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As 2015 approaches, Delta and United get set to launch their new revenue-based frequent flyer programs, which tend to reward business travelers at the expense of economy leisure travelers. Today TPG Contributor Jason Steele looks at how these changes impact leisure travelers to help frequent flyers who are figuring out where to place their loyalty and how to maximize their miles in 2015.
In the dreams of some airline executives, all travelers would purchase full-fare “walk-up” tickets, spending $1,000 or more for a three hour domestic flight. To encourage that kind of behavior, Delta and United (two of the three remaining legacy carriers) have imposed revenue requirements for earning elite status. In 2015, these two airlines will stop awarding miles based on the distance flown, and instead use a combination of your ticket cost and elite status.
These changes may be welcome by some business travelers who have reasonably wondered why a $1,000 fare earns the same number of miles as a $200 fare (or perhaps just 50% more in some cases for fully refundable tickets). Yet this new development is largely negative for most leisure travelers, and the airlines know it. At Randy Peterson’s Travel Executive Summit earlier this year, Jeff Roberson, Delta’s VP of SkyMiles, admitted that Delta “…expected a large amount of customer disappointment from customers who realized that they would earn fewer miles by buying long haul [tickets at] lower fares.”
In this post I’ll look at how these moves toward revenue-based earning negatively affect leisure travelers, including families or anyone else who buys tickets in advance and at a discount. I’ll also look at a few less negative aspects that may soften the blow.
THE BAD AND THE UGLY:
1. Leisure travelers will earn fewer miles from flying. There’s no doubt that the new programs will cost leisure travelers miles from their flights on Delta and United. Earlier this year TPG analyzed the winners and losers of United’s new revenue-based program. He found that most low fare tickets purchased by those with little or no elite status will earn fewer miles than they did in the past. This week TPG Contributor Nick Ewen took a similar look at Delta’s new program, with similar results.
2. More emphasis on status. Elite status always offered travelers more miles from flying, but the new system exaggerates that privilege. For example, United currently offers a 25% mileage bonus for Silver, 50% for Gold, 75% for Platinum, and 100% for Premier 1K members. The 2015 system will amount to bonuses of 40%, 60%, 80%, and 120% relative to the miles earned by a general member without status. Status will still be earned based on the actual miles flown; this makes mileage runs more attractive, since attaining the next level of status will offer travelers even more accrued miles in the following year.
3. More complexity. These mileage programs have never been easy to understand, but the revenue-based programs are increasingly convoluted. Frequent flyers must now keep track of three separate balances: their mileage accrual, elite qualifying spending, and their miles earned toward elite status. Furthermore, passengers must figure out what portion of the ticket price counts toward their elite qualifying spending, and worry about whether or not dollars spent on partner flights will count at all. Finally, it doesn’t help that Delta saw fit to increase the number of tiers on its award chart from three to five.
4. Less incentive to stay loyal. One consequence of Delta and United’s revenue-based mileage accrual programs shorting leisure travelers is that these customers no longer need to consider mileage earning as such an important factor in purchasing a ticket. For example, if I were about to purchase a transcontinental flight for $500 this year, I might be excited to earn 5,000 miles and factor that into my decision. But if I’m a non-elite member and stand to earn just 2,500 miles next year, I’ll care much less about which carrier I choose, and focus more on price, convenience, service, and other factors.
THE SILVER LINING:
1. Leisure travelers never earned that many miles from flying anyway. A commercial aircraft cruises at about 500 miles per hour. If you earn about 500 miles for each hour you spend in the air, that means you have to sit in a plane for 250 hours (not counting taxi, takeoff, and landing) just to earn the 125,000 miles Delta asks for a business class ticket to Europe; that is, if you can find a seat at the Saver award level.
In contrast, consider the recent Chase Ink Plus offer. I earned a 10,000 point bonus for referring my wife, who will earn 70,000 bonus points after meeting the $5,000 minimum spending requirement. That’s a net total of at least 85,000 points with just a few minutes of effort. Frankly, I wouldn’t sit on a plane just to earn 500 miles an hour, even if the ticket was free.
2. Perhaps these new programs will result in fewer miles chasing award seats and better award availability. As travel rewards enthusiasts, some of you probably earn a small percentage of your miles from air travel, but much of the general public continues to rely on ticket purchases to earn miles. Since Delta and United will undoubtedly be handing out fewer miles next year, award seats could be easier to find.
This assumes that these carriers maintain their inventory of award seats at each redemption level. In fact, there’s some evidence to support the idea that Delta will be increasing award availability, as they claim that there will be “more award seats available for fewer miles” in the 2015 SkyMiles program. I’ll believe it when I see it.
3. The relative value of award travel goes up. Once travelers realize that they’ll be earning fewer miles from most of their flights, they might make different calculations when it comes to award travel, which earns no miles. Award travel becomes more valuable, relatively speaking, when passengers no longer earn as many miles as they used to.
4. Short haul flights might earn more mileage. For all the faults of the revenue-based program, there are some instances where leisure travelers will come out ahead. For instance, TPG’s analysis showed that passengers need to pay $165 for a flight between Boston and Washington to break even on miles earned under United’s new program. $165 is a pretty good fare for this route, but it wouldn’t be unreasonable for a leisure traveler to pay even more.
In addition, even leisure travelers are sometimes forced to pay higher fares, or enjoy an occasional work trip at a higher fare. In these situations, the new revenue-based accrual programs can result in a marginal increase in miles earned, although nothing like the windfall that will be earned by those who purchase full fare international business class tickets.
How are the new revenue-based programs affecting your award travel? Please share your thoughts in the comments below. This card is currently offering a sign-up bonus of 50,000 after spending $3,000 within the first three months. TPG values United miles at 1.4 cents apiece, so this 50,000-mile sign-up bonus gets you $700 in value.
This card is currently offering a sign-up bonus of 50,000 after spending $3,000 within the first three months. TPG values United miles at 1.4 cents apiece, so this 50,000-mile sign-up bonus gets you $700 in value.