The rumor mill is running strong these past 24 hours with Lucky pointing out a possible new scheme for elite status on United Airlines. Yes, it is a rumor, but the framework is pretty well defined so let’s take it for a spin and see just how crazy it is.
The basic qualification requirements would shift from a simple metric – how often/far you fly – to a rather more complicated one. It would still include miles/segments flown (EQMs) but on top of that there would be a count of flights taken on United metal. Most recently Air Canada announced that they would require a certain number of segments as part of their qualifying requirement and several other programs have similar requirements. This is not a particularly controversial change to the program and the number of segments required is pretty low.
And there would be a spend metric.
Yes, after years of wondering when a program would finally start to consider spend as part of their elite qualification it seems that United is going to be first to give it a try. And I actually think it is a smart idea. The spend thresholds are not trivial: 8 cents/mile is the number being rumored. Personally I probably would not qualify at the top level given that number as I do not think I spend $8,000 in airfare on United in any given year. But I’m also not so sure I’m the customer that the airline should be rewarding.
By every rational metric spend should have always been included in calculating the value of a customer to a carrier. Many airlines have done little things here and there to approximate such value (e.g. more points for higher fares) but until recently no one has gone 100% in that direction. And United is not proposing a 100% shift in that direction either, but spend will play a significant role in the qualification process.
When talking about spend rates to requalify for status or to earn points there are a lot of thresholds tossed around. Three or four years ago it would not be uncommon to find deals in the 2.5cpm range without too much trouble. These days those same deals are in the 3.5-4.5cpm range. And there are certainly some people (self included) out there flying on them and accruing a ton of award miles and elite status, too. And the airlines treat those customers the same as the business traveler who is buying full fare tickets and who is actually profitable. That is hardly a rational way for a business to behave.
Just looking at the average numbers, the cost to fly a seat on United last quarter was $0.1423. That’s averaged across all the available seats, not just the occupied ones. If you include the 84.1% load factor (n.b. all numbers from the Q2 2011 10-Q filing) then the cost of operating a filled seat was about $0.1692. It costs nearly 17 cents per mile to operate the seat on average and they’re willing to consider you a loyal customer if you’re paying just under half of that over the course of a year. Maybe I was wrong. Maybe the plan is completely irrational because the threshold is still too low.
When JetBlue announced their revamp to the TrueBlue program 18 months ago spend was almost entirely what the focus was on. Virgin America‘s Elevate has a similar structure. The new Rapid Rewards program from Southwest is similarly focused on spend, though still with some variation in the minutiae. Of these, only Southwest currently has an "elite" program and they permit qualifying via spend. So does the Hilton HHonors hotel program. It isn’t like this sort of policy is ground-breaking.
What is revolutionary about it is that the company might just finally be willing to step up and cast off the hangers on. The leeches. The folks who are not profitable to their operations. In other words, Me.
I know that I’m not a profitable customer to United. I realize benefits far in excess of the value I bring to the company. And if this policy becomes real then I’ll be looking at the numbers and deciding if I can meet them or if I’ll be finding another program from which to leech. Certainly the folks at United will not be sorry to see me and my STLKNG fare habit that gets upgrades 80%+ of the time disappear. And anyone who has a similar purchase pattern and believes the company will miss their departure is delusional.
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