United Copies Delta’s Move to a Revenue-Based Loyalty Program, But What Will American Do?

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?

Delta United
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.

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28 Responses to United Copies Delta’s Move to a Revenue-Based Loyalty Program, But What Will American Do?

  1. Bobber says:

    I think this probably represents one of the last few nails in the coffin for my UA loyalty (currently Platinum) :( I breathed a sigh of relief when the new changes brought in this year didn’t impact on non-US residing Mileage Plus customers, but now I think us foreigners are screwed, too. I understand the pay more, earn more philosophy behind revenue rather than miles; but let’s face it, a lot of the high rollers STILL aren’t forking out for their F and C seats, it’s corporate cash. Not everyone who flies for business has an expense account to do so……

    So, overall, bollocks, is all I can say; now, I’d appreciate advice as to where I take my loyalty next; BA? Virgin (the horror)???

  2. Neil S. says:

    I realize that I’m the exception – mostly flying for work, usually last minute booking, often in paid business – but what I really want is an easier way to redeem the miles. I’ve been DL Platinum for two years, and am almost qualified for Diamond, and it’s only June.

    As you say, it’s easy enough to come by miles – all the bonuses I get, plus the credit cards.

    I’d just like more of a shot of using those miles at lower redemption rates – not even the lowest, just lower.

    Delta says they’re doing that. We shall see.

  3. Nathan says:

    As a mostly leisure traveler I am happy about the change to reward revenue vs. miles flown. This change should mean that there will be fewer people trying to book the cheapest and longest flights possible to earn miles (mileage runs). Hopefully with less competition, those of us who don’t care about status can score more lower cost fares to get to vacation destinations and to visit family.

    For earning miles, I will pick-up the occasional credit card bonus.

  4. Jeremy says:

    Didn’t Southwest actually start the “points based on dollars” trend. Why is WN ignored in your chart. They seem to be the industry trend leader here.

    • CF says:

      Jeremy – They’re ignored because it’s a lot easier for them. They don’t have partners or issues of interline tickets. They can just do a simple revenue-based program and be done with it.

    • matt weber says:

      I am surprised CF doesn’t remember. The original points based on dollars program was the original America West Frequently Flyer program, which predates the WN program by at least a decade. I think it only went on for a few years before they switched to a mileage based program.

  5. James says:

    I’m semi-loyal to United living in a hub (Denver) – and traveling frequently to other mostly hubs (ORD, SFO, LAX) thus it still makes the most sense to default to UA when price/schedule fit.

    Plus being a mere silver has been beneficial in terms of E+, free bags, and highly valuable when need to immediately reach a CSR in case of delays or flight changes (especially with the past winter storms). And the extremely rare upgrade is a nice surprise.

    So as long as I can still earn that by miles flown I’m content. And, I do find it logical to reward someone who spends $900 on a last minute short hop (in a zero-competitive spoke market which would earn a scant 500-700 miles) equally to someone who spends the same flying to Europe and back for the same fare.

  6. Will says:

    United has steadily killed my loyalty in the past few years. I’ve gone from multiple years at 1K to zero status in two years, all because of the “enhancements” they’ve put on the Mileage Plus program. Devalued miles (and now harder to earn) + devalued status = no loyalty. If/when they are cheaper, more convenient, or offer a better product vs. the competition, then I’ll fly them. Otherwise, I’m a free agent. And it feels GREAT.

    BTW: hard to believe the DOJ still views these mega-airline mergers as consumer-friendly. I’m sure they’re not coordinating, but the competition sure doesn’t seem that aggressive between the Big 3.

    • Noah says:

      Megahubs also mean number of city pairs sold increases, even if it comes from itineraries with stops.
      it’s labor friendly. No bankruptices = no layoffs.

  7. John says:

    This is a logical move … but it doesn’t appear that they are rewarding the purchase of ancillary items. The MOST profitable aspect of the entire business is the ancillary component, but the airlines are still fixated on the ticket. I want to be rewarded for my entire purchase with the airline – and if they sell travel insurance, hotels and cars, then share the benefit of the commission with me too. How about the onboard purchases – duty free, meals, drinks, wifi, etc. Come on airlines, remember the value of the customer is not just the ticket … that is merely providing you the opportunity to sell me more stuff – make me loyal, think outside that ticket box.

    • Vector says:

      Thumbs up on this comment.

    • MeanMeosh says:

      The only problem there is that a good number of the ancillary fees that you could reward, with the exception of onboard purchases, are waived for frequent fliers with elite status. AA could offer bonus miles for purchasing Main Cabin Extra, Group 1 boarding, and paying bag fees, but then you’d end up with an odd situation where a leisure flier with no status earns more miles off of an equally priced fare than an Exec Plat – something that probably wouldn’t play all that well. I like the idea of upselling extras with the sweetener of bonus miles, but getting it to work in practice might be tough.

      FYI, the major airlines already “share” the benefit of commissions on car rentals, hotels, etc. with you – most offer some kind of bonus miles for booking directly through their website. You’re not talking about much – for example, AA offers something like 250 AAdvantage miles for booking through AA Vacations – but all else being equal, I’d just as soon book through AA to get the little bonus.

    • Dave says:

      Not sure about the other things (or other airline examples), but I know ANA does give you 1 mi /US$ for in-flight duty-free purchases.

  8. JayB says:

    Frankly, all of this loyalty program stuff is just nuts. Who understands any of it? They think we are such suckers and, of course, they’re right.

    I’m now booking nothing but the airlines’ superduper “flexible” fares. Wow, it’s great not to have to worry about all those $1,000 change fees any more. $2,000 a trip–money well spent. And, if I live long enough, I’ll be so lucky to get a free* regional jet trip to Podunk, next February. What, no more jets? Must be that darn pilot shortage rearing its ugly head again. Whatever!

    * Additional fees and conditions may apply. No blackout dates, in February. Have a pleasant trip. s/Your friends at Customer Care!

    • james says:

      I believe I understand it: You earn redeemable miles for every mile flown. Generally 25k nets you a free domestic trip, 55k-65k for int’l.

      Now you earn miles by Dollar paid rather than miles flown (See the above posted grid).

      Seems fairly simple.

  9. Scott says:

    I think the importance of loyalty programs to the carriers is grossly misunderstood by the small percentage of flyers who are obsessed with earning miles and status. I, for one, am pleased to see airlines (or, at least Delta thus far) focusing on earning customer loyalty by enhancing their products. At a time when all airline service was more or less equal (and, at least in the USA, heavily regulated), loyalty programs made a lot of sense to set carriers apart. Now, not so much.

  10. drybean says:

    Passengers in our airport do not like the change. Everyone understands the idea, if you pay more you should be rewarded more, but most think they deserve a reward for the number hours and distance they fly while being subjected to airline hospitality. The folks I spoke with agree with more miles for F and C even Y fares and they all like more miles for higher status but the majority think they have lost something and are at least questioning their loyalty to UA.

  11. Thor says:

    There is no more airline loyalty to Delta and United.

    Airline Loyalty would involve:

    1. Commitment, faithfulness and dedication to an airline
    2. Measurement which does not change and is repeatable.
    3. Reward based upon commitment and measurement.

    Is it commitment, faithfulness or dedication if a company or individual with the ability to spend a more money is rewarded regardless of the fact they are flying another airline tomorrow?

    Is it truly measurable if the measure (US Dollar) changes value by the day, hour and even second?

    Is it rewarding that commitment and measurement if, someone purchases a vehicle with his credit card and now has a higher elite level than I, having flown 1.5 million miles?

    Delta and United should have and likely will be forced to have the integrity Southwest has and change their “loyalty” programs to rewards program.

    Your statement “The idea of using revenue as a base for awarding points seems better than miles, which is more arbitrary. ”

    What is more consistent, the length of a mile or the value of a dollar? In fact, the mile is so consistent that, airlines, government, manufacturers, analysts and others base many calculations and information based on miles.

    FAA: “2013 Airline Operating Revenue/Cost per Available Seat Mile (ASM)…or Revenue per Available Seat Mile (R/ASM) statistics…”.

    American Airlines: “To calculate system-wide load factor, divide RPMs by ASMs in 2007 it’s 138.5 billion RPMs divided by 169.9 billion ASMs, or 81.5 percent.”
    Revenue Passenger Miles – RPM and Available Seat Miles – ASM

    Boeing: “The 777 Freighter delivers value to the world’s cargo operators, featuring the lowest trip cost of any large freighter and excellent ton-mile economics.” Ton-Mile

    It is officially … It’s the era of the frequent spender and double standards!

    • Noah says:

      but price is not correlated to mile. And price is one of 2 inputs into profit. And the consumer can’t really affect cost, especially at the margin.

  12. Noah says:

    It definitely makes sense to reward the spenders. It frustrated me that I used to spend comparable money flying LGA-CLT as coworkers flying LGA-MIA but I was only rewarded “half” as much.

    I do wish they would award based on price including taxes and fees. I know it is clunky as it rewards dollars that don’t go to the airline, but it gets confusing when my $400 fare gets me 317 miles.

    • Shane says:

      Interesting point. The next devaluation can come by adding fuel surcharges. Of course by law they have to include the fuel surcharges in the advertised price, but if you take your $400 fare, which is $317 and break that into a $30 fare with $287 in fuel fees/surcharges, then airlines can reduce further the number of miles awarded.

  13. Maarten says:

    I understand it from a business POV, and I would argue loyalty still delivers its rewards in terms of free bags, priority check in, the occasional upgrade and the “guaranteed” Premium Economy seat I get as a Diamond MM on DL. But as a consumer it is difficult to understand the deal that heavy/frequent flyers are getting in coach, especially those like me who have to pay for a lot of tickets ourselves (and then hope to make up for it by actual client work!). If I fly NY – LA every month on DL and I commit to them, I get less for that than one fat cat on a corporate expense account. I feel I am in this scenario the more loyal passenger.

    Perhaps it would be an idea to create an online marketplace based on the following idea: If I know I am going to be in London or SFO a lot over the next few months or year, why not create an opportunity where I could make a commitment to X number of tickets for travel within a certain time period. If I make the commitment I get an X additional reward for my loyalty. Just a thought.

  14. ChuckMO says:

    SO glad I’m not a status/miles junkie. I’m with two FF programs, DL (Amex Card) and WN. I fly 2-3 times a year for pleasure so no road warrior here. Anyone in my situation would be wise to use my system as it took me about 2 years to get a free WN ticket and I have more than enough on DL for my birthday vacation I’m planning next year.

    If you live in a WN city:

    1. Get a branded credit card on your network carrier of choice and join their FF plan (AA/DL/UA).
    2. Join WN’s Rapid Rewards.
    3. Charge all expenses on your CC that you can.
    4. Pay off CC every payday.
    5. When buying items online shop via WN’s shopping partners using branded CC thereby earning points twice.
    6. Enjoy the occasional free trips!

    It works for me as an infrequent flyer, it could work for you too!

  15. CP says:

    One aspect of AAdvantage that hasn’t been discussed is the ability to earn elite status via “points,” not just miles or segments. Since higher-level fares earn more points (first, business, and full-fare economy earn 1.5 points per mile; discount economy class, 1 point per mile; deep discount economy class .5 points per mile), people who fly less, or shorter distances, but spend big bucks when they fly have a way to earn the perks of status faster. For instance, a person who flies on only first, business, or full-fare economy tickets can earn Executive Platinum status after flying 66,667 miles (instead of the 100,000 mile or 100 segment threshold).

    I’ve always appreciated this about AAdvantage; seems a nice way of striking a balance between those who spend more (on a per ticket basis) wanting a “boost” for that spending when it comes to elite status qualification while also providing the traditional path to status for those who aren’t big spenders (at least on a per ticket basis).

    It seems to me a way of addressing the “qualifying dollar” factor that Delta and United introduced in 2014 in a way that addresses the concern of the big spenders (i.e., I spend a lot with you, but there is no status perk for that spending), but does not harm those who earn status from grinding it out on segments or miles (because their corporate travel policy, etc. doesn’t allow the purchase of first, business, or full-fare tickets) in the way that the PQD/MQD thresholds hurt these flyers.

    That’s actually my concern on the FF changes with DL and UA in 2015. While I understand, from a business perspective, their desire to reward big spenders with more miles, and their desire to discourage “mileage running” behavior, I think that there are a fair number of people who demonstrate loyalty to an airline who cannot become big spenders because of travel policy restrictions–a group that’s way bigger than the “mileage run” group. While corporate flyers may have a “fat cat” image, there’s plenty of business travelers who operate under pretty strict travel policies. I think they will feel burned by the new programs, even though on a per-purchase decision, they are some of the most loyal customers.

    So, I wonder if AA can find a way of rewarding the fat cats without burning the “grind it out” loyal flyers, sort of like they’ve done with the point qualification system that rests alongside the miles/segments system. If they can do that, I think they’ve got a win/win…win the small, but consistent, purchasing decisions (and adoration) of the grind-it-out loyalists while rewarding the less consistent, but more profitable, decisions of the fat cats. I don’t know what that system is, but I don’t think it’s what Delta and United have.

  16. A says:

    I’m surprised by the comments that this change means UA (or Delta) has lost their loyalty. C’mon, is it really that terrible that your loyalty “rewards” are based on the $ spent vs. the miles flown? What kind of business traveler has the time to change airlines over something so trivial as a rewards program anyway? If I need to be in Dallas for a 12:00 meeting and airline A can get me there direct and on time, I’m taking that airline. When flying for leisure I’m more discriminating but how many 100k travelers are there that are pure leisure? Not many I would guess.

    Last year I did about 24 trips from MSP to YYZ which is under 700 miles but r/t fares were often $1500+ when booked. I got Silver status on Delta from segments flown before miles flown. Contrast that with a friend of mine who got higher status for just a couple trips to Bangkok. For travelers like me (whom paid Delta far more than my friend with many fewer trips) deserve a little more IMHO than someone who buys a $2000 ticket and travels 24,000 miles r/t on it.

    • CF says:

      A – To add to that, I think that business travelers that do care really care about the elite program. And this change had nothing to do with elite status. So it should be less important from that perspective.

  17. matt weber says:

    This all seems well and good, but how do you figure the points when there is a single fare involving multiple carriers, such as Round The Word, or Circle Pacific Fare. These fare generally provide for a fixed number of sectors and/or kilometer. With certain very specific exceptions, there is no currency value in the individual coupons. The exception is if you buy extra sectors for these fares, those are generally fixed price for a class of service, regardless of length of the sector.

  18. NDS says:

    Original CO Plat (since Day 1), post-merger 1K, mostly US Domestic (so, ya know, the hard way). I get the “reward for $$” principle. But I don’t get the following:
    a) 1K for example. 100,000 PQM + $10,000. Well, at least in my experience, it’s really hard to make 100,000 PQM in a year WITHOUT spening at least $10,000 anyway? Aren’t most – if not ALL 1K’s already spending at least $10,000? So what exactly was accomplished there? (Personally, I hit $10,000 in June, and I typically fly domestic (not transcon) on S, T, L, K mostly).
    b) Why are earned PQM’s also not based on $$? What’s the logic there?
    c) UA teased with “more enhancements (red flag) are coming….” or whatever. Ok, so if you have plans to change anything related to using miles (award seats, upgrades, product purchases, etc.) then it’s really not possible for your premier members to gauge whether the $$ mileage earning changes are – net / net – good, bad, or about the same. Why did they roll out the “earning” side before they were read to roll out changes to the “redemption” side?
    d) And with the $$ = earning thing now happening, what really is the point of Global Services (which is in my opinion incredibly destructive to UA’s Premier programs). GS’ typically are F,A,Z,Y,B 1K flyers or more. So now, those high fare guys are going to be incrementally rewarded anyway because of their higher fare bucket purchases. They’ll earn many more miles, and therefore many more redemption opportunities. So elimintate the GS special treatment now and stop treating your 1K, and Plat’s very much second and third class.

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