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Count Change Fees as MQDs/PQDs – the Weekly Wish

by on July 31, 2014 · 14 comments

in Airline Industry, American Express, Chase, Delta, Elite Status, TPG Contributors, United

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Today TPG Contributor Nick Ewen continues his series The Weekly Wish, looking at flaws, shortcomings, and room for improvement in the world of travel and loyalty programs. Today’s wish: count change fees towards elite qualification on United and Delta.

It sure seems like 2014 has been the year of the “$” in the frequent flyer world. Delta started the ball rolling last January by announcing Medallion Qualification Dollars (or MQDs) as a new requirement for elite status. Not to be outdone, in June, United added a similar requirement: Premier Qualifying Dollars (or PQDs). Both of these new thresholds went into effect this year, meaning that miles and/or segments are no longer the only way to earn (and/or retain) elite status on two of the largest carriers out there.

Determining what counts towards the MQD/PQD requirement isn’t always clear. What about bag fees? Economy Comfort/Plus purchases? Do fuel surcharges count? What about travel on partner airlines? Answers to these questions can be found here for Delta and here for United, but even with that information, I believe that there’s a glaring omission in the policies of both carriers. That brings us to today’s Weekly Wish: change fees should count towards revenue-based qualification thresholds on both United and Delta.

Delta.com displays MQDs for each flight; this New York to Atlanta round-trip would net you $316 MQDs.

Delta.com displays MQDs for each flight; this New York to Atlanta round-trip would net you 316 MQDs.

Before we get into that, here’s a quick rundown of these new thresholds:

Delta

Silver Medallion

Gold Medallion

Platinum Medallion

Diamond Medallion

MQDs

$2,500

$5,000

$7,500

$12,500

AND

MQMs

25,000

50,000

75,000

125,000

OR

MQSs

30

60

90

140

United

Premier Silver

Premier Gold

Premier Platinum

Premier 1K

PQDs

$2,500

$5,000

$7,500

$10,000

AND

PQMs

25,000

50,000

75,000

100,000

OR

PQSs

30

60

90

120

In other words, both airlines are essentially saying that your tickets need to cost at least 10 cents/mile (or $83.33/segment) in order to earn status that in prior years would have been awarded just by flying.

One one hand, I can see why these two carriers are implementing such policies. Airlines are a business, and their goal is to make money. The number crunchers in Atlanta and Chicago realized that their most profitable passengers might not be getting the most benefits when flying, so they attempted to change that. Remember too that both Delta and United are changing to revenue-based models of awarding miles next year; even though these announcements came long after the MQD/PQD announcements, they’re another big step in the direction of rewarding for dollars spent rather than miles (or segments) flown.

Delta and United are the industry leaders in collecting change and cancellation fees.

Delta and United are the industry leaders in collecting change and cancellation fees.

Here’s where I take issue with the MQD/PQD policies. If the goal really is to reward profitable behavior, then change/cancellation fees should absolutely count towards these new qualifications. I think we can all agree that change fees are not based on any kind of reality; if I book a non-refundable ticket and need to change my departure date more than 24 hours after ticketing, I can say with absolute certainty that it will not cost Delta $200 to make that change for me, even for last-minute changes. Instead, these fees represent a giant profit engine for airlines, totaling over $2.8 billion in 2013 alone!

Not surprisingly, Delta and United topped that list, each collecting over three-quarters of a billion dollars in change fees. Travelers who regularly change their plans are driving Delta and United to profitability, and I strongly believe that they should be rewarded accordingly. Let’s look at a couple of sample scenarios to put some numbers into play:

1)   Flyer A consistently books Delta flights at least a month in advance to secure the best prices. His/her flying pattern looks like this:

  • Roundtrip flights: 20
  • Average MQMs per trip: 4000
  • Average Fare Class: L
  • Average MQDs per flight: $350
  • Total MQMs: 80,000
  • Total MQDs: $7,000

Now let’s assume that you have the exact same stats, with one key difference: five of your trips are postponed and then rescheduled for another date. In other words, you need to change five of the 20 flights at a cost of $200 per change. You and Flyer A end the year with the exact same number of MQDs, even though you’ve given Delta $1000 of additional revenue through change/cancellation fees. In this case, those lost MQDs prevent you from attaining Platinum Medallion.

2)   Flyer B is a little bit different, usually waiting to book United flights until 2-3 weeks before departure. His/her flying stats look like this:

  • Round-trip flights: 20
  • Average PQMs per trip: 5000
  • Average Fare Class: Q
  • Average PQD per flight: $475
  • Total PQMs: 100,000
  • Total PQDs: $9,500

Now let’s say that you try to plan in advance, booking your same 20 trips over a month ahead of time. However, you again wind up needing to change five of those trips, costing you $200 each time. Your average fare class and PQDs per trip winds up being identical to Flyer B. Just like the first scenario, your extra $1000 doesn’t count, and in this case, you miss out on qualifying for 1k.

I’ll be the first to admit that these scenarios are far-fetched; what two travelers truly have the exact same flying behavior in a given year? However, I use these examples to illustrate that many travelers have to change their plans during any given year. Since these change fees are going directly to an airline’s bottom line (and since the MQD/PQD policies were implemented with the express purpose of rewarding profitable customer behavior), they should be factored into the status qualification equation.

Hopefully next time we see a banner like this it will be a change for the better.

If you’d like a real-world example, consider a trip I took from Florida to North Carolina last month. Two weeks before departure, I found out that three days of meetings were reduced to a single day. I immediately changed my flights, and I was rebooked into the exact same fare class at almost the exact same fare (my new one was $0.16 cheaper). I only earned $294 MQD’s despite charges totaling $568.27. Delta had two weeks to resell my vacated seat and took a $200 change fee. My MQDs, meanwhile, didn’t budge. In fact, I have paid $600 in change fees so far this year (and just today learned that I will likely have another $200 coming up). As of now, it looks like I won’t have any trouble requalifying for my desired level of status, but if counting these change fees will make a difference, you can bet that Delta will be hearing from me.

United credit cards

Spending $25,000 on a MileagePlus credit card would waive the PQD requirements for Silver, Gold, and Platinum members.

Keep in mind that there are ways to get out of the new MQD/PQD requirements: credit card spending. Delta Medallion members would need to spend $25,000 this year on a co-branded American Express card like the Gold Delta SkyMiles card. This applies to all levels of status. United, on the other hand, is a little stricter. Members can get out of the PQD requirement by spending $25,000 on MileagePlus cards (like the United Explorer or United Club cards), but this only applies up to Platinum Premier. There is no waiver available for 1k.

It’s important to realize that we are still in the very early phases of the revenue-based elite status qualification model. I wouldn’t be surprised to see some tweaking and/or fine-tuning of the thresholds and other aspects of Delta and United’s programs as this first year comes to a close. Counting change and cancellation fees would be a simple (and obvious!) first step.

What do you think? Should change/cancellation fees count towards MQD/PQD thresholds? If so, do you think we’ll see a change anytime soon? Please share your thoughts in the comments below!

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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  • pam

    Due to the business I’m in, I pay huge fees for baggage; usually 10 cases per fligh. Baggage fees are a huge expense for me and add up to many times what I pay for my seat. If Delta is taking $$ into consideration, then most of what I spend with them earns me nothing.

  • Annoyed

    I wish taxes and fees would count. I’ve spent $1344 on an international United flight on their steel and gotten $416 of PQD. As I am gold, that 13,320 mile roundtrip will soon only be worth 416*8 = 3,328.

    I’m going to switch to Aegean after I hit gold again this year on United.

  • Andrew

    I think your premise is wrong:

    “One one hand, I can see why these two carriers are implementing such policies. Airlines are a business, and their goal is to make money. The number crunchers in Atlanta and Chicago realized that their most profitable passengers might not be getting the most benefits when flying, so they attempted to change that….If the goal really is to reward profitable behavior, then change/cancellation fees should absolutely count towards these new qualifications.”

    You give them too much credit. This wasn’t a *shift* toward the most profitable customers because there was no corresponding benefit at the high end to make it easier to get status. This was out and out making it harder to get status because more budget-conscious people were getting rewards and they realized they could get away with not giving it to them any more.

    Their interest is to take the money and run. Coincidentally, this is the *same* interest they have with charging change fees, as you acknowledge. If they started counting change fees toward their MQDs, if would defeat the purpose of both – taking as much money out of people’s pockets as they can get away with before we revolt. Seen this way, there’s no reason for them to count change fees or anything else, until people stop flying their airline.

  • Brent

    My son is $7 short of making Silver. What would be the least expensive way for him to get status? Can I just pay Delta $7 with my credit card somewhere or do I have to buy a flight? If I buy the flight would he have to fly the segment to get the MQD credit?

  • James

    Completely agree I understand not counting taxes as part of MQD’s but I think all fees should count. I do think though that the point of this is less to reward premium flyers than to protect themselves from people ‘gaming’ the system. I had Silver on United a few years back with only flying them once that year, but had enough flights on Star Alliance members to add them all together and get Silver. I think this is what the airlines are trying to prevent with MQD’s. Whether that makes sense is a different story.

  • Flyer Fun

    I know this is off topic, but any thoughts about whether or not American Airlines will go revenue based for 2015 flying. I am trying to decide whether to fly a lot in 2014, or in first 3 months of 2015 for status.

  • Nick Ewen

    I (obviously) have no insider information on this, but my personal feelings are that American will follow Delta and United within the next couple of years. However, I do think that they are tied up with the merger right now, so I would be surprised if they implement a revenue-based model of any sort for 2015 flying. However, airlines are known for sneaking in these changes with little to no warning, so there’s really no way to know for sure.

  • Nick Ewen

    The only way to earn MQDs on Delta is to purchase and then take a flight. You could spend $25k on a co-branded Amex, but for that $7, you’d be much better off finding a cheap flight for him to take. Again, he would have to fly to earn the MQDs.

  • Nick Ewen

    “This was out and out making it harder to get status…”

    This is absolutely accurate, but that doesn’t mean my premise is wrong. I believe that making it harder to get status IS about rewarding the profitable customers, as they won’t be competing for upgrades or “sharing” benefits with discount flyers. You are right in that the airlines realized they could get away with these changes, because at the end of the day, they would rather get rid of a Diamond Medallion spending $6000/year on mileage runs than lose a PM spending $15,000/year on last-minute flights. The budget-conscious flyers (or “gamers” as some would derisively describe them) aren’t the ones lining the airlines’ pockets with change fees; the last-minute (high price) business travelers are. Counting change fees would actually widen the gap between the “haves” and “have-nots” of paid airline travel. I would argue that this IS the goal of these new policies.

    I appreciate you sharing your thoughts!

  • Nick Ewen

    Interesting…what was your itinerary? Were there non-codeshare flights involved? United normally has relatively low fees, so I’m surprised that you got credit for less than a third of your overall cost. Did you look back at the ticket to verify that they were credited properly? I had at least one flight on Delta this year where they shorted me on the MQDs.

  • Nick Ewen

    If I were you, I would open up a Delta credit card and use that to pay for the baggage fees. You’d get bonus miles for Delta purchases and (depending on how frequently you fly) could make the $25k purchase threshold to earn a waiver on the MQD requirement. In that way, this “spend” earns you a ton of additional miles.

    Unfortunately, I think you are in the significant minority when it comes to baggage fees…most travelers don’t need more than the allowance offered by status and/or co-branded credit cards. With change/cancellation fees, however, many travelers fall victim to those.

  • Nick Ewen

    The problem is that “fees” can be a very broad category and do not necessarily correspond to profitable behavior (nor do they go directly to the airline). Take the UK departure tax, which doesn’t count towards the MQD/PQD requirements. Delta and United do not see a dime of that, so I can see how it wouldn’t count. Other fees charged directly by the airline (like baggage, same-day confirmed, standby, etc.) are definitely a different ballgame. I single out these change/cancellation fees because they are such an egregious tool for profit generation.

  • Annoyed

    STL-ORD-TLV-ORD-STL

    It was all United steel. Everything was credited properly — the airfare just happened to be a tiny piece of the overall cost because of international taxes and fees.

  • Flyer Fun

    Nick, Thank you for the response. That is what I am thinking right now. I am starting to look at flights in early 2015.

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