United’s Jeff Smisek Wants MileagePlus to Be More Revenue-Based

While everyone else is making money — $200 million or more for the quarter for American, Delta, and Southwest — United lost $600 million and says it’s not their fault.

If it wasn’t for the same bad weather the airline faced, they say they would have only lost $400 million.

When it comes to an airline that believes their customers are the problem, they’re clearly doing it wrong.

So what do you do? Be more like the cool kids, Southwest and Delta. In all things, and certain in the frequent flyer space.

From United’s earnings call:

Michael Linenberg – Deutsche Bank AG, Research Division
    Okay, good. And then just one other question here. And I guess maybe this would be for you, Jim, as well. You look at how Delta is sort of rethinking their frequent flyer plan and then basically now sort of changing, tying the miles there on — basically tied to revenue paid. And it’s not unique. I mean, I think, JetBlue, Virgin America, Southwest, they’re also along those lines. Is that something that you may be looking at or studying? Is that something that makes sense given your network, your customer base? Any thoughts on that would be great.

Jeffery A. Smisek – Chairman, Chief Executive Officer, President, Member of Executive Committee and Member of Finance Committee

    This is Jeff. Clearly, frequent flyer — or our frequent flyer program is evolving and as are others. And what we’re trying to do is better align the benefits that we deliver to our customers through the frequent flyer program with the benefits that the customers deliver to us from their flying, including the profitability of their flying. And I believe that you will see evolution of our program over time. We can’t talk about specifics at this point in time, but clearly, this is an evolving process. And frequent flyer — our frequent flyer program is becoming much more sophisticated and is better aligning the benefits bidirectionally.

It’s good to know that ‘the benefits will be aligned bi-directionally’. (Seriously, that’s how he talks.)

But the on-the-ground folks understand how much more nuanced a frequent flyer program needs to be than just “rewarding people who spend more” since those aren’t the customers whose behavior you will necessarily influence at the margin to drive incremental business and profits.

And United’s IT is so bad — remember that they’ve imposed revenue requirements already for elite status but partner tickets don’t count even when they’re sharing the revenue and business travelers in managed travel programs often have expensive tickets whose fare United MileagePlus cannot see.

The IT on a real revenue-based program is hard, and I’m skeptical United would be up to the task any time soon. They may ‘move in that direction’ and have already taken great pains to make more expensive awards… more expensive.

I just wonder how much longer Smisek’s opinions on such mattes will carry sway in any case. At some point his board has to decide to do something different — that if you’re losing half a billion dollars a quarter, the solution might be to change management rather than change customers.

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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  1. That’s why they lose customers like myself – had over 240,000 miles flown and nearly $40k in spend in 2013. Essentially I felt no better treated than a normal 2x a year traveler. If you’re are not a GS member then you aren’t really much different than any other traveler. I spent many hours pre-Feb 2014 figuring out how to get as much award travel booked for the lowest points possible (booked over $110,000 in tickets for about 1 million miles mostly on partner airlines in business or on United in Global First). Divesting miles will continue in 2015 and I will only fly United as a last resort. Well done Jeff – keep up the spectacular work and maybe give yourself a nice bonus check too!

  2. $mi$ek is a buffoon. The adage that people rise to the level of their incompetence is clearly the prime example here. How THAT guy was given the reins at CO, and proceeded to ruin that product is beyond me. They PAY people to do this?!?

  3. I like this one:

    “At some point his board has to decide to do something different — that if you’re losing half a billion dollars a quarter, the solution might be to change management rather than change customers.”

  4. I’m a United flyer and shareholder, and in both of those roles, I’m mad as hell that Smisek still has a job. He needs to be fired and replaced with someone who understands basic economics. Or someone who understands consumer service. Or someone who understands how to run an airline. Or, ideally, someone who understands all of those things. But getting someone who understands even one of those things would be a big improvement.

  5. “better aligning the benefits bidirectionally”, as in the benefits to members are “overindexed”.

    To these people loyalty is a unidirectional thoroughfare.

  6. Its all those overly entitled UA elites eating to many crackers in the UA clubs
    We know who u are

  7. I don’t think changing management will do any good for the frequent flyer program. If someone like Richard Anderson becomes the CEO of UA, it doesn’t take a genius to see what MileagePlus will be like in the near future.

    For those who still value MileagePlus and prefer a mileage-based program (e.g. most of the bloggers here), you better hope Smisek stays put. At least Smisek is proud of MileagePlus and often brags about it being the most valuable frequent flyer program.

  8. Delta hasn’t even changed their program yet and they are making tons of money compared to United. The FF program clearly isn’t United’s problem and that question is therefore premature. If Delta pulls further ahead next year in the profit category, then maybe this question is warranted at that time.

  9. I write is as a 1K that has abandoned UA for AA and currently cruising along at 34,000ft in an older plane but with better food, working internet, and service with a smile. As an IAH based commuter that has already hit my 10K spend for 1K, but gave up long before the mileage. Flying AA means an extra segment but a much better experience as a frequent flyer.

  10. I’m an UA 1K, and I feel like UA is a wounded child with some fixable issues but Jeff overstay his welcome, and it’s time for new leadership who don’t declare war on customers and cheapen products too deeply that people decide it’s enough and take their dollars to another airline.

  11. Snisek is ruining UNITED AIR LINES. This was no merger, it was a buyout.
    They need to run the airline like UNITED AIR LINES managed it and customers will return. pmUA was a much better service-oriented airline than pmCO was.
    Changing management will be tough if Smisek is chair of Board, CEO, & President.

  12. Isn’t it funny how all the UA service points were eliminated after the merger, but then started coming back as customers complained?!
    I think Smisek wanted to Continental-ize UA and still call it a merger of equals. So many things he promised are empty promises.
    Coffee sucks on board
    Ch 9 was promised but just look at the new planes post-merger – the 737’s and the 787 don’t have ch 9.
    No clear strategy for a unified fleet & cabins.
    Is FIrst class going to be eliminated on Intl flights or not?
    Original name – United Club – who the hell came up with that??? Red Carpet was more welcoming in name!
    It took them years to figure out that 1K and Global Services needed more attention. Now they are doing all these “enhanced” services for them like limo ride to plane at hubs.

  13. Actually the problem with Smisek is…he isn’t a manager. When Smisek was hired by Continental, Smisek was General Counsel. He is a lawyer by education. When Smisek became President of Continental, Gordon Bethune had just retired. Smisek had a piece of cake. The people, the policies, the procedures, the products, etc. were all put in place by Bethune. Running Continental, obviously by formula, worked great. Now comes the merger. Most of you probably have read or heard about the arrogance and problems that were brought to the table by Continental? The issues affected every item, policy and procedure. Now put the “labor” issues on top of that. Continental was smooth running machine and United has 40 years of labor disputes. The main problem is the workgroups of UA and CO are still separate. There isn’t a unified contract. So UA people only fly UA planes and CO people only fly CO planes. Those contract negotiations are still on going. The losses will continue, because of two, still separate operations. Smisek was quoted in the New York Times, as saying, that United was concentrating on better performance and customer service. “And there are people who don’t like that. I understand that. What I want is those people to either change or leave.” With that kind of attitude, you should expect problems. Not that United doesn’t have a boatload of very lazy employees. That you folks, probably know, all too well.
    I can imagine that some severe cuts will have to happen to stave off another bankruptcy. Meaning Mileage Plus will change. I’m so glad I don’t own stock in United.

  14. @JohnB
    They won’t be going bankrupt any time soon. They have more unrestricted liquidity than any US airline. If they lost $600m/quarter, they would be in trouble, but they don’t. They’ll probably end up making money this year, and if they don’t, they can sustain $500m/year losses for 12 years before they run out of money.

  15. @JohnB – You’ve got it right, though think management is deliberately being quiet about labor negotiations in public. Reality is it is priority number one behind the scenes, and the pmUA flight attendants are to blame for holding this up.

    The frequent flyer geek crowd can call for Jeff’s head all it wants. Gary is prob a little hungover in thinking a 1Q number should be extrapolated to other quarters.

    But no new CEO is going to help without crews who can fly together as you point out.

  16. @Kris, there are some serious issues that may leave them closer to bankruptcy than a look at their unrestricted liquidity might suggest. I haven’t looked very closely at their numbers, but a quick ratio of 0.55 puts some pressure on short term cash flow and a very high debt to equity ratio of more than 4 to 1 could potentially put some debt covenants at risk and cause an acceleration of long term debt repayment that they are not capable of withstanding. And all of this during pretty much the best operating environment US airlines have seen in a very. very long time. If anything goes wrong in the operating environment (like weather, increasing fuel prices, adverse foreign exchange moves, or a general downturn on the economy), they could very quickly be in for a world of hurt. I quite like traveling on United (more this year than in the previous 3 or 4) and they are usually the best option I have, however, they certainly appear, financially, to be running the airline into the ground, and I think the ground may be a lot closer than it appears.

  17. When will the Board realize that Smisek and his cronies from C nine two don’t have what it takes? They haven’t turned a profit in 4 years!!!

  18. Gee, I never fly them except using ff miles because they seem to have the best availability.
    Or am I wrong on that?
    So they changed mileage requirements on partners…..go get your seat from Avianca.
    I think from reading blog posts and airline comments the carriers realize the high revenue tickets might be coming their way regardless of the ff benefits as so many flyers are constrained by their corporate policies.
    If you worked for me and repeatedly wasted 2 hrs of the day connecting through another city to get miles on a different airline , I’d feel like you are working for yourself, and I’d certainly ask you to go do so unless you are making me a lot of money and deserve the benefit of choice. I’m just like the airline–rewarding those who can provide me incremental profits I would not otherwise receive.
    I think the carriers are correct to reward incremental revenue of those with true choices. That doesn’t mean the 2x / year traveler gets out-of-proportion rewards.
    It does mean someone like myself, not flying from a hub, whose time has a value only he/she can put on it, who will pay for premium class if necessary, is the revenue producer whose loyalty you want to reward most.

  19. I’ve been 1K for a long time, but this year following a move to ATL I’ve decided to switch over to AA. DL is the obvious choice here, but I’ve got no status (AA matched me to Platinum through a corporate deal) and there’s about 2.5 million Diamonds here, so DL is my SE USA choice.

  20. Smisek reminds me of a finance professor I had… just an intolerable, smug jackass that tried to show everybody how smart he was. Turns out, he failed miserably in several different business ventures…

  21. Practically every airline now offers wifi system wide EXCEPT United. I have been on multiple United flights over the past week and none of them had wifi. Business people who tend to pay higher fares expect technology onboard planes. How does he think he is going to encourage higher fares when United has mostly older wide body aircraft without technology. I started to laugh when the video came on yesterday and he was touting what a technology based airline United is. The guy is in serious denial. I really thought the United-Continental merger would turn United into a great airline but they really botched it up.

  22. Delta & AA and almost any other Intl carrier that competes with UA has put a 1-2-1 config in Business class…….UA has 2-4-2 or 2-3-2 or 2-1-2

    When will they learn ?

  23. It’s time for Jeff and the gang from Cntinental to go. How long will the Board put up with such poor performance.?

  24. Jeff and his Continental cronies were running CO into the ground in 2008. They were fast running out of cash and NEEDED an infusion of money or face liquidation …Well along comes Glenn Tilton/UAL… UAL had 6 billion in the bank. Just the perfect solution to save CO from liquidation.. Use UAL’s cash merger the 2 together and presto… DISASTER…. Jeff’s still at the helm and doing what he does best…Run UAL/CO into the ground..deja vu again…Unless there’s a change from the top down expect more of the same…quarterly loses and more excuses. Definitely has no idea what’s he’s doing.

  25. What is going on with the Directors of United? You can’t tell me these supposedly intelligent business men and women still believe the BS spewed by Smisek.

    United has LOST more elite flyers than any airline, managed to anger many million+ mile flyers like myself to the point of considering switching airlines, and continuing to blame the United customers for his lack of leadership and ability to generate a profit.

    ENOUGH already, fire the incompetent leader.

  26. What is going on with the Directors of United?

    United has LOST more elite flyers than any airline, managed to anger many million+ mile flyers like myself to the point of considering switching airlines, and continuing to blame the United customers for his lack of leadership and ability to generate a profit.

    ENOUGH already, fire the incompetent leader.

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