The rumored Mileage Plus changes

I've been sitting back and watching the fallout from the rumored changes to Mileage Plus the last few weeks and the response from some folks has just been staggering.  

First, I believe the rumored changes are false.   The one thing United has demonstrated in their merger so far is that they are not undertaking any drastic changes as their plates are pretty full.   To impelement the list of changes is substantial and would go away from that approach.

Of the rumored changes, the item that received the most pushback was the minimum spend requirement.  When I first read that my heart pitter-pattered as this has been something I have been long hoping for.   You see, while I mileage run from time to time, I'm primarily a business flyer who is spending at least $10k a year.   Compare that to someone who is a 1K on $2k (or less if they like to complain a lot in return for vouchers).  Both are loyal to the airline.  So who's the better customer from the airline's perspective?

If you look at the profile of the low-cost mileage runner, I add the disclaimer that this does not profile all low-cost runners, but there are a substantial number who do fit into this profile.  These folks are generally well versed with the nuances of the program and maximizing their return, which in turn minimizes any benefit for the airline.  

From my own experience, the legacy United was very gracious with compensation and a number of folks took advantage of it.  There are stories of people booking cross-country tickets that would work out a base fare of $0.  Some folks were taking this to new levels as they did this repeatedly and qualified on these $0 tickets.  I admit, the $0 fare is an extreme, but it was a common occurance.   But the compensation that United issued was in the range of $150-$350 in most cases.   Factor in that an average transcon trip is around $300 and you can start to do the math as to how much folks are really spending. 

Knowing the nuances of the program gives folks the ability to maximize the reward booking process.   If you take a closer look at the rewards the low-cost runners are booking you quickly start to realize why Starnet blocking was introduced.  There was a substantial  imbalance with the bulk of the "expensive" rewards being booked by the low-cost runners.  This imbalance was causing United to pay out to it's partners while its own reward inventory sat empty.   In most business cases, it is always cheaper to provide the service yourself vs having someone else provide it.

Of course, if someone was paying a minimal amount of money to fly, they will become loyal to the airline very quickly.  But that loyalty is not mutual as this customer is actually costing the airline money over time.   Not only is this customer costing the airline money, but it is also eroding the benefits for their customer base that brings in revenue.  I know some folks will make the case that the low-cost passenger is helping fill the plane, but that's a short-sighted argument.   With all of their capacity reductions in the last year, there will almost always be someone to take that seat.  And if that seat continues to fly empty daily or weekly, they'll just reduce capacity.

So where am I going with this?  While I don't believe minimum spend thresholds will be introduced for 2012, I do believe they will be introduced, but not exclusively by United.  The internal airline systems are pretty ancient and the ability to calculate spend may not be there today.  After all, how do you calculate a mixed-carrier itinerary?  baggage fees?  on board purchases?   There are a lot of variables, but i'm sure that all the airlines are looking at how to figure it out.   In the short term, we may see a system similar to most European carriers where your fare bucket determines your EQMs.  While definitely not as fair as a minimum spend threshold, it's an easy way to address part of the issue. 

In a nutshell, if you're a low-cost runner, enjoy it while it lasts as I don't see the current environment of mileage running lasting for too many more years. 

Comments

#1
Sean September 1, 2011 at 01:09 pm

Wouldn't the easiest solution for United be to just not issue the "$0" fares you mentioned by issuing compensation more effectively, perhaps at different levels based on the customer's revenue?

Also United caries more than 90 million passengers every year. see here:

http://ir.united.com/External.File?t=2&item=g7rqBLVLuv81UAmrh20MpySVEUKHN8sBQ/v3yDnKvSRizJE5LnIBH30B6SpfTbnZJj8LMLiKtixzFtp0VuOtOg==

Are a few thousand mileage runners that much of a problem?

#2
Fozz M September 1, 2011 at 02:50 pm

While I completely agree about the $0 fares, the compensation system at United has been tightening up since the merger. The example was an extreme, but it was a frequent occurrence as well. One can make 1K status around $3000 on normally published fares (not accounting for true mistake fares). There is no way that 1K is valuable to United.

The bottom line is that the airlines are getting smarter and technology is getting more savvy to help them identify the non profitable customer and address the issue.

A few thousand mileage runners isn't the issue. It's a few thousand mileage runners that posses status that dilutes the benefits for the non mileage-running elites.