A Day with United Management: Elite Status, Mileage Devaluation, and Increasing Change Fees

“So we have to go down, find the express elevator, and then go back up?” I was having a hard time wrapping my head around the labyrinth that is United’s headquarters in the Sears Willis Tower in downtown Chicago. Then again, I suppose it made sense that if any company would have connecting elevators, it would be an airline.

United and I had talked about having me come out for a visit before, but it wasn’t until now that all the pieces came together. I found myself on my way to visit headquarters for the first time since I worked there in 2005. (See Part 2, Part 3, Part 4)

[Disclosure: United paid for my flights and hotel]

The scene is completely different than it was back then. In 2005, headquarters was in a terrible, run-down building guarded by angry swans in suburban Chicago, northwest of O’Hare. After moving to a swanky address downtown first, the airline moved the headquarters to join the operations folks in Willis Tower.

Willis Sears Tower

The logic of putting one of the largest airlines in the world in one of the tallest buildings in the US seems questionable. The building is a target on its own, but the added glory of taking out an airline and its nerve center would seem to make the target bigger. But that didn’t faze United; the airline is now the largest presence in the building with around 20 floors, each one a little bit different than the last.

I spent my day zipping back and forth between floors, from meeting to meeting with people all throughout the airline. Little did I know that as I buzzed between floors, a handful of execs were packing their boxes. EVP and COO Pete McDonald “retired.” The airline’s revenue management boss Leon Kinloch lost his job. And Martin Hand, SVP Customer Experience for United, was on the retiree list too. I was supposed to meet with him but his name was struck at the last minute. I had no idea that any of this was going on, so to me, it seemed like just another day.

My time started with an 1130a meeting with Praveen Sharma, VP of Loyalty and Business Development. He started with United back in 1999 but he’s been in several different places in the company since that time.

I found Praveen to be a thoughtful guy who was really interested in engaging in debate. (He’s also got a little sense of humor as well. When my pen died, he offered me another one for only 500 miles.)

The Growing Elite Member Ranks
We spent the bulk of my short time with him digging deeper into the elite status question. Over the last few years, the ranks of those with elite status have swelled. Since capacity hasn’t grown, the end result is that benefits (things like upgrades and Economy Plus) have to be reduced for the lower tiers of elites.

I asked Praveen if that was United’s strategy to just get as many elites as possible to lock them in, but he denied that. He said it was just the natural progression. After the Continental/United merger, you had more people flying and earning elite status because of the power of the combined network, so there would naturally be more elites. (The growth in elites started before the merger, however.)

I then rephrased and asked if it was then simply a non-strategy. By United failing to take any action to keep elite rolls from swelling, weren’t they just asking for this scenario to occur? But again, he denied that and said it was just natural.

Regardless, that’s why benefits have had to decrease, but Praveen was very aware that reducing benefits too much means that people won’t value it. It’s a balancing act. And that’s why we’re just now seeing United put more barriers to people earning status, like requiring a minimum spend in addition to miles, to prevent too much of a reduction in benefits from having to occur.

United’s Mileage Devaluation
I had already overstayed my time, but I knew I had to ask one more question. What did he have to say about the big redemption devaluations that happened recently? He first denied that they were really major. But he did say that rates should go up because the onboard product is improving.

At that point, I suggested that they should create multiple redemption tiers if it’s really tied to product. After all, business class on United is very different than, say, Aer Lingus. He acted like that wasn’t possible due to commercial agreements (and not desirable either), but that led into the discussion about why they had in fact created a separate redemption tier for partner carriers. Adding complexity is generally a bad idea, and he agreed. So I asked if it was a change in rates charged by partners that forced their hand. He wouldn’t answer, but I did see a coy smile.

You could tell that Praveen’s job involves a lot of balancing. He knew the importance of people being loyal for many years and he agreed that the airline had to “bear the responsibility” of rewarding that long term loyalty. At the same time, he has to figure out ways to grow loyalty going forward. It’s certainly not an easy job.

After lunch with the PR team, I was off to meet with Scott Wilson, VP of eCommerce and Merchandising. I met Scott back in April at the Phoenix Aviation Symposium and I remembered thinking he was a smart guy. My opinion hasn’t changed.

The $200 Change Fee
Before I could get into my line of questioning, Rahsaan on the PR team told me I had to ask him about his rationale for increasing the change fee to $200. I was happy to.

We talked about how airlines had created refundable and non-refundable fares, and low cost carriers held firm on that. But legacy carriers, trying to be accommodating while sticking with their model, began to allow changes for a fee on those non-refundable fares. So far, so good.

The current change fee had been in place for six years, but fares had risen significantly during that time. So, in Scott’s opinion, it was time for the change fee to increase to $200 in order to remain a similar percent of average fare as it was historically.

That, of course, assumes the value was properly set before and that a fixed ratio is the right way to look at it. I brought up the issue of all those sub-$200 tickets that would now be worthless. Why not use a tiered change fee to allow those credits to be used? Scott said it wouldn’t be fair to give a discount on the change fee to those who got really cheap fares when people who paid higher fares wouldn’t get that benefit. I don’t see it that way, but well, now you have the rationale.

Scott and I went on to discuss the new United.com and apps, but I’ll save that for tomorrow.

(See Part 2, Part 3, Part 4)

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