The Winners and Losers of United’s New Revenue Program

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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.

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