News broke on Friday that United was getting rid of its award chart for their MileagePlus program for redemptions on or after November 15th. The blogosphere was buzzing with articles rightly critiquing United’s decision and writing about how it affects travelers.
Let’s have a look at the various reasons that may have caused this.
Unless you like to do nerdy or dorky things like sifting through 10k reports, you’d probably not find out that a devaluation was coming. I analyze brands, business and media for a living, so I thought I should have a look at United as well. While I don’t think there’s a 100% correlation, but United’s 10k filing offers a lot of clues about what their strategy is going forward with regards to MileagePlus.
You can find the entire United 10k here.
Possible reasons for Devaluation
MileagePlus redemption patterns
“Approximately 5.6 million and 5.4 million MileagePlus flight awards were used on United in 2018 and 2017, respectively. These awards represented 7.1% and 7.5% of United’s total revenue passenger miles in 2018 and 2017, respectively. Total miles redeemed for flights on United in 2018, including class-of service upgrades, represented approximately 86% of the total miles redeemed.”
Analysis: Here’s how I look at it. As per this excerpt, the number of United miles being redeemed was on the rise. However, a significant chunk of miles were redeemed on United’s own metal. 86% of the total miles redeemed were for United’s flights. It means that only 14% were redeemed on partner flights.
Prediction: Given that they represent only 14% of total redemptions, I don’t see partner award charts getting devalued in the near term. I’ll wait until I see their 10k for 2019 to talk about what predictions I can make next. 🙂
United’s Growth Strategy (In their own words)
“Growth Strategy: Our priorities for 2019 are delivering top-tier operational reliability and customer service while continuing to execute on our growth plan by strengthening our domestic network through strategic and efficient growth and investing in our people and product.”
Analysis: The focus clearly seems three fold: operational reliability, better customer service and growing their network. I don’t see the word loyalty in the above paragraph. That’s telling. The indication here is to focus on making improvements to product and service and cutting costs (MileagePlus) where possible to boost profits.
Prediction: Now that United has largely copied what Delta did to their SkyMiles program, United will now try to compete with Delta by making enhancements to their product and onboard service.
“MileagePlus sales. In 2018, we received $1.3 billion more for MileagePlus miles sales to our partners as compared to 2017, mainly due to our domestic co-branded credit card partner fully utilizing the $0.9 billion remaining balance in its pre-purchased miles in 2017. • Advance ticket sales and deferred revenue. Our 2018 traffic growth and yield improvements contributed to a $0.7 billion increase in advance ticket sales and frequent flyer deferred revenue.”
Analysis: United received $1.3 B more for MileagePlus sales to their partners compared to their previous year. As referenced in one of my earlier posts on loyalty, the more the miles in circulation, the more propensity that they’ll eventually get devalued. At some point a decision has to be made. Either gut the rate at which miles are earned or change the way they’re redeemed.
Prediction: I think that we may actually see higher bonuses on the United MileagePlus cards from Chase. By the time people earn and redeem miles from newer sign up bonuses, the devaluation would’ve largely kicked in. Here’s how I arrived at this assessment. United even outlines how they expect people to redeem their miles, as evidenced in the quote below, again from their 10k.
“Of the miles expected to be redeemed, the Company expects the majority of these miles to be redeemed within two years.”
The Pundit’s Mantra
I recently wrote a piece on why Delta’s flash sales aren’t really much to cheer about. Given that United has also devalued its program, I won’t be surprised if United also starts their own ‘flash sales’. I hope they’ll at least come up with a different name.
What’s your opinion about United removing award charts? Do you plan to switch airline loyalty after this recent devaluation? Let us know in the comments section.
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