United all but confirmed that the gist of what’s been leaked is correct when they issued a denial.
As we’ve said, the details are coming in the fall – specifically, we’re aiming for the end of next month. In the meantime, there will be rumors — like what’s been posted here — that unfortunately contain some inaccurate information.
“Some inaccurate information.” Indeed. Not false, incorrect, mistaken, grossly speculative even. Just some of what’s been speculated isn’t quite right, but we won’t tell you what.
So if you haven’t seen the direction that at least some of Mileage Plus’ thinking seems to be going in, it’s worth reading up.
In Ben’s follow up, he points out that it’s not final details, it’s one proposal that was floated but that’s likely somewhat different than the final version, and that his rendition was indeed incomplete (eg that segments on COPA and Aerorepublica would count towards the minimum to reach status – not just United/Continental segments).
But there are two claims that he makes that I think it’s worth taking issue with.
The next point of frustration seems to be “how dare United do this on such short notice.” Keep in mind this is the 2012 program, meaning this would be what’s required to requalify in 2012 for 2013. I think that’s plenty of time, given that we’re talking about a huge merger. To many this would be no different than an award chart devaluation, in which case 3-4 months advance notice would be considered plenty.
Though the very first point I made yesterday was about late notice for changes that they’re making, I think my point was misunderstood because it’s something that Wandering Aramean took issue with as well.
I agree that assuming announcements are made soon that it is plenty of advance notice for how folks will qualify for 2013 status based on 2012 flying.
The claim I made about too little notice is that this is not sufficient for the major changes to how the program will be run, assuming that implementation happens in the 2012 program year — not sufficient notice for reduced bonus miles for flying, prioritizing full fare over status for upgrades, etc.
I know I’m tilting at windmills here. I know airlines do this all the time. But I’ll say it and say it strong. It’s crap.
If you fly all year to earn a published set of benefits the following year, and they make changes to the benefits the coming year benefits in the back half of the year, that’s a bait and switch. United is no worse than other airlines here, of course, but it’s still an underhanded ‘standard practice.’
Ben also repeated a claim I’ve read elsewhere in the past day, such as by Wandering Aramean, that I think misunderstands what makes a customer profitable. It’s a very common misunderstanding.
If I previously took twenty $250 trips per year, I would have spent $5,000. Let’s assume those are transcon trips and United wasn’t making any money on them. I was an “unprofitable” customer.”
This confuses average and marginal analysis. Let’s take two extreme examples to illustrate.
Someone buying a full fare ticket, the last seat on a plane, may be the unprofitable one – if someone else would have come along and bought the same full fare ticket that’s now unavailable. Or at least that full fare passenger provides zero incremental dollars compared to United’s next best alternative. The economic profit on that passenger is zero. Amount of profit accruing to an activity has to be determined on an opportunity cost basis.
Someone buying an expensive ticket based on company policy to fly United on a given route, or based on a corporate contract for that route, is not generating any extra revenue as a result of the frequent flyer program, either. Awarding them miles is done at an economic loss, because doing so just adds a future cost beyond what’s necessary to attract revenue. Awarding those customers miles or upgrades is not done at a profit at all.
The customers most people think as being the most profitable may not be profitable at all. Awarding those customers perks, benefits, future award travel may well be unprofitable.
On the other hand, someone buying cheap tickets that the airline makes available in a low fare bucket on the expectation that those seats would otherwise have gone empty or that would not be sold at a higher price, those customers are indeed profitable!
The marginal cost of that extra customer is near zero. The seat going empty generates zero revenue. Nearly every dollar United takes in from such a customer is pure profit!
To be clear, these are very extreme cases used for illustrative purposes only, that’s not the median case. And I am not saying at all that an airline shouldn’t try to attract more customers who pay more for the same product, not at all!
The overall point is this: a profitable frequent flyer program is one that influences consumer behavior at the margin, to generate revenue they would not have otherwise gotten, above the marginal cost to produce what the customer is receiving.
Rewarding high spend that you’re going to get regardless of the program makes no sense at all.
Saying that a passenger flying a $250 transcon is unprofitable is to say that the airline would be better off if that customer were not flying. Which is generally absolutely false. The claim compares the passenger’s marginal contribution to the airline’s revenue with the airline’s average cost, a common mistake.
A frequent flyer program, properly run, wants to move the needle on wallet share — not to “reward high spenders.”