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Posts tagged miles

aa_eliteIf you haven’t seen the news, American Airlines announced changes to their frequent flyer program, AAdvantage. Most notably, and least surprising, is the fact that they are moving to a spend requirement for elite status in 2017. They are also adding a new elite level, Platinum Pro, one level above Platinum. It is equivalent to United’s Platinum status and requires 75k miles or 90 segments and $9,000 in spend.

I am not an American flyer, but Seth has a pretty great write-up on the changes.

There is virtually no creativity in the changes. Not that I was really expecting any, but I had a sliver of hope that things would be different in one way or another. Upgrades for top-tier elites on award tickets is probably the closest thing to that in my book, and that’s a nice nod to those customers, but the overall changes really are boring.

I have to agree. There is not a lot of anything special in the announcement and American seems to just be following in the footsteps of Delta and United.

United’s partner earning rates were posted this morning and on a whole, the numbers aren’t good. If you are flying coach on most of United’s partners, earning rates for reward miles are being slashed. In some instances, reward earning rates go up but the majority of fares will earn fewer miles.

Read through United’s partner earning page to learn more (click on a carrier to find what you will earn when not flying on a United, 016, ticket).

Also, Seth has a great analysis of the new partner earning rates here.

In January of 2015, Delta will move SkyMiles, their frequent flier program, from earning miles based on distance flown and your status with the airline to a new system that bases your miles earned on the cost of the ticket and your status. In March of 2015, United’s MileagePlus program will take an almost identical step and turn into a miles earned based on spend and elite status system. American Airlines will keep their current mileage earning system in place for the foreseeable future but when they are done with some of the technical aspects of their merger with US Airways, I see them going to a model similar to Delta and United.

The New York Times has an article about the changes, calling them the “fadeout” of the mileage run. It is less of a fadeout and more of the complete death of the mileage run. The piece does a good job raising the concerns about confusion between redeemable miles earning and elite status earning, which will take place under two separate umbrellas. The more confusion there is for the end user, the more frustration. And while the average flier may not care, someone who does a bit of travel without keeping track of all the news and changes will certainly be a little annoyed. I also agree with the point that Mr. Barro makes about calling them “miles” after these changes. They are no longer based on distanced and merely represent an amount of money spent, making it much more appropriate to just call what you earn “points”. And while the examples of mileage earning and the losses faced by frequent fliers are illustrated in the New York Times piece, I think there are some unanswered questions about if and how basing mileage earning on spend will really be perceived by travelers and also, what it means for redemptions.

The New Earning Charts

In Delta’s case, if you are a non-status flier you will earn 5 miles per dollar spent. A Silver Medallion status flier will earn 7 miles per dollar spent, and so on. This is illustrated below per Delta’s calculator.

United’s changes are almost identical.

United MileagePlus 2015 Changes

It is nice that Delta’s calculator shows what you would earn in the old program and what you will earn on the same fare in the program. It makes it easy for a flier to look at the numbers and see just how good or bad these changes are for them.

Examples

Below are a few anecdotal examples to illustrate the gains and losses that frequent fliers and non-statused passengers will experience with these changes. I took the lowest available fare a month or more out for the different routes. Also, I focused on United, simply because they are who I fly, but the math for Delta would be very similar. I did not include taxes in the calculations as those are not included in the mileage earning for either airline. The fuel surcharges on international trips was included, again, because it is included in the calculations for mileage earning by the airlines.

The first example is a Portland, Oregon to Newark, New Jersey roundtrip. This one is my typical route and while the price fluctuates on this route, the $466 is reflective of a typical 7-day stay.

Sample Route Distance Fare Class
PDX-EWR-PDX 4,866 $466 Coach
2014 (Current) Earnings Member Silver Gold Platinum 1K
4,866 6,082 7,298 8,514 9,732
2015 (New) Earnings Member Silver Gold Platinum 1K
2,330 3,262 3,728 4,194 5,126
Difference Member Silver Gold Platinum 1K
-2,536 -2,820 -3,570 -4,320 -4,606

In this example you see that there is a loss of miles, regardless of elite status. A 1K would need to spend $885 2015 to earn near the same amount of miles that they would have earned in the program in 2014. With lots of competition on transcontinental routes, I see fares staying rather competitive for coach seats, meaning low fares, meaning low mileage earning.

The other side of this is the next example, the exact same route, Portland, Oregon to Newark, New Jersey, but this time, in first class.

Sample Route Distance Fare Class
PDX-EWR-PDX 4,866 $1,068 First
2014 (Current) Earnings Member Silver Gold Platinum 1K
7,298 8,514 9,730 10,946 12,164
2015 (New) Earnings Member Silver Gold Platinum 1K
5,340 7,476 8,544 9,612 11,748
Difference Member Silver Gold Platinum 1K
-1,958 -1,038 -1,186 -1,334 -416

While anecdotal, this example shows that paying more cash and sitting in the comfy seat does not necessarily generate more redeemable miles under the 2015 earnings programs. In fact, if your goal is to earn more miles, you are better off paying for the $1,500 refundable fare and doing an instant upgrade (if an elite on the airline).


 

Next is a long distance business class trip. A San Francisco-Frankfurt roundtrip priced as the average of what I could find for different months. There are spikes in price some months, but I found the $7,060 price to be pretty close to average.

Sample Route Distance Fare Class
SFO-FRA-SFO 11,398 $7,060 Business
2014 (Current) Earnings Member Silver Gold Platinum 1K
17,096 19,944 22,794 25,644 28,494
2015 (New) Earnings Member Silver Gold Platinum 1K
35,300 49,420 56,480 63,540 75,000
Difference Member Silver Gold Platinum 1K
18,204 29,476 33,686 37,896 46,506

In this example, the new 2015 program is extremely lucrative. The business class fare is high enough that everyone sees a significant gain in their redeemable miles earned. The 1K member actually doesn’t realize the full potential of the 11x multiplier because earnings on a single ticket are capped at 75,000 redeemable miles.

I then took the above business class example and made it an economy class booking instead. It’s not a bottom of the barrel example, it’s a mid-tier typical fare to Europe purchased somewhat in advance.

Sample Route Distance Fare Class
SFO-FRA-SFO 11,398 $1,400 Coach
2014 (Current) Earnings Member Silver Gold Platinum 1K
11,398 14,246 17,096 19,946 22,796
2015 (New) Earnings Member Silver Gold Platinum 1K
7,000 9,800 11,200 12,600 15,400
Difference Member Silver Gold Platinum 1K
-4,398 -4,446 -5,896 -7,346 -7,396

Again, everyone loses out on miles. Not incredibly large amounts, but there is definitely a loss.


Lastly, I’d like to look the one place where people will make a mint on miles compared to how many they are earning under the current program: The short distance but relatively expensive ticket. These are usually refundable or flexible tickets but are shorter distances (say, less than 500 miles each segment). It’s a typical business scenario and one that I wanted to explore. In this example it is Manchester, New Hampshire to Washington-Reagan via Newark-Liberty.

Sample Route Distance Fare Class
MHT-EWR-DCA-EWR-MHT 816 $1,366 Coach (Flexible)
2014 (Current) Earnings Member Silver Gold Platinum 1K
1,018 1,220 1,424 1,628 1,834
2015 (New) Earnings Member Silver Gold Platinum 1K
6,830 9,562 10,928 12,294 15,026
Difference Member Silver Gold Platinum 1K
5,812 8,342 9,504 10,666 13,192

What Does This Mean?

In short, the majority of travelers regardless of airline elite status, who fly on discount or regular coach class tickets, are going to lose redeemable miles under the new system. The new system is going to reward those on very expensive business/first class travel and those who have to buy refundable or flexible tickets. The ones who will see some of the biggest increases in miles are the short distance fliers who buy those refundable tickets. They are spending less time in a seat but paying more money for the privilege and the airlines are rewarding that.

Some, who I respect, have this to say:

When asked why:

And while Mr. Harteveldt isn’t incorrect that there is an element of low-yield travel created by gaming the mileage run system, the idea that this makes the airlines completely unprofitable and those passengers are a huge cash sink for those airlines, is a stretch. Truth is, airlines need some of that low-yield travel to fill seats that would otherwise go empty. The difference now is that Delta and United do not want to hand out the same number of miles for that seat. However, this has less to do with “rewarding” someone than it does with simply not putting the miles on the balance sheet.

The Cost of Miles

Regardless of how the airlines word these changes the real issue comes down to cost. The miles that the airlines have a cost associated to them for the airline. The airline records the outstanding miles on their balance sheets as liabilities. At some point, someone will redeem their miles and the airline will either pay a partner for the flight the passenger takes, or they will remove a seat from their own inventory for that passenger to sit in. There is a tangible cost here. In fact, when the Star Alliance recently changed their rules on reward redemption charges allowing carriers to set their own price for their premium cabin rewards, United responded by making partner rewards very expensive. If someone wants to redeem miles for a seat that Lufthansa charges United $5000 for, then United wants to collect more miles from that passenger.

The fact that airlines have millions upon millions of miles outstanding on their balance sheet does not look good to their accountants nor their investors, so in the changes to reward mileage earning, we’re seeing a shift. The newly rewarded miles will essentially be “paid for” up front (at least partially) while the old miles are removed from the balance sheets over time.

Want more proof that this is at least some of the motivation? Look at United’s page discussing the changes.

Mileage Redemption Options

That’s right, you can redeem your miles for Economy Plus seats on a specific flight, an Economy Plus subscription, and a checked baggage subscription. None of those three things has any real cost to United. If you use your miles for an Economy Plus seat on a specific flight, United is only out the $39 or $49 they would have charged someone had no elite member been available to take advantage of that seat as part of their benefits. If you use your miles for a checked baggage subscription, there is no cost to United, simply a slight drop in ancillary revenue on that flight, though even that is probably offset by the fact you spent miles on it. The cost for the airline is minimal while the benefit for them is taking more of the liability off of the balance sheet.

Even more proof of this is Delta’s recent announcement that there will soon be a limit on how many American Express Membership Rewards points one can transfer into SkyMiles (250,000 Membership Rewards points in a calendar year). Delta wants to limit the incoming liability of miles even though American Express has been one of their best partners.

The airlines are tying miles earned to how much you paid for a fare not just because “it’s rewarding” but because it limits their exposure to liability. Plain and simple.

What Do I Do Now?

The answer to this question is simple: Mileage earning shouldn’t be the determining factor of your airline loyalty, especially with these changes.

The argument used to be that a person could put up with the bad aspects of a carrier if the rewards were worth it. With the rewards quickly becoming based on spend and less on miles flown, why fly that airline over another if the price is the same? For example, I give United my business, even with the terrible Recaro seats, on a transcontinental flight because I value those points. With the mileage earning changes, my comfort takes priority and if that means a flight on Delta, so be it.

This isn’t to say that for everyone mileage earning is the deciding factor, in fact, I would say it’s a small percentage of people who actually care about this piece of the frequent flier game. I remember a discussion a long time ago about how most travelers redeem their miles for simple domestic rewards, sometimes paying the higher mileage rate to avoid paying what they considered a high fare.

There is also an option to earn the original redeemable miles as you have all along, the catch is, you have to not care about elite status. In the terms and FAQs of each airline’s new redeemable miles program (United | Delta), there is a statement regarding tickets booked on partner airlines. If you book on a partner’s ticket stock, basically who took your money, then you are still eligible to earn reward miles at the 2014 rates, but you in almost all cases, you will not earn elite miles. So you have a choice, become an elite with Delta or United or earn the 2014 redeemable mileage rates.

You could also play the credit card churning game to earn redeemable miles. I find it too time consuming and a ton of work to keep track of what cards need what minimum spend and which ones I haven’t signed up for yet. Some people love that game but for me, it just isn’t worth the time or the energy.

Another choice would be to start flying American Airlines. They are the last of the large U.S. carriers to have a mileage flown is what you earn rewards program and it will stay that way. Well, until they are done with their merger with US Airways, then I would say the chances are very good they too will move to a points based on spend system. Sure, bloggers will post about how great American is and how they are using their miles to go somewhere far away, but that I feel will be a short lived game. There is a year, maybe two left for the greener pastures on American. Feel free to make that move if you are prepared to make another move or choice when American decides to go to a system similar to Delta and United.

Like I said above, the answer is simple: Fly places, do it affordably and comfortably, and worry less about the miles being earned. That was a little difficult for me to write. I used to see a cheap fare somewhere and say, “a weekend there would be nice and the miles would be nice too” and buy a ticket. The miles were an incentive for me to buy a fare to go someplace new that I may not have been inclined to pay for, now I’ll just go new places knowing the earnings will not be as high.

Is There Any Chance The Airlines Change Their Minds?

The airlines changing their minds on this is unlikely. Why would they? They can now reward fewer miles and even cap them for their most “loyal” travelers. The cap at 75,000 miles on a single ticket is something that blows my mind. You (or your company more likely) drop $8,000 on a business class ticket to Asia and you get capped at 75,000 miles. United and Delta find you loyal, but only 75,000 miles loyal.

I think the only real way any of this changes is if the airlines struggle in the coming years. If people stop flying due to the economy or because of fares or whatever, then I could see the airlines reeling these mileage earning changes back to what they used to be, but even that is unlikely. Another scenario is that corporate accounts start complaining to the airlines. These companies pay a lot of money for their employees to travel and if those employees start complaining, it’s likely the corporate travel sales folks will get wind of it. But, there is nothing keeping Delta or United from sweetening the pot and giving those contracts some kind of mileage bonus every year, so even the idea of corporate contracts getting pulled is a stretch.

Lastly, I do see this changing some people’s behavior and that’s not necessarily a good thing. People who have the freedom to book via airline websites for their corporate travel could get themselves into trouble pursuing more expensive fares to earn more miles. To combat this, companies may enforce their corporate policies more stringently, taking away some money from Delta/United if they are not the cheapest carriers in a particular market.

In Summary

Overall the biggest problem with the new mileage earning programs is that they not only earn less miles for the frequent yet affordable traveler, but they are confusing programs now. You will still earn your elite status based on two criteria, qualifying dollars and qualifying miles, the latter being based on distance flown, but you will earn redeemable miles based on fare paid. It is even confusing to type.

These programs change on a whim. There are rumors (see footnote at bottom of page) that Delta’s Medallion Qualifying Dollars minimum is increasing for next year. It’s unconfirmed but if true, means these programs will get tweaked and changed as the airlines see fit. They will look to cut out the chaff and focus on people who are spending a lot of money. Pundits can say this rewards more profitable fliers but even that doesn’t take into account the caps on what a person can earn on a single ticket. This is about reducing costs and liabilities for the airlines. As the airlines see fit, they will make more changes to reduce those costs.

Focus on the good stuff. See a cheap fare to a place you want to visit and you have the cash? Buy it. Stop focusing on the miles and get out there and see the world. Miles, upgrades, rewards, etc. are all fun things but if they hinder the actual visiting of places, don’t focus on them.

Recently a number of airlines have been offering decent business class deals to Europe during off peak seasons. I have a feeling that this will become a new normal. We will see $1,500 business class fares to Europe from Houston, San Francisco, etc. when the airlines need to fill seats that would otherwise go empty. Take advantage of that. You’ll earn some miles and you will get a nice seat across the Pond.

For me, I am bummed about the move. I loved having a small incentive for a weekend trip somewhere I wanted to visit anyway. I loved being able to burn miles on the few trips my wife and I were able to take longhaul. My plan going forward is to continue to earn elite status simply because I am on the road so much but as soon as I hit a level I am comfortable with, my plan is to switch to booking on partner airlines and earning the old rates for that level that I reached. It’s a hybrid plan but one I think may have some benefits for me. If I was to stick to just flying United tickets everywhere, just like I do now, then I would lose out on around 95,000 miles, possibly more once I do the math for my end of year stats. My company spent a lot of money for my work travel and I spent a fair amount of cash on personal travel but that is only worth so much to United. Clearly, I am a low-yield passenger.

In any case, I hope you make the decision that works best for you financially and travel wise. Happy flying!

Edit: It is now confirmed that Delta is raising the qualifying dollars required for 2016 SkyMiles Medallion elite status.

I am a few weeks behind but the USA Today had a story recently about frequent fliers (flyers?) and how pleased they are with the airline mileage programs. Three of the key points in the study that the article referenced:

  • Overall, a slight majority of frequent-flier program users — 53% — said they were generally satisfied with their primary carrier’s loyalty program and that they’d recommend it to a friend.
  • Nearly half (45%) of those surveyed say they earn more points from credits cards and other ground-based promotions than they do from actually flying.
  • Awards that cost more miles or points than expected was by far the biggest frustration among the survey’s respondents. That was cited by half the respondents — far more than the No. 2 complaint: suddenly changing rules.

So a slight majority of those polled are “generally satisfied”, meaning 47% are less than satisfied or didn’t respond. A good chunk of those same people earn most of their miles via credit cards and other promotion tools and yet they are upset with rewards that cost more. It seems to be a self-fulfilling prophecy, more miles in wild, the cost of the good being provided (a reward) goes up. To give you an idea of how the manufactured spend game works, take a peak at this article on Vice that focuses on Vanilla Reloads.

After United’s recent devaluation I am less inclined to amass large amounts of miles for “aspirational” awards on partner carriers, it just isn’t worth it. Sure, I’ll keep earning and probably burning for United business class tickets where I can find them but I am going to limit my aspirational type rewards to Starwood’s Starpoints. There is also a number of frequent fliers, in hopes of greener grass, jumping ship to American Airlines. After the merger with US Airways is complete I am sure that the American Airlines program will be degraded to some extent.

As Seth said, the frequent flier game has become a lot less fun. As a result, my attention is turning more to cheap fares and less to miles.

Yesterday I wrote about the United reward miles devaluation. The post focused on the change in the award redemption levels but I came across this post from Gabriel Leigh about how adding a level complexity to rewards is another piece of the devaluation puzzle.

However, and this is the important bit: the connection has to be one class of service lower than the longhaul segment on United. So a United business class booking to Frankfurt entitles you to economy on the Nuremberg connection. It’s just the sort of thing to exasperate thousands of unsuspecting Mileage Plus members when they call up to book a ticket. In a way, it gives you a break of sorts – you can book on partners in some cases when you have to, without paying more miles. But it’s also an unnecessary injection of complexity whose drawbacks are worse than its benefits, if you ask me.

I touched a little bit on this in my post but reading Leigh’s thoughts reiterated the idea that this creating a new complexity that will simply frustrate those who are not mileage runners or advanced mileage redeemers. I think the example Gabriel gives is a little too simple as a business class seat in most of Europe is really just a coach seat. Where it is going to get really frustrating for people is Asia. If I am flying Houston-San Francisco-Seoul on United metal and then connecting to Bangkok, Singapore, etc. on Asiana then I will have to fly that last segment in coach if I want the United mileage redemption price. That is a long segment (some upwards of 7 hours) in coach when redeeming a business class reward. When someone calls in because they found Asiana business class space for that one segment only to find out that they will have to pay the partner reward price, they are going to be a little irritated.

While there is a miles increase for partners, there is a complexity cost that only time will be able to measure.

I won’t go into the details of the changes to the MileagePlus reward charts, Seth has done a good job of that. The quick summary is this: United raised reward rates and in the case of rewards on partners, the numbers are really, really ugly. One example, a business class reward Mainland U.S. to Europe on United becomes 57.5k miles one way, which is not a bad increase, but a business class reward on a partner is now 70k miles one way. That’s a 40% premium over the original 50k mile one-way reward that has been the norm for a while.

There is a lot of speculation as to why United made these changes. Some point to the 3rd quarter 10Q and the liability mentioned for outstanding miles. While I am sure this is part of the reason, United also likely wanted to offset some of the costs that they are obligated for when a passenger redeems a partner reward.

United's Jeff Smisek Talking about the 787

Is the sky falling?

While the changes are definitely not great from a customer perspective, it is not the end of the world. You can still redeem reward trips for reasonable rates on United and Copa operated flights. I think the biggest negative is that for those of us in Houston or Denver (or even Los Angeles) our options to Europe are somewhat limited. People will be looking for the more affordable mileage option to their destination, meaning United metal. Without a lot of non-stop flights out of certain hubs to Asia and Europe you end up with a lot of people competing. So while the prices may not be restrictive, the availability may become very scarce. Some travelers will give up and pay the higher rate for a partner flight while others will look for different dates for their trip. I doubt there will be a mass exodus from United, but I am sure there are those, like me, who have started looking at other airline options.

One of the caveats of the rewards is that you can redeem partner flights at the United rate if the partner flight is in a lower cabin. So if you flying Houston-Frankfurt in United BusinessFirst, you can connect on Lufthansa in coach for the United redemption rate. While this is great for places like intra-Europe where business class is a coach seat with a nicer meal, it stinks for places you cannot get without a partner or where partner availability is scarce. I am thinking of Africa where you can get as far as Lagos in BusinessFirst but then what do you do? Or southern South America (Chile, etc.) where your options are really Copa or Avianca, the latter of which you will pay a premium for.

What to Do

I have received a couple of e-mails from Houston based flyers asking what they should do in the wake of the changes announced by United. I will be quite honest, I do not know what I am going to do. If you are a leisure traveler who was mileage running on United for miles and you are willing to hunt down United operated rewards, then I would say nothing should change for you. The 57.5k mile business class reward to Europe is still a good deal.

My travel revolves mostly around work and rewards were the bright spot of being on the road. I could redeem for a very nice trip for my wife and I and be happy. Keeping that same focus is probably my best course of action, even though I am tempted to jump ship to American Airlines. One thing holding me back is the impending merger of US Airways and American. We have no idea of what the results of that union are going to be, leaving me uncomfortable devoting a lot of my flying to either of those carriers. Once that becomes more clear, I will start thinking about my options again.

These changes certainly are not the end of the world and like Seth points out, there is an even more impactful devaluation in Northern South America upgrades, but United’s changes to the partner reward chart are certainly a kick in the gut. Sure, other Star Alliance airlines have different reward prices for flights on partners, but MileagePlus was United’s shining star. I have flown them weekly for the nearly the past three years and the product has suffered but I stayed loyal because I do like redeeming my MileagePlus miles and hardly had any problems doing so. I will have to see if that continues.

United has a pre-flight video that talks about reward travel with MileagePlus and how United has a vast network of destinations. They should leave that video but add a disclaimer at the beginning or end that lets people know they will be charged a premium to get to some of those destinations on partners.