United Airlines on Tuesday made a dramatic change to its frequent-flier program, basing earnings on dollars spent rather than miles flown. Chicago-based United’s new MileagePlus program mirrors a move made by Delta Air Lines earlier this year. It’s aimed at rewarding big-spending fliers who are most profitable for the airline, making corporate travelers the big winners and most leisure travelers the losers. The switch to base awards on fares, specifically base fare plus carrier-imposed surcharges but not taxes and airport charges, will take effect March 1 of next year and applies to flights on United, United Express and most United-issued tickets for flights on the company’s airline partners.
“It’s a risky move given United’s current underperformance versus Delta on both operating and financial measures,” said Brian Karimzad, director of MileCards.com. “Many of United’s most frequent flyers are frustrated with the airline right now.”
Years ago, fares correlated more closely with miles traveled, so miles were a good gauge for money spent with the airline. That's no longer true. Flights of the same number of miles could cost $200 or $1,000. Karimzad said American Airlines, the only network carrier to continue to use miles, will likely follow suit by switching to a dollar-based award system, although it probably won’t announce a change until its merger with US Airways is further along next year, with changes potentially taking effect in 2016. Southwest Airlines, the biggest carrier at Chicago Midway, and JetBlue Airways already base awards on spending, rather than miles.
However, Brian Kelly, of ThePointsGuy.com, said American might continue with miles-based awards to differentiate itself from the competition.
He called United’s change “brazen” and a “cut-and-paste” of Delta’s reward program announced in February. “United is still stumbling from their merger,” he said, referring to the 2010 combination with Continental Airlines. “Their customer service is terrible and they’re losing money…to throw this curveball at customers is bold move.” By contrast, “Delta at least has gotten their act together,” he said.
United fliers overall are likely to earn fewer awards with the new program, he said. Under United’s plan for next year, frequent fliers will earn five miles for every dollar spent, while those with premier status will earn accelerated rewards. For example, Premier Silver fliers, the lowest premier tier, will earn seven miles per dollar, while Premier 1K fliers, the highest tier, will earn 11 miles per dollar.
“These changes are designed to more directly recognize the value of our members when they fly United,” Thomas F. O’Toole, president of MileagePlus, said in a statement.
The clear winners are fliers who often buy pricey tickets for short flights. For example, a $1,000 flight from Chicago to Kansas City will earn 5,000 miles under the new program, compared with just 800 miles under the current one, Karimzad said. And international fliers who buy first-class or business class tickets will do well. For example, a $7,000 ticket from New York to London will earn 35,000 loyalty miles, compared with 10,500 today. Losers are business travelers who fly long distances in coach and leisure travelers, he said. However, the change is a mixed bag for most business travelers who fly on a variety of fare types, he said. And those who earn most of their miles on the ground -- through an airline credit card, for example -- won’t be affected.
United’s change could affect how business travelers book travel, providing an incentive to buy pricey tickets so they can accumulate more award miles, Kelly said. Many business travelers keep their frequent-flier awards even though the company pays for the flight. United said that next year it plans to offer members new ways to use award miles, including for single-flight purchases of extra legroom and to buy subscriptions that include extra legroom and checked baggage. That change is likely aimed at infrequent fliers who will have something to spend awards on because they won’t rack up enough miles under the new plan to pay for a roundtrip ticket, Karimzad said.
The new earning structure will not affect the way members qualify for premier status in 2015, the airline said.
Overall, United’s change, along with its new dollars-spent requirements to achieve elite status, might affect which airlines Chicagoans fly.
“This is a point when you reevaluate your loyalty,” Kelly said. “Instead of hustling to get elite status on United, maybe you start flying an airline you actually enjoy flying or one that gives you better perks."
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