United has inflated its award redemption prices for customers, charging more nearly uniformly for frequent flyer award flights. How does its increase relate to broader economic inflation?
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United Increases Award Costs Globally
United Airlines’ significantly devalued its MileagePlus rewards program. Following a previous increase in award redemption rates to Europe, United has now raised redemption prices for all regions globally, in some cases by over 57%. This has affected travel not only in business class but also in premium economy and economy class, with the latter two categories seeing some of the highest price increases.
Here are just a few specific examples of the price increases:
- For flights to Australia, economy class on United has risen from 40K to 55K one-way in economy and from 80K to 100K in business class.
- For flights to Japan, partner award travel in business class has increased from 88K to 110K one-way and from as little as 38.5K to 60.5K in economy class. On United, economy class has gone from 35K to 55K and business class from 70K to 110K each way. All Asian travel now seems to be priced similarly, with no more region-specific pricing for Japan, North Asia, and South Asia.
- For Africa and South America, partner flights now start at 49.5K one-way in economy class and 88K in business class.
An ANA ticket from Los Angeles to Tokyo, which a few days ago could be booked for 38.5K United miles in economy class now costs 60.6K miles – a 57% increase.
United Airlines’, despite claiming it doesn’t have fixed pricing or an award chart, most awards still follow fixed pricing. This devaluation makes Air Canada’s Aeroplan program, which publishes award charts and announces devaluations in advance, more valuable in comparison. The same is true for ANA, LifeMiles and many others.
How Do United’s Increased Costs Compare to Inflation?
Ignoring some of the largest increases, like the ANA example, many cases range from 20-35%. Matthew notes that United increased prices 10% during the pandemic and close-in penalties were added.
During the same period, inflation as measured by the government, has increased 21.21% placing United’s increases mostly in line with economic adjustments.
But why should the two relate? After all, United (and other carriers) print as many miles as there is demand for with impunity. An increase in award costs really doesn’t reflect any major cost increases. They do, however, in delivery. Economic inflation affects the cost of everything for United and other carriers. It affects the cost of catering on those award flights, labor to serve them, and everything else.
For partner awards, like the ANA example, United reimburses them for the flight their customer takes using United MileagePlus miles. While those agreements are typically negotiated and locked in years in advance, it wouldn’t surprise me if costs are increasing from partners too. Are they increasing 57% – probably not.
Further, while the current inflation model has been around since the Ronald Reagan presidency, it leaves out critical areas of fuel and food as part of the calculation. The flaw in this is that inflated car prices (included in the model) may not affect everyone, especially those who are not in need of buying a car during that period of measured inflation. However, something more common like fuel and food that affects everyone (even those who don’t drive pay higher costs for their gods and services when fuel goes up) is left out of the inflation model due to high volatility. That said, 20-35% is probably a closer real inflation figure and aligns with United’s increases.
There’s no question that food costs alone have outpaced inflation numbers in the last couple of years, United, and every carrier is paying more but not getting more from its customers.
United is also awarding more miles per transaction in an inflationary environment. Credit card customers charging their purchases to United co-branded credit cards are likely spending at least 21% more than they were five years ago. While that means United is selling more points to banks, it also means that cardholders have more points to spend, reducing the number of award seats available, and thus the value of those seats.
The problems with this adjustment, justified as it may be are two-fold: 1) adjustments happen all at once as opposed to slowly over time, and 2) there’s no notice which United can absolutely control but chose not to.
Conclusion
No one wants to see inflated award costs and they feel arbitrary at the time (especially when done all at once.) However, it’s likely that United’s costs have increased about the same, if not more than some of the award increases. Customers are also earning more points based on higher airfares and credit card charges. To keep adequate award inventory, the airline has to increase rates to both cover their cost and maintain scarcity. I don’t want to defend United (or any carrier) increasing its rates, and for my own travel, I am likely to use other programs like LifeMilesl. However, the increases are objectively fair in the given environment.
What do you think? Do United’s increases align with economic inflation? Should they?
Given your justification that this is purely inflationary what will you say when things settle and we see fuel and food prices drop again? Will you expect United to revert back to the original award costs? If not then it has nothing to do with inflation. It’s just an opportunity to charge more.
Supply and demand. Look it up some day.
Other than using high school level terms like “supply and demand,” what exactly is your point in relation to what I said?
Come on, man: Macroeconomics. Read a book, why don’t ya!?
Ah ok, at least we have graduated to Economics 101. Which still has absolutely no relevance to the question at hand. That is, when demand drops, inflation eases. and seats start going empty will United lower the base for redemptions? Of course not. They found a crevice to climb upon and there is no going back. As such macro micro or whatever you want to tout is meaningless. It’s nothing more than lowering the bar at the expense of a program they built and sold the public on. They built the monster….they still promote the monster…and economics aside they have no intention of anything but milking the public now in what is a complete lie as to loyalty programs. These programs now rank alongside timeshares as the biggest scam ever thrust upon consumers. Any other questions?
As an actual economist, Stuart is the best example ever of Dunning-Kruger.
As if supply and demand somehow means prices must fall. Sometimes, there just isn’t a market, little boy. No product being offered. Other times, product doesn’t get sold.
Americans are truly some of the most arrogant, undereducated, imbeciles in the world.
Just say it like it is: you’re crying because you can’t force out paying real people anymore with your miles you got from buying masks and toilet paper at CVS. Boohoo.
The fallacy in your argument is, as Stuart noted, what happens when demand and airfares inevitably drop as the recession hits? If you think UA or anyone else will drop award costs commensurate with the reduction in airfare, I have a beachfront timeshare in downtown Phoenix I’d like to interest you in. It’ll happen about the same time the bag fees that were originally introduced to “address unprecedented fuel costs” in 2005 will go away.
As I said, most people don’t understand basic economics. You included.
Sadly, most people will admit this. Americans? Nope.
Since you enjoy showing off your moral and intellectual superiority, perhaps you can enlighten us. How does the concept of “supply and demand” result in prices, in this case in miles, going only in one direction – up?
How do I explain this so Americans understand?
OK, so imagine you have a daughter. You want her to be a tranny, so you find a doctor to go to town. I’m sure this situation is familiar to most here.
So because of the recession, you have 1 money. But the doctor says it’s 1 money per buzzsaw’ing, aka 2 total, so you decide not to buy. No trade was made.
The doctor doesn’t have to buzzsaw for 1 money. You don’t have to purchase for 2 money.
Finally, someone with a brain. Thank you, Kyle.
At least Matthew isn’t dishing out high school-level “bizniz” advice like Ben from OMAAT who has a “degree” from an online university.
I understand economics as a discipline is lost on almost everyone, including the passenger-of-size-thought-leader. Except for you, Kyle.
Thank you. Next step is banning Americans from using points to fill up hotels abroad. You made this mess, now lie in it.
What’s with all the anger??
I’m sorry your fragile ego can’t handle a Black woman speaking.
Who knew, or cared, what your race is? You simply come off as angry and someone called you out on it.
ah. a non-black, non-female internet blog troll. shocking!
You school ‘em Loretta. ‘Murica! Capitalism and basic economics! Supply and demand! Except for when there’s no demand and airlines get billions of our tax dollars. F yeah!
Just to be fair… Ben has a degree from the University of Florida, but will be the first one to tell you that he doesn’t place too much value in a university degree.
A “degree” and “University”, then we’re about to be in an accurate place.
I’m sure Amtrak or Chrysler or whatever that hag who pronounces “Maldives” as MAARRRRRRLDIVES is called has a “degree”, too.
Now most US airlines credit miles by the dollar amount of your fare. Therefore, there should be no award inflation, unlike when they credited it by distance before.
People in the comments are arguing about supply and demand – did award costs go down in 2008-2010? (I don’t know since I was young and was not looking into travel deals at the time). I know the COVID recession also had the demand go down, but it was too brief. I didn’t see award fares go down at the time, though we got compensated through other ways (status extension, change fee elimination)
BAck then all awards were fixed cost and were saver level only. Dynamic pricing wasn’t present yet and once all award seats are taken, there would be 0 availability.
As for supply and demand, if there are a lot of unsold seats, I can see United giving am award ‘sale’ to elites/cardholders for these certain routes.
When The Great Recession was in play, inflation was around zero and actually ran negative one year. Does that mean that award prices went down? Not that I ever saw. In fact, the prices for literally everything went up for my business so let’s not pretend that this is truly linked to inflation.
The way to resolve this fairly is to charge award prices based on when the miles were earned rather than when they are redeemed. This is actually pretty simple: If you earned 100,000 miles in 2019 you can redeem at 2019 prices until those 100,000 miles are gone. If you want to use those 2019 miles plus others you simply do an average of the price based on when the miles were earned.
This has nothing to do with supply and demand. Delta showed that you don’t need to have a mileage program where the miles are worth anything to be successful. This is just united adjusting to that reality. When there’s another bad recession the miles will continue to be worth nothing and the airlines will get another bailout.
If we ever get to the point that we have fewer major airlines there won’t even be a need to have frequent flyer programs. Another reason to root for the B6-NK merger so there is another major player
I understand the author’s point about the overall cost of offering air travel going up, but that shouldn’t really be relevant for what is being sold. The goal of a frequent flier program is to sell a seat that might otherwise go out empty. If revenue management does their job, a revenue passenger shouldn’t be displaced by a mileage passenger, so the residual cost of a mileage ticket to the airline is essentially zero. Even in a long-haul business class seat, a passenger would really have to eat and drink a lot to cost the airline $100.
So are costs rising? Sure, but it isn’t logical that those would be captured by higher mileage rates. There are a million ways to generate United miles, people have lots of them, demand for int’l travel is high, and United believes they can simply charge more. That’s it.