Winners and losers in United’s new frequent flier program

by on Tue June 10, 2014 • No Comment
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Starting in March 2015, United will be matching Delta in offering miles only based on the fare you paid, rather than the miles you fly. The number of miles you earn based on the fare you pay will be identical to what Delta announced earlier this year.

While the price you pay for mileage tickets isn’t changing, what you earn from flying could go down significantly if you don’t ever fly on higher business fares. Many core business travelers will see a mixed bag that nets out somewhat above or below what they’re earning today. Here is MileCards.com’s take on winners and losers:

Winners

Short haul, high fare fliers. If you’re a ‘road warrior’ who does a lot of flying on flexible fare tickets on short flights, like $1,000 round-trip from Chicago to Kansas City, you’ll earn many more miles. That example will net you 5,000 miles in the new program versus 800 miles in the old program.

International business fliers. If you tend to do a decent amount of your flying in international business or first class then you will win, and win big with this new program. A $7,000 round-trip from New York to London will earn you 35,000 miles versus about 10,500 miles today. And if you are a top tier 1K flyer you’ll earn 75,000 miles versus about 17,500 miles today.

Losers

Long haul, coach fliers. A lot of business travelers spend weeks out of the year flying on long trips, either across the U.S. or to international destinations, and their employers will only pay for basic coach travel. These are the biggest losers. They’ve stayed loyal to one or two airlines for the status benefits that confers, and nothing is changing there, but the free travel they earn will be reduced significantly.

Leisure travelers. Most people flying on vacation fly the lowest fares. And with average airfare around $300, you’ll earn fewer miles for that fare unless you’re flying 1,500 miles roundtrip or less. The rule of thumb to figure out if you lose as a casual flyer is if the total distance you’re flying is more than 5x your airfare, you will earn fewer miles.

So if you are paying $500 for a roundtrip ticket and fly more than 2,500 miles round-trip each way you will earn less.

For trips to Europe, if you pay $1,200 for a roundtrip from Chicago to London you’ll earn about 5,000 miles. Under the old program you earned about 8,000 miles.

But if you choose to fly one of United’s partners like Lufthansa or Air Canada and don’t buy the ticket directly from United you’ll still earn miles the old way, which is an option to consider.

But are you losing all that much? As an example, If you fly from Los Angeles to Hawaii 2x a year, you’re earning about 5,000 miles per trip now. If your fare is $600 you’ll earn about 3,000 miles in the new program. So overall you’re earning about 4,000 fewer miles per year. Compared to a cost of 45,000 miles for an award ticket to Hawaii you’re not much further off from that award, and it’s likely you’re earning most of your miles on the ground via a credit card. So for many occasional fliers this change isn’t helpful, but it isn’t drastic.

The Middle

Many business travelers. The bulk of core business travelers buy a mix of fares. On longer routes they’re more likely to be paying higher business class fares, and will earn substantially more miles. That will be offset by earning fewer miles on domestic flights where they may tend to buy the lowest available fares.

The extra miles earned from just one $5,000+ business class ticket to Europe from Chicago can offset the lower earnings from over 10 trips from Chicago to the West Coast at $400 for a base level flier. That $5,000 ticket will net you 25,000 miles versus about 12,000 miles today. A trip to the West Coast at $400 will net 2,000 miles instead of about 3,000 miles today.

But if you never pay for a business class fare during the course of the year it will be hard to make up for the reduction in earnings on cheaper flights.

Credit card users. You won’t earn fewer miles from your credit card spending, and for now there is no change to how many miles are needed for an award ticket. About half of people earn most of their miles on the ground in our research.

What will the airlines do next?

American / US Airways will probably adopt this for 2016 or 2017. If you want to earn miles the old fashion way, you may have a little extra time with American / US Airways because they are going through their merger and likely won’t announce major changes until 2015. And a change this large will likely have ample notice, so it could be 2016 or later before American / US Airways adopts this scheme.

Thank mergers for the change. Now that there are only 3 global airlines in the U.S. market the conditions have been set to implement these changes, as once United matched Delta there are few alternatives. With Delta posting record financial results, even after its own announcement, United may be thinking Delta’s change had no impact on flyer loyalty. Time will tell if that is a correct assumption for either side.

There will be more rewards options at lower mileage prices. Since a lot of members will earn fewer miles from flying, United will allow miles to be used for things like Economy Plus seats and checked bag subscriptions.

These rewards don’t cost as much as a full plane ticket, and will likely cost much less than the 25,000 mile entry level cost for a domestic award seat. So members earning fewer miles will have more options to use miles in smaller amounts, but the value per mile isn’t likely to be very generous.

What should frequent flyer members do?

If you earn miles on the ground, there’s little change. Our research indicates about half of frequent flier program members earn most of their miles on the ground rather than in the air. If you’re one of them there’s little change here. The amount of miles needed for a ticket isn’t changing, and you’ll still earn just as many miles from spending on your card or online shopping as you did before. Your miles could be more valuable as there may be fewer miles earned from flights competing for seats.

Fly on partner airlines. If you fly United’s partners and don’t buy your ticket directly from United, you’ll still earn miles based on the distance flown. That can be helpful for trips to Europe and Asia. The catch is the tickets won’t count toward the dollars needed to earn ‘elite’ Premier status, but most people don’t qualify for that. So if you’re flying to Europe on a leisure flight, book Lufthansa, Air Canada, Swiss, or one of United’s other partners and earn miles the old way.

Move your business to American. If you want to try to send a message to the airlines, move your business to American / US Airways and make your choice known to both sides, as there will be a window where American / US Airways evaluates this. They will let you ‘challenge’ to match the status you have with United or Delta if you’re an elite level frequent flyer so you can enjoy the perks you’re used to while you try it.

Unfortunately given the near oligopoly that exists among global U.S. airlines now it’s a long shot that will have an impact, but voting with your dollars is in your power.

Shop based on price. For domestic travel there’s now less of an incentive to stay loyal to an airline unless you have earned elite status which confers upgrades and priority privileges. Most travelers operate this way already, and the miles were icing on the cake for little loyalty. But business travelers who fly frequently but are stuck on the lowest fares are being penalized for their loyalty.

Use your miles when you’re ready. While we always advocate using your miles as soon as you have enough for the reward you want, there are no planned changes to the cost of tickets in miles, so your miles are not worthless, and will continue to have value.

Credit to another program. You can credit your United flights to any of United’s partners and still earn based on miles flown. For example, partner Avianca will let you earn miles for all United flights and lets you use miles on United flights at similar prices as United. The downside is you can’t mix and match these miles with those earned from a United credit card. Other partners you can credit to include Air Canada and Singapore KrisFlyer, but beware they levy expensive fuel surcharges on many rewards.

 

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