When Delta Air Lines announced a revenue-based earnings chart for 2015, I predicted that it would only be a matter of time before United Airlines would match, though I did not expect it to happen so soon. Copying Delta almost exactly, United has announced revenue-based earnings will replace distance-based earnings starting on 01 March 2015 for redeemable miles on United issued tickets. Elite miles will still be distance-based and tickets issued on other carriers (except for United flights) will earn miles as before.
Here’s the official word–
Today we’re announcing changes to how MileagePlus members will earn award miles in 2015. We’ve posted complete details and a FAQ on united.com, but I wanted to share an excerpt of the key points with you directly: As of March 1, 2015, 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) and your MileagePlus status, instead of the distance you travel. The new criteria for earning award miles will look like this:
- Member: 5 award miles per US dollar spent
- Premier Silver: 7 award miles per US dollar spent
- Premier Gold: 8 award miles per US dollar spent
- Premier Platinum: 9 award miles per US dollar spent
- Premier 1K and Global Services: 11 award miles per US dollar spent
The changes to earning award miles will apply to all MileagePlus members worldwide, and will be based on status at the time of flight on or after March 1, 2015. These changes will not affect the qualification requirements for 2015 Premier status. PQM and PQS will still be based on the number of paid flight miles traveled and the fare purchased. And where applicable, PQD will still be determined by the base fare and carrier-imposed surcharges.
As mentioned above, there are more details and a FAQ posted online, and over the next few days we’ll be communicating this information to our members.
United has lacked innovation for years and this policy change is simply a copy of what Delta has already done. I thought United would at least observe how the change worked for Delta before implementing it itself, but Smisek and Co. have the lemming syndrome when it comes to the word devaluation in any form.
For tickets issued by other partners (such as a Lufthansa flights issued with Lufthansa), MileagePlus members will still earn award miles as before (though I predict next that United will gut partner earning rates). If you book United flights with Lufthansa, your redeemable miles earned will be calculated at the new rate.
A max of 75,000 miles can be earned on a single ticket, so a Global Services member who purchases a $25,000 first class ticket and would normally earn 11 points per dollar (275,000 miles) will earn only $75,000 instead, a 70% reduction. That’s customer friendly™…
The True End of Mileage Running
This policy change sounds the death knell on mileage running and here is why–
Let’s say I am going from Los Angeles to Newark and United has a $300 r/t fare. Say I decide to route it via San Francisco so that I can earn extra miles. Right now, as a 1K member who earns a 100% redeemable miles bonus on revenue tickets, I would earn (500+2565+2565+2565) x 2 = 12,262 award miles on the trip. With the new program, my earnings drop to about 2,750 miles, not even 300×11= 3,300 because you don’t earn miles for taxes.
(you can play around with hypos with this tool)
United flyers are facing a two-front attack: awards charts are devalued as it simultaneously becomes significantly more difficult to earn miles. Those who buy pricey tickets will continue to earn a fare chunk of miles, though less so than they may assume, but aspirational awards for budget-conscious travelers will now become significantly more difficult to obtain.
Why United’s Move is Unlike Delta’s
United has mimicked Delta, but consider the huge differences between the airlines. Delta has, of course, reported a very healthy profit while United has reported losses and seen high-value travelers flee (see WSJ graphic to the right) but more fundamentally, Delta runs a modern fleet with premium amenities for all cabins, wi-fi on nearly every domestic flight, and great customer service.
United offers a fine business class seats, but poor IFE, poor meals, highly unpredictable service, a horrid economy class product on many aircraft, and no internet on the majority of the fleet. Delta has earned the right to gut mileage earnings: United has not.
American will Follow Next
AA AAdvantage has the golden opportunity to differentiate itself now, but it would be placed at a comparative disadvantage if it continued to allow mileage earning at a more generous rate (distance-based) than its two main competitors. With Doug Parker running the show, it is only a matter of time before AA also announces a change.
The Importance of Credit Cards
Miles-earning credit cards will become even more valuable now. I can only imagine that Chase is livid at United for disincentivizing the majority of travellers from earning United miles and thus using United-branded credit cards, but the result may work out for Chase – people will go out of their way to use their credit card just because miles are so much more difficult now to obtain. I certainly will, even living in cash-loving Germany.
* * *
There is no upside to this new–the only consoling point is that we saw it coming.
The only hope i have for AA is Southwest. Every other carrier charges and they do not as they they it drives business to them. I doubt Parker has this approach, that is the only glimmer of hope for AA. I left UA last year for AA. Best move i ever made. But like you said, DL earned the right to do this, UA has not which is why this move, along with all of their others will continue to drive more people away..
I have no qualms with a revenue based FFP if award prices are tied to the cash fare at the time of redemption (ala WN and B6). My guess is that AA will go to revenue based earning at the same time AAdvantage and Dividend Miles combine in 2015, the new AA could differentiate itself by going to a “mile = $xx towards your fare” rather than keeping a chart based system like they have now.
I left Delta because of their change, but also because over the last year their customer focus has changed far for the worse. They are packing as many seats as possible into their planes (similar to RyanAir), and this is best demonstrated with the “micro-bathroom” on their new 737-900.
So, no regrets leaving for AA. They really do have great service. Delta’s used to be good. No more.
But one question about the article above: How much of a REAL disadvantage is it for AA to continue giving distance based miles? It would seem that could be leveraged to attract all of the business flyers that have to fly coach due to company policy. (Not everyone who flies multiple times a week gets to fly business class).
I’m not one of the alarmists that will never fly United again. I am, however, no longer going to let loyalty be a factor in determining which airline to take me from point A to point B. I’m curious to the loss of revenue from others like me who have / will qualify for 1K this year with $10,000 spend through premium or higher fare buckets on United but now will divvy that up between the best value options. If I only spend 40% of that on UA next year, as they most likely will still have valid flight options, that leaves $6,000 of lost revenue from me alone.
I cannot see myself keeping an airline affiliated credit card simply because miles are harder to come by. When looking at point values per dollar the non-airline specific travel cards such as the BARCLAYCARD offer a much better value and let you chase cheaper fares. Delta and United are simply deterring loyalty to an airline.
I’ve paid for higher fares to use a Star alliance partner in order to up my miles or reach a certain incentive level. When looking back, it probably wasn’t worth it. I’ll pay an extra bag fee here and there, learn to hang out with the cattle outside the lounges and just chase lowest fares from now on. Better yet, I’ll pay for those cheaper high value flights using the points earned on the more generous cards. Airline Loyalty plans are no longer loyalty incentives, they are rewards.
Well, maybe I’ll go for that Greek airline after all.
The thing you are forgetting is that AA already has a revenue based program and has had it for years. EQPs are based on 0.5 EQP per dollar for discount economy, 1 for full fare economy and 1.5 for business/first. AA started the revenue based program years ago when it comes to legacy carriers. Although AA may follow suit in 2016 with a program that is 100% revenue base, it wouldn’t be a new idea for AA. If it happens, I do not believe it will be for atleast a year after aa/us merges their two programs as they have plenty of reasons not to for 2015. 1) The need to keep their customers happy during the merger, 2) they don’t know how it will effect the other carriers bottom line/passenger loads, and 3) it makes them different then the other two legacy carriers and LCCs. After all a revenue based program pushes fliers to WN who already has more point to point destination/traffic then any other airline. Unless the legacy carriers move away form hub & Spoke and focus on O/D and more point to point traffic, frequnt fliers will have no reason to fly a legacy carrier over WN. I believe Alaska will be the last airline to change, especailly as they take on DL in seattle and slc
Re: mileage running – aren’t EQMs still based on the old (distance-based) formula? That’s what I took away from Terry Maxon’s blog post about the changes today, though my interpretation could be wrong. Assuming that’s correct, it seems like there would be still SOME use for mileage runs, though the PQD requirement still gets in the way.
United gave themselves a twofer: Devalued their miles then introduce RDM. With load factors high throughout the industry and only 3 large U.S. carriers the fix was bound to be in. A further squeeze out of the FFPs across the board. If USAir introduces another share miles offer I’ll buy because the sun is fast setting on the U.S. FFP as we knew them. Glad I bought some LifeMiles at 100% bonus. Math: As regular UA MP member I’d have to spend $11,500 x 5 to equal a one-way J award. Buy 3 cents x 26000 LifeMiles with 100% bonus at it’s $780. I wouldn’t rely though too much on LifeMiles as finding awards online is an arduous task at times while telephone booking can be a nightmare.
As reward points/miles become more closely identified to dollar amounts, will the IRS take notice and finally be able to tax this benefit?
Capping at 75K is only realistic given the current structure would max out at 150% of the actual mileage and a $25K F ticket (is here such a thing…okay lets say NYC-MEL) earned would be about 30K RDMs x2 1K/GS tier bonus for 60K, so this is still an increase over the existing RDMs offered. (Or does the elite tier bonus only apply on the base miles, thus bringing the total RDMs to 50K?)
An end to MileageRuns? Not so sure. While earning more RDMs was obviously one of the roles achieved with a good MR, I’d say the primary reason we do these things is for our PQMs, which are not affected by these changes.
Yes, this is obviously another mechanism to move UA into a profit position, and at least on an accounting basis, reduce the dollar transfers and liability between UA and MP. This will significantly reduce the cost of purchasing miles from MP (obviously no cash passes hands between divisions but there certainly is an accounting liability that impacts UA’s bottom line) since even a 1K purchasing upgradeable W fares will earn half what they do today, and those purchasing K fares will now be getting 1/4 of what they get today. That adds up quickly, even at a penny a mile!
As for AA, it could go along with the new flow, or it could figure being profitable and successful at poaching disaffected customers from DL and UA, to keep the current model and go for the kill to take in those DL and UA elites who have held out thus far. Suppose we’ll know in a few months.
United should rename Mileage plus to $$ Plus and should change the earning units to pesos as they are no more actual ‘miles’ flown now
I got the news by email today. For me it might actually be a boon, since I usually buy relatively costly business class seats to Israel several times a year. Right now they earn about 20 grand miles for what amounts to a $5K to $7K ticket. If that were to hop to 40K miles or more, that would certainly be a boon. However, I don’t welcome changes like this in general: I don’t see how United can take this cavalier approach to frequent flyers given their current earnings record.
Overall, that’s a nice concise writeup with some good observations.
However, I am going to disagree with the paragraph about credit card spending. The latest MP devaluation hugely disincentivized using the (previously strong) Chase/United card. Nothing that has happened will change that.
Sure, the miles are now harder to obtain, but they are still far less valuable once they are obtained.
Unless UA improves the award chart, which ain’t gonna happen, the Chase/United product is going to remain an ugly stepsister to other travel cards.
This is much better for me. I take day trips all the time 2-3 a week, usually about 500-600$ fares maybe 200-500 miles. Now I ll be getting over 5k-6k miles for these trip instead of 1k (the 500 min + 500 bonus)