How United MileagePlus Expects to Increase Revenue By Giving Customers Less

I’m not currently a paid subscriber to Holly Hegeman’s Plane Business but really should sign back on. It was Holly’s website that introduced me to FlyerTalk nearly two decades ago, which played a key role getting me started on this journey.

A reader sends along this quote from a recent newsletter,

Oh, and if you have United miles stashed away, I agree with Brandon – you might want to start using them sooner rather than later. United is moving to dynamic pricing of loyalty redemptions this fall. While perceived as being not-so-good for customers, the shift should generate another $150-$200 million in annual revenues, according to Barclay’s research.

You might be wondering “how can making customers value MileagePlus less generate more frequent flyer revenue for United?” And the answer seems likely to be an accounting fiction.

  • Awards will cost more miles
  • So members will redeem for miles for their travel
  • That means recognizing more revenue that’s currently a liability on their balance sheet

That doesn’t actually make United better off. It’s not new money into United. Instead it’s moving money around on the balance sheet.

When you buy an airline ticket, a portion of the revenue is deferred — future liability that covers the value of the transportation you’re expected to receive in the future.

When United sells miles to Chase, most of that money is recognized right away — they claim it’s payment for their marketing services, payment for things like waived checked bag fees — but a much smaller portion is deferred to cover future travel that you’ll redeem.

Interestingly United defers about 10 times as much to cover future travel when miles are earned from flying than when they’re earned from credit card spend. That’s an artifact of accounting rules that are fairly strict when United provides a future reward for a current sale themselves (ASC 606) versus when they are selling their miles to a third party.

If customers value United miles less and are less willing to choose United’s flights or credit cards because of it, that’s likely bad for United financially — although in the near-term they can arrange their financial statements to make themselves look better off. And when customers do shift away from earning with MileagePlus it’s much easier to blame competitors for offering better products.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. More miles redeemed because advance purchase mileage cots will prob on avg come down for run of the mill domestic.

    The way Delta did it.

    Lousy for frequent fliers who value miles for premium cabin redemption

  2. It’s already working with the cuts to beverage and meal choices across all classes.
    I’ve joined the ranks of bringing my own snacks and meals onboard long-hauls.

    ANA and SQ offer Prem Econ Asia fares while UA prices them at Econ.
    UA offering less across the board, this does increase revenues. (But why are passenger loads at 90%?)

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