avios roundtrip on flights that are typically over $300, meaning your redemption value is over 3 cents per mile), but that is a different redemption structure and thus irrelevant to my analysis.

  • Alex Walkers

    Been in the mileage game for only 2 years and earned a total of 1 million miles, 97% of which was not acquired via flying. So I don’t really care how United is gonna change the rule of play.

  • Brian C. Lee

    I see very little danger of UA going to revenue based redemption. DL didn’t do it when they went revenue based, so I don’t see UA (or AA for that matter) going there. How would partner redemptions work? That’s an issue WN doesn’t have.

  • Tony

    So you telling me people are still flying UA and paying for the horrible service? Maybe JS isn’t stupid after all.

  • Marnie

    I have already switched to Hyatt and my husband to Chase Sapphire from our Explorer card. I have a trip to Europe in September which will give me enough miles to Hawaii later this year, then I’m done with United.

  • Daniel

    you might want to review/edit the grammar in this article.

  • Fred

    The break even being higher for someone with higher status that for a general member is a complete #fail in my book

  • bobbyb

    This just makes fixed value cards like Capital One and Barclays more of a better option. And where is Chase bank on this. They stand to loose alot of accounts since not one of there cards is a fixed value card and most are a points based system.

  • Josh

    Southwest doesn’t have premium classes, and they barely have international travel. Therefore the system wouldn’t work as well. Trying to redeem miles for value on thise tickets would never make sense, and the allure of being able to snag those often empty extra premium seats is a main motivator that makes these programs work in the firsr place. It not only gives customers something to aspire towards, but it generates value for the airline for an otherwise unused resource.

  • Hassan Alam

    I seems to be really geared towards rewarding the long-haul biz flyers. So if you are a 1K flying Houston-Tokyo on biz class, instead of getting ~20Kmiles you will get ~50K miles.

  • Rick

    I don’t believe I saw this mentioned in the article above or in the comments, but similar to UA’s EQD requirement for elite qualification, miles will be awarded relative to the base fare, etc. The announcement from United states: “The award miles you earn on most United and United Express® tickets will be based on your ticket price (that is, base fare plus carrier-imposed surcharges).” In many instances, especially on long haul flights to Europe – especially to and from London – the base fare is very low as most of the total price charged is due to taxes imposed by European countries and airports, amounts on which you will not receive any award miles.

  • Rusty Longwood

    Yes, but it looks like that doesn’t happen most of the time. And then, only slightly.

  • Rusty Longwood

    It makes sense for airlines because it provides a predictable and constant payout based on revenue. Under a distance-based model, airlines might have to pay 2-3 times more miles per dollar collected on some flights than others. Now that’s great for frequent fliers looking for a range of ways to get the most miles for a buck but bad for airlines.

  • Hassan Alam

    I have this suspicion VFF like me will start choosing Asian carriers over United. In the past we stuck to UA because of double mileage. Surly service, inedible food, and antiquated IFE were tolerated for the miles one could use. Now why should I use UA if there is no benefit. If I want to pay more, I can get premium economy on Eva, CX, ANA, JAL, and SQ all of which are far superior to UA.

  • shay peleg

    I earned about the same lol in 1 year

  • shay peleg

    Fly with the other international airlines if the similar price

  • shay peleg

    No business class though….

  • ADPage

    I’m most afraid that AA will follow suit…..

  • Edward

    I also fly that route, so I’m none to pleased with these changes. I don’t have status at all, so I’m gonna switch to AA. Screw UA.

  • gv

    how do you earned miles by not flying?

  • lazlodelarental

    United was always a ragbag carrier and, post Continental merger, a slighter more brain-damaged ragbag carrier.

  • johndoe123123

    Since you earn your points via credit card, you shouldn’t care as much. This mainly effects people earning by flying.

  • Juno

    I would disagree. I am looking at tickets to Hawaii for my family and lowest I can find was $1200. 3 tickets at that price with Barclays points would mean 360k points. But the same rt only needs 135k (45k each) United miles to fly in economy. Can’t beat that value.

    I would only use Barclays points for stuff I can’t pay for with frequent flier points/miles. Like hotel stays in a chain I don’t have points for or an upcoming 4 night cruise to the Bahamas.

  • tfd2

    i’d also like to know how you earned 1 million miles without flying.

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