Reader Joe C. sends me to a Flyertalk thread where someone listened to United CFO John Rainey’s talk at the Bank of America Merrill Lynch Global Transportation Conference on Thursday, and reported back that Rainey referred to some members of the United MileagePlus program as “over-entitled.”
Audio of the talk is on the UnitedContinentalHoldings.com Investor Relations page.
The Flyertalk thread apparently went to nearly 200 posts within 4 hours before a moderator decided to shut it down (where it remains as of this writing, but it may be re-opened).
I listened to the audio, and what he said about Mileage Plus members was
We had certain groups in this program that were over-entitled if you will. And now we’ve re-aligned the benefits of that program with what the customers and program participants are actually providing to the program, it’s a good change going forward.
In August 2002, when Ben Baldanza (now running Spirit Airlines) was Vice President of US Airways, he said that customers buying inexpensive tickets (that the airline was offering for sale) didn’t represent the kind of loyalty the airline was looking for, that was a shocking statement and gave birth to the “cockroach” movement.
But this statement from United shouldn’t be surprising at all. A full year ago Randy Petersen Travel Executive Summit I reported that MileagePlus President Jeff Foland made “clear that they value high revenue flyers over simply folks with elite status.”
This is a program, after all, that seriously considered setting minimum revenue thresholds for elite tiers. United issued a non-denial denial (that was almost a confirmation), and I went to great lengths to explain why wallet share is more important than revenue totals for a frequent flyer program. Programs want to generate incremental revenue, not ‘reward’ high revenue. But not everyone understands this distinction.
United didn’t go with the minimum thresholds for elite status, but United’s CFO did seem to say that the changes they have made have effectively been geared towards ending generosity towards the ‘over-entitled.’ And here he may mean changes to upgrade priority — full fare tickets now trump status for elite upgrades, a full fare Premier Silver trumps a discount fare Premier 1K. And a government employee with silver status on a YCA fare trumps that 1K — something that’s a big deal in my home market of DC.
Rainey may not understand the nuance of the MileagePlus upgrade priority such that he’s specifically referring to that change, but he certainly reflects a viewpoint — previously expressed by the head of the MileagePlus program — that they want to make changes to focus on high revenue flyers. They’ve made no secret of that, so folks shouldn’t be so surprised to hear it.
It goes without saying that I disagree with Rainey, since the MileagePlus program has long been the most profitable part of the airline, it seems odd to want to upend that winning formula. And because it’s often the lower priced tickets which are purchased ‘at the margin’ and don’t displace other revenue, that influencing buying decisions on those tickets may be the most profitable investments a program can make for the airline.
But this is also someone who believes that reservation system migration has been a boon to the airline, has worked, and is already enhancing their bottom-line (rather than representing a fundamentally broken cash register for the airline). His example is that Shares has allowed dynamic pricing for Economy Plus, allowing United to charge more for window and aisle economy plus seats than middle seats.
He notes that there are more members of MileagePlus than citizens of France. Lets just hope they don’t govern the mileage program in the manner of the Vichy regime.
You don’t insult the customer. Bewildering why he would say that.
I don’t know why in the world he would say that, but it is true.
Great closing line.
Would that make Chase the Third Reich?
I do think it’s undeniable that legacy UA elites were coddled far more than legacy CO elites, which certainly led to a sense of entitlement (“Oh, my reading lamp burned out with an hour left in my flight, I DESERVE a $200 sky kit”), and you certainly hear some wailing now as the CO way of running things spreads further throughout the combined company.
I agree w/ the last post, but when your light is out on a 14h flight and you can’t read, well it’s an issue. Further, what SHARES and UA can’t distinguish are customers that may not be themselves high revenue (me) but I bring with me several friends that travel w/ me and their companies, easily 50K+ a year minimum that leaves with me if I go.
Not surprised in the least, he verbalized what we already knew. And as we continue to see further global airline consolidation, loyalty benefits will shrink even more. Perhaps best to become a free agent as Steve Belkin suggests.
What i find fascinating is that while airlines are becoming more restrictive, hospitality programs are upping their game. They seem to be fighting for the incremental revenue that Gary argues, correctly in my view, is what loyalty programs should be targeting.
I bought a ticket SFO-HKG last month at 14 days out. There was a United nonstop for 1200 while a Delta one stop in NRT was 1260. Even though time is very much valued and the DL flight took an extra 10 hours total on a 3 day turnaround trip, I still went with Delta because of my GM status. That’s loyalty.
Carl – except that the describe these programs as profit centers. You don’t enhance profit centers by devaluing them and running off customers.
It just displays the complete misunderstanding the CO management has of the legacy UA program.
So I kind of wish they had introduced a spend threshold for 1K and kept some of the old benefits like upgrading before Y fares. The problem is they are alienating all their elite customers, not just the “over-entitled”.
I have decided to cash in miles for a few trips and may not retain 1K this year. I have attained 1K every year since 2006. I don’t buy Y fares very often but I don’t buy L fares very often either. I usually end up buying Q or H. I spend around $15K to $20K a year. to me what they are basically saying is this level of spend isn’t enough for them.
The other thing I think they are missing is that customers may start out as cheaper fare customers but often go up the fare ladder. At least that’s what happened to me. The first few years as a 1K I spent less than half of what I do now. But I guess they have decided that’s not the kind of behavior they want to encourage.
It’s interesting and is a distinction but I think also there are two sides to this.
Somebody spending $15-$20K / year is 1K at UA, I have spent about $20K with flights credited to AA so far this year and it only gives me gold.
Indeed in a prior year when I flew across the atlantic (JFK/LHR) roundtrip 10 times in first class with AA I did not make exec platinum. Admittedly They were “discount first class” tickets but they cost an awful lot more than $20K.
I bring the airline lot’s of money, but I fly point to point on high fare tickets. This means for example I am considered less loyal than someone who uses obscure routings and cheaper tickets to maximise MPM. I suppose I could have easily driven AA’s cost up by going to London via Madrid and Barcelona for the same fare and they would have rewarded me more for that behaviour.
While it is always disappointing to lose benefits and the CFO comments do not endear customer loyalty, there are also aspects of some of these programs which seriously undervalue high spending fliers. I agree with the CFO that *this* aspect should be fixed. Failing to generate any loyalty in someone spending a lot of money is not an effective use of these programs, is it?
Your article makes a lot of good points but you actually miss the main point.
$mi$ek and his regime of texas meatheads have declared war on elite flyers.
Your examples of a Y fare purchased by a low status flyer trumping a 1K flyer on a lower fare make it seem like the airline is rationally choosing revenue over loyalty.
What you fail to mention is that the airline has instituted a policy of selling seats in first class at a price that falls until it becomes so low that nobody can resist purchasing it.
So, in addition to your examples that show how a Y fare traveler trumps a 1K, before $mi$ek and his band of texas meatheads release a seat to the 1K’s on the upgrade list, they’ll offer those seats in F to everyone on the plane, even people with no status on deep discount fares, and the prices of those offers are reported to be as low as $29. These offers are not offered in a consistent way and as a 1K flyer myself I can tell you that I have never once received an offer of this type.
Since the 1K flyer needs to check in 24 hours before departure (wait list priority is based on time of check-in, in addition to status and fare class) to have any chance at all of an upgrade, in practical terms this seems to mean that the super-cheap offers are going to flyers w/o any status who are checking in during the last few hours before the flight, while the 1Ks wait on the upgrade list for seats that are sold out from under them for pennies on the dollar.
These details make a big difference in understanding more fully how $mi$ek and his meatheads are turning UA into ValueJet.
@srptraveller – excellent points, but in my mind, it is Global Services that accounts for those who purchase high revenue tickets, but don’t necessarily travel the distance to otherwise achieve top tier.
It’s interesting to read on FT the accounts of numerous companies pulling their business from United. Companies that each fly hundreds of international business class per year. Seems like the sales reps have no response other than giving out free upgrade certs. I can’t believe that swapping out busiess class flyers for kayakers can be a good business model – unless going LCC. I don’t think management asked their most valuable customers (not necessarily all FFs) what changes or not that they would like. They do seem to like the change of not flying UA
Hes talking about people like Mr. Pickles who achieve 1K in the slimiest way possible and then demand all the services and respect of a true 1k. Pickles has made a career out of being an inflight nuisance by claiming 1k status and then demanding compensation for every fault he can find. I know hes not alone in this but hes obviously teh most vocal about it.
I agree with the guys statement. 80% of their revenue comes from 20% of their fliers will the other 80% is probably costing them money.
makes sense to me.
@Connor
Interesting quote “I agree with the guys statement. 80% of their revenue comes from 20% of their fliers will the other 80% is probably costing them money.”
I remember another company a few years back that divided their customers into “angel” and “devil” customers publicly and went on to discourage all the “devil” customers from shopping with them. Made sense, yeah? Yet, apparently, was not the solution.
Brutal misunderstanding on the part of CO’s CFO of both (i) the semi-fixed cost nature of the airline business, and (ii) elasticity of demand for air travel.
It is an extremely unwise decision to start the merger of a combined airline by reducing the loyalty benefits for elites. To then have the CFO deride the customers who are a major reason the airline is profitable and in business as over entitled is a major insult to those the company should be striving to keep. FT has numerous posts about businesses switching their contract to American and other airlines as they are fed up with all the mishaps from the merger.
This is why you don’t let CFOs speak in public.
I’ve been doing some MBA interviewing at the legacies, and its absolutely shocking to me how much they still think their customers get to “choose” to sit in Y rather than J, and even moreso shocking is that they think there’s still discretion in the spend of individuals (as if someone is saying that they would rather buy Y and upgrade to J rather than buying Y). Those that get to buy J buy J. Those that don’t don’t.