Status does a great job motivating customers who buy coach, or at least fly coach a substantial portion of the time – for instance the road warrior whose company will spring for business class internationally once or twice a year but has a rule of 6 hours or more for premium cabin so domestic trips are mostly out up front.
Status does almost nothing to motivate someone who buys all premium cabin tickets.
- They don’t need the upgrade, they’re already up front
- Free checked bags already comes with their fare
- They don’t really need the bonus miles, most miles aren’t earned from flying anyway.
- They don’t need economy plus seating
The ability to gift status to a loved one could be nice. As the threshold for earning status approaches a level where it’s obtained mostly by people who do not need it it isn’t going to be a significant motivator.
The basics of any loyalty program are reward and recognition. There’s points (for instance, earn something when traveling on your employer’s dime and direct your employer’s money to the travel provider so you can pad your own mileage account) and there’s status (better treatment).
That better treatment is only a motivator for customers who aren’t buying that treatment on the travel day anyway.
Programs were designed to get customers to take a less convenient flight – perhaps travel a couple of hours later or take a connection – in order to stick with their preferred carrier. But will someone buying all premium tickets do that anyway? It’s the person striving for something, trying to make their travels a bit better, that road warrior traveling in back most of the time where programs can move the needle on their spend and earn incremental business.
With increasing levels of spend, elite programs are on a collision course with themselves, headed towards irrelevance where they precisely target the customers whom they cannot influence. At $24,000 spend alone for 1K status it will be interesting to see if United reaches the point where they draw a circle around members who earn status without trying, and don’t give the airline incremental business as a result.
To be sure there will be program members spending $24,000 in a year on all coach tickets, and spending $18,000 while flying enough segments. That’s not the question. But when the program loses relevance to a large portion of its membership it’s no longer driving business — it’s incurring cost without benefit. The program may well be less useful to United as it drives to focus more heavily on its top spenders.
Spot on analysis Gary. So true.
I used to try the extra mile to fly UA to keep my status. That meant 1) flying UA when it wasn’t always the best option; 2) buying premium to get the PQD and PQM up; 3) taking more trips than I really needed to.
At 24k minimum spend I will just fly up front on whatever carrier I want. Fly less and save $. 1k is not worth 24k for a couple GPUs that may or may not clear.
This was a big gamble though I’m sure someone from McKinsey did a nice job on the deck.
This is an attempt by UA to drive up the cost of the F seat. If the majority of elites are already buying F then they can charge more for it in the future. Good for UA for looking a little further ahead.
Unlikely, but I hope United is listening. Do they actually talk to their customers? It’s a non-rhetorical question. As a business owner, I periodically ask my customers what they think about doing business with my company. I may not like the answers but I need to know what the people choosing to do business with us think. Likewise, I give feedback to my vendors so they know what I’m thinking. I thought this was an extremely basic concept, but United seems to have missed the premise, instead going with more ivory tower bean counter changes.
With the changes, United’s loyalty program is no longer relevant for many of its customers.
The spend requirements for the lower tier elite levels make no sense to me. $5000 for Silver??
For that amount of money you can buy 5x TCON return in business or Mint (JetBlue) and fly 25,000 miles anyway.
Ancillary perks are useless as well for low level elites: you can get a free bag with a $99 credit card and the chance you actually are upgraded is like 0.0000001%.
At long last, @Gary Leff and I are exactly on the same wavelength on something! 😉
I feel like this is going to be an interesting business case study in 20 years about how the airlines screwed it up. I think when times are good, a frequent flyer program doesn’t provide the airline much benefit since they have to pay out extra miles. Having a mostly full plane with non-elite status flyers is to their benefit since they can save a few percent. Every elite flyer they lose now just gets replaced with a no status flyer because of price.
And now they’re starting to create a whole bunch of flyers who just want the cheapest and most convenient flight. I used to do AA cc spend and fly to get status but now i’m just focused on max earning cc spend to use when we do fly for the most convenient time and price.
However, when recessions hit, a frequent flyer program will keep customers with their airline.
I know the airlines will eventually offer free status challenges, but I think by that time, it’ll be so hard to get those customers to come back. Amex, Chase and Citi points will probably hurt these frequent flyer programs even more over time.
Most businesses don’t have loyalty programs. Each transaction is, well, transactional. Have you considered that the airlines might be financially better off without frequent flyer programs? I think this would be the case, except for a couple of factors. First is marketing. It’s obvious that the majority of marketing done by airlines is now their their loyalty programs. The second is the credit card income. Have you considered that, beyond these factors, the airlines don’t care very much if you’re loyal? In other words, they’re not terribly interested in your cheapo ticket purchases even if you buy a few expensive business fares every year? There are good reasons to believe this. The vast majority of customers buy air travel based on price and schedule — which is completely rational. Buying air travel based on “loyalty” — making an extra connection, paying a higher fare — is largely irrational. So the airlines know that if they’re price and time competitive they will get the customer’s business and, if they’re not, they won’t. Maybe you’re just seeing the world as you want it to be, instead of how human beings actually behave?
I think the change makes perfect sense, they are targeting travelers that spend $2k a month on airfare, mostly regional flying. It always amazes me how my 1k mile flights can cost $500+
The problem is how airlines made miles a ‘currency’… This means that the points don’t really relate at all to flying, they are a financial system upon themselves, and thus the elite systems need to devalued to equal the amount of points/dollars out there. Regulations were needed back when this started to stop the house of cards, which we are seeing with programs like air canada and others threatening (or actually taking) back control of programs they sold off. Flying is no longer the airlines primary business, and now you see what happens.
Interesting that United would create a program that incentivizes flying other airlines when paying premium prices and offers no encouragement to those who fly economy.
If United offers no additional benefits to those flying on premium fares, why would most people choose United? Premium inflight service? Premium meals? Premium ground handling?
In almost all cases there are other airlines that do it better. United may be delusional as to their product and the ability to compete.
I don’t think its proper to equate “big spenders” and “[flyers] who buy all premium cabin tickets” as you seem to have done here. In a previous job, I flew about 2-3 times a month on mostly last-minute tickets on almost exclusively intra-California routes. Those flights generally ran about $500 per round trip. The system presently would deem me a silver elite, even accounting for the 500 mile minimum segment length, even though my spending would generally be around $18,000 for the year, not counting leisure travel. The Bay Area has a lot of competition, so once I figured out that I wasn’t being rewarded as well as I could have been, I stopped schlepping out of my way over to SFO and went with the far-more-convenient and rewarding Southwest out of OAK.
All that to say I think that this move makes a lot of sense for primarily domestic economy travelers who are (or whose companies are) paying for more-expensive-than-average tickets.
@ Gary — Since I am 1MM/Gold already with United and since the Platinum/1K requirements are so high, there is little reason to credit flights to UA, unless I happen to book enough “cheap” partner J/F flights. Even then, the value offered for the price by M&M SEN or A3 Gold looks superior to that offered by United 1K.
I book some paid LX F every year, and until now, I couldn’t credit those trips towards UA status, so attaining UA 1K status is at least a possibility now. Is this analysis driving any loyalty from me? Clearly not. It is all about what they can give me for something I am buying anyways. Therein lies UA management’s error.
You hit the nail on the head Gary! I have chased the status rabbit for years, taking inconvenient and more expensive coach flights just so I can travel somewhat comfortably. But if I’m not able to meet the required dollar threshold, then status and loyalty goes out the window. At that point, I’ll just buy premium economy/business from the cheapest/most convenient provider.
I agree with this article, too, and am one of those 1Ks who will not qualify under the new regime, and was only borderline to requalify for next year already. But I have a couple of observations.
First, with full flights, maybe they don’t really care about influencing a flyer with a loyalty program. You can’t sell more seats than you have. Of course, this may not always be the case.
Second, the main reason I originally saw benefit in 1K was the GPUs and the upgrades. But at the same time, upgrade space was basically disappearing. I have a hunch that the new points-based system will not make that any better. And I will probably have unused GPUs by the end of the year. A loyalty program with little real benefit doesn’t influence a buyer’s behavior much anyway. I can live with boarding with Group 1.
This is what’s so puzzling about UA’s changes. If a UA customer was actually spending 24k/yr on tickets, why wouldn’t they just fly SQ or BR instead?
@chopsticks, most businesses are rushing to emulate and add loyalty programs you name it Uber, Chipotle, Chik-fila, etc. They know that loyalty drives repeat business and that simply competing on price everyday doesnt drive profits. Airlines started this.
While the occasional flier is certainly not driven by loyalty programs and likely because of price & schedule, business travelers are because they travel enough and they arent spending their own money
Consider the following
“Airlines receive only about 60% of their revenue from passengers directly (the other 40% comes from selling frequent-flier miles to credit card companies). But of that 60% of passenger consumer revenue, the big money comes from business travelers – as opposed to those flying for leisure or personal reasons – in percentages that far outweigh their numbers. Business travelers account for 12% percent of airlines’ passengers, but they are typically twice as profitable. In fact, on some flights, business passengers represent 75% of an airline’s profits.”
Business travelers will choose loyalty to someone, say United because in the past there have been tangible benefits to them for loyalty. If this goes away for all but the very top, there is a strong incentive for them to move to another airline who can offer something in return. While it would be difficult for Hub captive fliers, others would likely move.
Without a doubt…THIS! ‘..At $24,000 spend alone for 1K status it will be interesting to see if United reaches the point where they draw a circle around members who earn status without trying, and don’t give the airline incremental business as a result..’
I have been a low-level elite for many years. Aside from the (very) occasional upgrade, the most important benefit was the dedicated check-in line at the airport and the special phone # for elites in case of irops. With electronic check-in and better pricing for first/business class, this has become less important, so my need for elite status has decreased considerably. I have flown Spirit (big seat) quite a few times now without any hiccups. Their on-time record is one of the best; they are now my first choice if my itinerary allows. Next year might be my first as a non-elite since the 90’s. I doubt I’ll miss it.
1. “They don’t really need the bonus miles, most miles aren’t earned from flying anyway.” this ranges from true to very false depending on the customer segment. Their highest spending customers do in fact earn almost all of their miles from flying. There is somewhat of a u-curve on this where non status infrequent fliers and top tier status earn most miles on flights, while credit card periodic flyers and lower status customers earn a smaller proportion from flying.
2. Macro-level, yes this changes loyalty, but you’re failing to acknowledge that there is a real and very profitable segment of flyers that this helps. The average domestic weekly business flyer is flying on flights less than 1200 miles. This is huge for them to incentivize keeping all of their spend on one airline now that they have even a hope of hitting top tier status.
I think we should all check back in mid-2022. The herd of 1Ks will be so drastically reduced (both by the higher spending limit and the fact that a lot of 1Ks will only be people flying 4-6 times a year in business class, so they won’t be clogging up all the Monday morning/Thursday night flights…) that word will get out about how every upgrade is clearing, phone lines are open, and how amazing it is to be a 1K again.
Selfishly I am happy. I’m a domestic coach traveler who routinely buys last minute fares (on-site engineering support) and can easily clear $15K and get to $18K with a little work. For all the people saying “you get free bags with a credit card”, etc, maybe you forget what it’s like to not be an elite with an airline? I highly value flexibility in my schedule, and being only a Platinum, I love being able to show up at the airport early and jump on any different flight I need to. Or having a faster phone support line to get me on a different flight when mine goes mechanical. If it’s not worth chasing status (to be fair I’m spending my employer’s money) then go stand in the customer service line on a snowy day at ORD and tell me frequent flier programs don’t do any good.
Longtime frequent fliers often get hooked when relatively young and far down on the corporate ladder. After a couple of promotions and years spend per mile typically increases as they become less cost averse and more time sensitive. But these new rules will prevent many getting hooked in the first place. Silver status does not get you hooked and turn you into a loyal United flier, it just doesn’t. They have killed the credit card waiver which helped many in this category. You would assume that they have been able to look at their data and see how frequent flier spend evolves, I assume they have done this and know what they are doing.
Spot on Gary. I was AA EXP for 10 years and gave it up this year. Delta Diamond a few years ago And now United 1K via status match and that will expire in January. I don’t need status as I simply buy First Class tickets on the airline of my choice, since they are now reasonably priced. I credit all my domestic flights to non-US programs, where easy to achieve top tier status which has real value, for domestic lounge access and First Class awards.
Don’t forget at some point, business will put in strict controls of airfare costs and demand more rebates for preferred carriers.
If I were to own a (small) business, I would definitely keep an eye on spending.
This is outright incentivizing stealing or paying extra money to select carriers.
United you want big spenders for now, but these spender will have a day of reckoning as well.
@choptsticks
Actual traveler behavior – as evidenced by the airlines’ own data – very clearly shows that loyalty programs (and specific to this article – status level thresholds) – do very much influence behavior. Specifically – both frequency and spend ramp up as a result of “achievable” status thresholds.
The only point in your comment that is accurate is that loyalty programs promote irrational behavior – and this is precisely why they work.
To some other points:
– The one improvement in UA’s changes is the ability to achieve status for purely high spend – this does indeed benefit last-minute short-haul flyers and is a genuine improvement.
– The point above is irrelevant to Gary’s point – and that is about those who are unlikely to continue to be motivated as a result of “out of reach” spend requirements. Improvements to “catch” those who are currently missing out – don’t have to come at the expense of those who are currently qualifying. It’s not a zero-sum game.
– It is true that some of the highest-spending flyers earn most miles from flying. There are several reasons for this, including a lower-than average propensity to take up a cobrand card. But this segment also cares the least about “more miles” – firstly because when you have more miles than you know what to do with, there is very little incremental utility in additional miles. Secondly, because this specific segment – as a rule – is also the least “motivated” by the miles themselves. Will they use them – sure. Will they respond “yes please” when you ask in a focus group whether they want more – sure. Will it actually change their behavior to generate incremental income – no.
Currently for 2020 1K renewal, 1 GPU is given after every 25’000 PQMs.
(These will convert to 40 Points.)
For 2021, after 1K renewal met,
$3000 PQPs = 20 Points
$6000 PQPs = 40 Points
UA aims to drain the GPU/Points bank. Additional $6k for the hope an UG will clear is a home. LOL.
(Take away the expiration dates and I’ll give it some thought. No way.)
They’ll be banking on cash+copay for UGs or instant pay UG at check-in.
“Ed says:
The spend requirements for the lower tier elite levels make no sense to me. $5000 for Silver??”
– It does not. Note that up to now UA is giving the Silver to Marriott Titanium Elite for free. I am lifetime Titanium so I am also UA Silver without ever spending a dime with UA. With recent changes, I have no intention of flying UA.
Thinking back fondly on how in 2010 I got 23-month AA EXP status and a bunch of redeemable miles for $1500. Hahahahaha.
@ DaveF, @Adam — In the “old days” — like 10 years ago — frequent flyer program benefits were generous enough that there was incentive to “stay loyal” and to also travel “for the miles.” Those days are gone. These days, I am certain that the number of travellers who would, say, choose a connecting flight over a nonstop for a domestic trip “for the miles” or to “chase status” is tiny. Honestly, it would usually be nuts to do so. The name of the game is price and convenience. When it comes to transportation, that’s not necessarily a bad thing.
I will never forget my conversation with Arthur Bass, Chairman of Midway Airlines, in 1982, when he expressed his sentiment re airline marketing: officers how “airlines re-cycle their marketing garbage.”
I have learned to stop playing the Pavlovian dog to react to every airline’s attempt to over promote and undersell. In 2008, I walked out of United; this summer I left American. Out of ORD, I will pay FC and ride Delta. I do not favor wasting my time chasing miles, when instead, I will just pay for the consistent service and meal I expect in FC—which DL meets.
This is a good thing for business travelers. Those that do short hops booked last minute can definitely benefit from this, and it is not all bad for those in mid continental hubs. I ran the numbers for my leisure travel and have found that Premier Gold is doable where before I wasn’t even making the minimum for Premier Silver.
You’re spot on as usual here, Gary. One of the few bloggers that really “gets it” from both the loyalty / psychological perspectives and the business perspectives.
Those who can spend enough to qualify are likely buying premium tickets anyway. Not all, but a lot. They don’t need the elite benefits as much and they won’t go out of their way to *choose* UA when it’s not their best option anyway.
And as another poster stated correctly, those just starting out in corporate life get hooked and become loyal due to achieving the lower statuses. When they can’t get that, they won’t become the feverishly loyal customer later. I suppose, if UA is savvy enough, they will simply and slyly offer Silver to corporate travel departments to dole out to those very people, but that still excludes the ever-growing small business sector. It’s a given that this dumps leisure travelers in the bin.
In short, it’s now all about carrots for the big corporate spenders and sticks for the rest.
I think @Robert nailed the long game that United’s attempting to play.
By creating more flyers who will purchase F seats outright, UA can raise their F prices accordingly. They can attempt to out-Delta DL and sell out their F inventory without having to bother with FF’s holding out for upgrades.
The only problem is that Delta’s soft product and reliability are superior, and UA cannot expect the same results with their inferior product.
I still have not seen credible evidence in any of the ‘positive’ comments about these changes so far that many folks, including so-called ‘big spenders’, stand to actually benefit from them.
Someone who was already purchasing premium cabin tickets but did not make 1K who would now be making 1K was *already* getting most of the benefits (baggage allowance, lounge access, premium cabin seating) that he or she would stand to get as a newly-minted 1K. It is therefore unclear to me how these changes are going to benefit them or drive new business for UA, as these folks will simply keep doing what they have already been doing. While, as someone just stated above, “[T]hose that do short hops booked last minute can definitely benefit from this, and it is not all bad for those in mid continental hubs”, the number of such folks is likely not large enough for UA to make them the centerpiece of their revenue engine and path to profitability.
By contrast, a flyer like me, who did not spend big bucks but went out of my way to fly exclusively with UA and spent enough ($15K this year) to make 1K because the benefits actually meant something to me, will no longer bother, as the cost of being “loyal” to UA ($24K based of my past travel patterns) would no longer be worth it. It means that UA loses this mid-level, long-haul flyer. Multiply that by many, many folks like me and I must question the soundness of UA’s business decision in making these changes.
I cannot control what UA does, but I am in full control of how I react to what they do. That is why from Day 1 of the 2020 status year, while still a 1K, I am going to become free agent and say: “Goodbye MileagePlus. Hello KrisFlyer!” As a UA 1MM and lifetime UA Premier Gold/*G, I will begin flying with any *A carrier that gives me ‘best value’ and then credit all redeemable and status miles I derive from such flights, including UA flights, to my SQ KrisFlyer account, where I will likely also achieve *G status.
Hopefully, UA will see their error and back out of this it before it does too much damage. 🙂
In the era of mostly full planes FF programs themselves aren’t really necessary other than to the extent they drive business travelers to one airline over another. The airlines couldn’t care less which airline the economy leisure pax fly, and thus there’s no need to give out freebies anymore.
Until the economy slides into recession and corporate travel budgets get cut, just give it about 18 months.
Spot on Gary. These changes may drive a little bit more revenue to UA next year than I otherwise would have sent them, so I may be an example of their target demographic.
I spend $60-80k/year on approx 14 TPACs in business. The past 5 years I have credited 3 to UA, 3 to AA, and 3 to DL, earning 1K, EXP, and Diamond respectively. Next year it looks like it will require crediting 4 to UA.
Of course while on *A my TPACs will be with NH, SQ, or BR, as usual. I never fly United metal, and still won’t, the other options are just vastly better.
Success for the program?? Woohoo?!
@Alex_77W: Do we know that Marriott Lifetime Titanium (or whatever it is called this month) will no longer get UA Silver?
The problem with current programs is stated clearly on the opening line: “Status does a great job motivating customers who buy coach, or at least fly coach a substantial portion of the time”. By most accounts, those are customers the airline loses money on; in other words, current programs are motivating the WRONG customer.
Are the current perks not ideal to a business class passenger? Maybe. But some definitely are valuable. For example priority reaccommodation in case of IROPs. Priority wait listing. Shorter hold times. Free bags and upgrades on personal/family travel in economy, as well as priority check-in. Additional miles to use on personal/family/gifted travel. Those are all valuable to the $18/24k per year traveler. And since these are truly valuable customers, I wouldn’t be surprised if the perks will increase for these “true” 1Ks, after the unprofitable ones drop out of the level.
BTW, this post reads as a self-serving rant.
This analysis hits home for me. I always aspire to 1K and have paid more and taken less-convenient routes to stick with United. Sometimes I make 1k status, but just. Sometimes I don’t get it. But I’ve just lost all incentive to stick with United. Any Star Alliance gold will work for me now that 1k is off the table. Maybe this will be good for the airline overall, but they’re losing thousands in business from me each year starting now.
I considered going for United status if they ever added one city I needed to fly to 4X a year. That was my only hold out. I am AA Gold, which I pursued pretty aggressively. Now UA can forget it. I’m not rich, not a business traveler. I travel often, but on my own dime. I want to be comfortable as much as I travel, and I’m willing to pay for that comfort, as you said. My status was earned with all economy tickets, sans one premium economy segment. Only one international trip was in there, and I did it from Jan-Sept. You’re right; it motivates people like me. AA made a lot of money off of me–and a whole bunch of people like me, and obviously unless they pull a stunt like this, they will again because now that I have it, the last thing I want to do is go backwards, right. UA seems like they want to rid themselves of us normal folks. Okay, then. Bye.
Great analysis- i think this gives alaska two years to grow tremendously, acquire another airline and become a big boy
im sorry, 4000-5000 USD for “silver” just shows United doesn’t care about common people. lol
@Jack sez: “By most accounts, [customers who buy coach] are customers the airline loses money on; in other words, current programs are motivating the WRONG customer. ”
Well, “most accounts” are wrong and that is, in fact, the big fallacy that just lead UA to unnecessarily nuke their heretofore relatively decent and rewarding FF program, which also appropriately doubled as their “cash cow”, but might no longer be after these hideous changes to the program…
No, siree, airlines ***do not lose*** money on customers who buy coach, and below is a link to a great 5-year old piece titled
“You Paid $400 for Your Flight. The Person Next to You Paid $250. Here’s Why That Makes Sense—and Benefits Everybody”
that succinctly describes the symbiotic and interdependent relationships among various factors that control fare costs, operating expenses and airline profitability:
https://newrepublic.com/article/120406/airline-airfare-price-variability-helps-meet-needs-all-passengers
It’s great read for anyone who believes that so-called ‘big spenders’ are the only flyers that airlines need to reward. Without the much-maligned coach flyers, airlines would not be able to get their planes off the ground because they would be too expensive to operate or so-called ‘big spenders’ would have to spend even more for it to be worthwhile for airlines. REALLY.
Everyone is a valuable flyer to airlines, which are getting too arrogant and forgetting it because their planes are, at least for now, taking off full.
G’day.
Its an even worse ROI for people trying to get status with United when you can just get a Club card + EconPlus subscription. Those two things for $1k a year will basically get you what you would get for Gold status minus the upgrades; and its not like as Gold you’ll be getting upgraded much anyway. 1K vs 8K/10K, then just buy upgrades when needed.
It also needs to be added that in addition to making pursuit of status not worth it or not attainable for most, they have already devalued (and will presumably continue to devalue) credit card miles so that most people should be airline agnostic and should use a credit card that gets double (or more) cash back.
My wife and I have Delta Platinum status. I like it because it feels that it is an accomplishment (the flight attendant on our flight this morning noted that we had recently reached Platinum status). But really it doesn’t really mean anything except a $200 voucher). We always fly first class or Delta One. We have an Amex Platinum card which gets me in SkyClubs when we are flying domestic First Class(we use the $200 incidental to pay for DW). We also have a Amex Delta Platinum card which we use for a companion ticket for a relative. No upgrades possible, we pre-board because DW is disabled. We choose Delta because we appreciate their service.
@gary:
And the results are?
What is the empirical evidence? Are we remotely close to a theoretically possible outcome? Or are these things more than offset by other things (e.g. competitive effects)?
This post is like the first paragraph of a proposal for an undergraduate term paper. No evidence is presented at all.
My wife and I are self proclaimed travel addicts. We used to travel 300K+ miles a year for fun and work full time. We were Diamond on DL and Executive Platinum on AA. We were among the group to earn Diamond status. As the rules have changed, we have had to rethink our status. This year, we were Platinum on DL and Executive Platinum on AA. Next year the world will change and so will our spending and travel habits and loyalties. You are so right as to how the minimum spends will make it so the only people who have status are the ones who don’t need it or get any advantage from it. So sad.
@L3 – it’s an empirical question and we don’t know the answer yet. I am not claiming United has crossed the threshold. I’m simply saying there is one, it seems like we could be getting close, and it’s fascinating to watch.