Whether you like it or not, you have to admit that Delta went out on a limb when it decided to let people earn miles based on the amount of money they spent instead of the number of miles they flew. Sure, other less complex airlines had done it, but Delta had the best financial results and the weakest frequent flier program, so it’s no surprise that they were the first of the US network carriers to try this. The next mover, however, didn’t take nearly as big of a risk. In fact, it also failed to add any creativity to the process. United has now gone with a revenue-based earning structure beginning next March, and it is identical to Delta’s. Now the question is… what will American do?
If you think I’m exaggerating when I say that the programs are identical, then how about a little chart to prove it?
|Points per $ (general member)||5||5|
|Points per $ (silver)||7||7|
|Points per $ (gold)||8||8|
|Points per $ (platinum)||9||9|
|Points per $ (1k/diamond)||11||11|
|Max points per ticket||75,000||75,000|
|Eligibility||on Delta ticket or airplane||on United ticket or airplane|
|Branded credit card bonus||+2||?|
|Partner airline earning?||miles-based||miles-based|
|Elite earning changing?||No||No|
As you can see, the only thing that doesn’t match here is the bonus for using a co-branded credit card. And it’s not that they don’t match; we just don’t know. United says there will still be a bonus, but I haven’t seen details of what that will be. In other words, just go ahead and assume these programs are the same when it comes to earning redeemable miles. (As mentioned above, earning elite status doesn’t change here.)
For United, there are a few changes on the redemption side as well, but they are minor. United is going to let you start using miles for Economy Plus seating or other ancillary services. That’s a good addition, though we don’t know how much they’re going to try to charge for the privilege so I’ll reserve judgment.
Now that’s it’s the trendy thing to do, is this the right thing? Kind of. First I should point out that this isn’t really all that risky no matter what they do. Earning elite status isn’t impacted here, and that’s the thing that people really care about most. If you really care about earning redeemable miles, then you should just get a credit card and you’ll earn them much more quickly. With that being said, airlines should still try to make these programs better if they can. And they are sort of doing that… sort of.
Delta, and now United, realized that awarding points by miles flown wasn’t smart because it wasn’t rewarding profitable behavior. The fix here is to go to a revenue-based program, but that’s swinging too far in the opposite direction in its purest form. Let me explain.
You want to reward people who are profitable, right? Well, if you just do it based on the number of miles people fly, then you’re missing out on the fact that people spend varying amounts to get those miles. Airlines had already started to address that by giving bonuses for higher classes of service, but it wasn’t nearly as dramatic as going to the revenue model.
Now, people get rewarded for spending a lot more money. But we still have the same problem. This now doesn’t take into account the fact that someone who spends $300 on a flight from LA to San Francisco is probably more profitable than someone who spends the same amount of money flying from LA to New York. But they get rewarded the same.
There has been plenty of speculation surrounding American. When will it follow in the footsteps of the others? Fortunately, American is mired in a merger right now with US Airways so it’s not going to happen soon. I would be shocked if it happened before 2016 since the two programs won’t even merge until 2015. But really, we don’t know for sure when, or if, it’ll happen. I’m more interested in what they might decide to do than when it will happen.
The idea of using revenue as a base for awarding points seems better than miles, which is more arbitrary. But it’s also very clunky. Revenue data is not easy to get a hold of when you’re dealing with partners, and that’s why these programs are crazy hybrids where some flights still earn based on miles. Even worse, the same flight could earn in different ways depending upon who issued the ticket. It’s a mess. So if I’m American, I’m hoping I can do a better job of capturing partner revenues so I can have a cleaner program that’s easier to understand. Good luck.
For that reason alone, I’m somewhat partial to the mileage-earning program instead. It’s just easier to explain and track. But that doesn’t mean that they can’t tweak the way that works. For example, the bonuses based on which fare class you book make no sense. People don’t think about whether they’re booking a fare in S class or B class (unless they’re trying to hit a minimum threshold for upgrade). So why not organize fares regardless of class into fare families? Give people more points if they buy-up to higher fares. That actually gets to rewarding the right kind of behavior. It’s not total profitability.
There’s a thought that airlines should only be rewarding people for profitable behavior instead of total profitability. What I mean is if you’re going to buy a ticket at $1,000 anyway, then I want to use my points as a way to create an incentive for you to pay more. You can create upsell opportunities along the lines of the mileage accelerators we see today. (Remember, this is only for redeemable miles, not elite qualifying.)
I’m barely scratching the surface here. It’s clearly very difficult to get a program that is both simple and rewards the right behavior. Delta took a step, and United copied it. But we still aren’t where it should be. Let’s hope that American can figure out a better way. I’d much rather see an airline be creative even if it’s risky than I would watch another just copy and paste.