ctbarnes
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Heretical UA Cost Saving Idea: End Mileage Plus

Sat Jul 10, 2004 1:05 am

Bearing in mind UA's financial problems, there is one possiblity that has not been discussed, for which the cost savings could be massive meaning some protections for pensions and fewer cuts in wages:

What if Unted scrapped Mileage Plus?

I'm not sure how much this would save, but I think it would be substanital. The program could be phased out over the span of 2 years so to give everyone the opportunity to use or convert their miles.

Granted this may be unpopular at first, but it could mean lower fares and a possible lower cost structure for UA. Yes, it could be a daft suggestion (so please keep the flames down to slow bake).

I also have heard the airlines have wanted to get rid of their FF programs for a long time because they are expensive to run, but it might be a better move in the long run.

Just a suggestion. Does this make sense or am I way off base?

Charles, SJ
The customer isn't a moron, she is your wife -David Ogilvy
 
deltairlines
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RE: Heretical UA Cost Saving Idea: End Mileage Plus

Sat Jul 10, 2004 1:18 am

Wouldn't happen. One of the major things that keeps a business traveller with the same airline is the FF program, which allows him to have free first class upgrades, priority check-in/screening, pre-boarding, etc. By "dangling" these carrots out there, United is keeping the customer loyal to them. However, if they dropped MP, then you could be sure that the vast, vast majority of those MP Elites would be enjoying AA, DL, CO, NW, or US immediately.

Jeff
 
alphascan
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RE: Heretical UA Cost Saving Idea: End Mileage Plus

Sat Jul 10, 2004 1:23 am

Mileage Plus is one of the few "profitable" profit centers UA has. It does not lose money. It makes money.
"To he who only has a hammer in his toolbelt, every problem looks like a nail."
 
picarus
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RE: Article UA Cost Saving Idea: End Mileage Plus

Sat Jul 10, 2004 1:25 am

Charles,

Great question!

As a marketing director, I know that loyalty programs ARE expensive to maintain. However, airline FF programs are one of the greatest innovations ever created within the industry because they do stimulate brand loyalty and enhance revenues over the long haul; especially as FF programs have grown to include alliances and other partners.

Financially speaking, while accrued miles are a liabilities for the airlines under accounting rules, they're non-cash and don't affect cash flow, profitability, etc. Also, the airlines have instituted controls by placing expirations on unused miles. FF Programs are here to stay forever because they do work. If they didn't, Southwest, AirTran, Frontier, wouldn't have jumped on the bandwagon.

Now that I've said that, your idea could work if ALL of the airlines agreed to eliminate their loyalty programs at the same time. I don't what the legal implications of that would be, but it would be interesting.

Picarus
 
ctbarnes
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RE: Heretical UA Cost Saving Idea: End Mileage Plus

Sat Jul 10, 2004 1:26 am

This is not a sarcastic question, I'm really curious: How does MP make money? Also, what are the indirect costs (keeping non-revenue seats open, alliance obligations, etc.), and are these included in the figure.
The customer isn't a moron, she is your wife -David Ogilvy
 
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Starlionblue
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RE: Heretical UA Cost Saving Idea: End Mileage Plus

Sat Jul 10, 2004 1:29 am

As has been said, UA does not make a lot of money on Monkey Class. Monkey is a low margin, volume business. Filling Biz and First is where the profits are. Any way to keep those seats filled is good, even an apparently expensive one that may raise prices marginally for Monkey.

BTW, If you get a credit card connected to your FF account, your miles normally stop expiring. But it's still profitable.

My boss is at some ridiculously maxed out platinum level on UA and my colleague about the same on US Air. As DeltAirlines said, if their miles dissapeared, they would look for a new carrier faster than you can say "Chapter 11".

[Edited 2004-07-09 18:29:36]
"There are no stupid questions, but there are a lot of inquisitive idiots." - John Ringo
 
MidnightMike
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RE: Heretical UA Cost Saving Idea: End Mileage Plus

Sat Jul 10, 2004 1:35 am

Not in a million years, Mileage frequent flyer actually make money for any airline that has it. Cancell the program and United would lose tons of customers.
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elwood64151
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RE: Heretical UA Cost Saving Idea: End Mileage Plus

Sat Jul 10, 2004 1:39 am

Picarus:

You made every point I was going to make. Who are you a Marketing Manager for?

Now that I've said that, your idea could work if ALL of the airlines agreed to eliminate their loyalty programs at the same time. I don't what the legal implications of that would be, but it would be interesting.

I think an anti-trust issue would arise here. Especially since those oh-so-loyal FF customers would get screwed out of their benefits...

How does MP make money? Also, what are the indirect costs (keeping non-revenue seats open, alliance obligations, etc.), and are these included in the figure.

1) MP makes money by convincing customers who might otherwise chose a flight on another airline that costs the same or slightly less to choose UA. Remember that you have to earn 20,000-plus miles before you get much of anything from most FF programs.

2) The main indirect cost of maintaining the FF programs are:

Maintaining and updating the database.
Propagandizing/promoting the FF program.
Extra time spent on making Non-Rev reservations by res agents.
Maintaining any lounges or other "perks" programs, like express check-in.

Most of these costs are fairly minimal. Computer memory is now fairly cheap. Propagandizing the program can be done both on-board and at reservation and check-in. Only printing costs and mailings really pump up this section. The extra reservations time is fairly minimal, since only a small number of seats will go out as non-rev. And maintaining the perks of the program reinforces the customer's desire to stay with the airline, and further need only be done at strategic locations, not every airport.

As for keeping non-rev seats open, most airlines place a limit on the number of seats on each flight that can be booked non-rev, and there are black-out dates in most programs around major holidays and other significant travel periods.

Really, FF programs look like they cost a lot of money as Picarus mentioned, but there is actually very little cash tied up in them. And the revenue they generate far outweighs any real or implied cost of operating them.
Those who fail to learn history are doomed to repeat it in summer school.
 
ctbarnes
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RE: Heretical UA Cost Saving Idea: End Mileage Plus

Sat Jul 10, 2004 1:45 am

Thanks for the insights Picarus and Elwood. It sounds as if the cost savings generated would not be as high as I originally thought and may not be worth it compared to the customer fallout...

Charles, SJ
The customer isn't a moron, she is your wife -David Ogilvy
 
B747-437B
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RE: Heretical UA Cost Saving Idea: End Mileage Plus

Sat Jul 10, 2004 1:56 am

How does MP make money?

The majority of Mileage Plus miles are now awarded via partners rather than via United flight activity. Every mile awarded by a partner is revenue earned by Mileage Plus on a cash basis. On the flip side, the liability is not actually noted on the books until certain redemption thresholds are reached and then too only as the incremental cost of service provision. As long as the miles are not redeemed, Mileage Plus continues to earn interest on the cash float as well.

A loyalty program with plenty of partners is an absolute cash cow for an airline. If managed properly vis-a-vis inventory allocations, you can essentially clear profit margins in excess of 50% on your turnover.
"The A340-300 may boast a long range, but the A340 is underpowered" -- Robert Milton, CEO - Air Canada
 
ORDINDUAFLYER
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RE: Heretical UA Cost Saving Idea: End Mileage Plus

Sat Jul 10, 2004 2:07 am

Sean, isn't it somehow booked as a contingent liability?

It would be very interesting to see a breakout (percentage) of UA's MP portfolio (or those of other airlines) -- of the miles that have been "earned" by the members, how much of it is earned by those of us who fly on a regular basis vs. the miles that are earned by those whose primary MP contribution is miles earned via their credit card, grocery miles, etc. I.e....how many current members does MP have who would be in a position to cash in miles for tickets or upgrades
 
ssides
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RE: Heretical UA Cost Saving Idea: End Mileage Plus

Sat Jul 10, 2004 2:21 am

I'm not sure how much this would save, but I think it would be substanital. The program could be phased out over the span of 2 years so to give everyone the opportunity to use or convert their miles.

I also have heard the airlines have wanted to get rid of their FF programs for a long time because they are expensive to run, but it might be a better move in the long run.

It is true that FF programs have cost more than the airlines probably planned for, but given their attractiveness to customers, it is probably just too risky to scrap them.

FF programs are successful in attracting elite customers who can generate $1000 of revenue for a short one-way flight. Airlines want to cater to this customer as much as possible. Right now, these high-dollar customers are their lifeline, and they will do whatever they can to attract them. If, for example, UA dropped its FF program, you can bet that AA, DL, US, CO, and everyone else would harp on it, inviting UA's frequent flyers to join their programs and get their business (in fact, UA did something similar a year or so ago; it offered elite travelers on other airlines an automatic upgrade to Mileage Plus elite status).

I think the trend, however, will be to increase rewards for truly frequent flyers, while making it more difficult for the twice-a-year flyer to earn miles and rewards. DL has already toyed with this approach; I think they have proposed offering only 1/2 miles for discounted coach tickets. This, along with restrictions on mileage redemption, will probably be the wave of the future for the mainline carriers.
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alphascan
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RE: Heretical UA Cost Saving Idea: End Mileage Plus

Sat Jul 10, 2004 2:27 am

How does MP make money?

For every airline FF mile given as an incentive by program partners and marketing partners, the airline earns income...say somewhere in the neighborhood of $0.015/mile (for large partners) to $0.025(for small partners).

Take a look at Mileage Plus or WorldPerks sections of the airlines' respective web sites. There are literally thousands of ways to earn miles without ever flying.

Millions of these miles are never used. $Cha...ching!$ Pure profit.

"To he who only has a hammer in his toolbelt, every problem looks like a nail."
 
MoneyShot
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RE: Heretical UA Cost Saving Idea: End Mileage Plus

Sat Jul 10, 2004 2:31 am

I'm not sure what would happen but I don't think it would be good for the airline in the long run at all. Sure, it might save them money on free seats, upgrades etc, but what does than mean when all of their top paying customers are at WorldPerks, SkyMiles etc. I know myself, that FF programs are the only think that keeps me at an airline. To be honest, without that the ONLY things that the major carriers have is their international network.
 
ORDINDUAFLYER
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RE: Heretical UA Cost Saving Idea: End Mileage Plus

Sat Jul 10, 2004 2:39 am

Ssides...I'm not sure I'd use Delta as a positive role model re how their changes have affected their ff's -- check www.saveskymiles.com to see some interesting opinions from DL ff's. They've (from what I'm told by DL ff's, I don't fly them personally so not firsthand knowledge) made it more difficult for even their "very frequent flyers"...the only ones it would appear to not be so difficult for are their "high revenue generating" pax (regardless of how frequently they are BIS on a DL flight)

Alphascan...your last comment is in the same direction I was heading earlier. I wonder what percentage of UA's outstanding miles fall into this "category" (for lack of a better description)
 
BostonGuy
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RE: Heretical UA Cost Saving Idea: End Mileage Plus

Sat Jul 10, 2004 2:45 am

A FF program can be that "tipping point" that gets a customer to choose one airline over another when all things are equal (for example, the customer has accrued lots of miles with United but not with American. The customer, wanting a free ticket, can be more likely to choose United over American when flight times are comparable, even though United might cost more for that particular flight and/or even though the customer may perceive United's service to be inferior to American's).

FF programs also can temporarily deter customers from defecting in droves to competitors when an Airline's pricing and service go south. Note I said temporarily... eventually continual bad service and out-of-sync pricing result in the loss of the FF customer. They can only take so much abuse!

Airlines could collectively abandon FF programs without anit-trust concerns if it was handled the same way airlines handle price increases. One tests the waters... if the others don't join in the increase then the first airline retreats.

Airlines, by more effectively limiting the number of seats available for FF awards, have helped minimize the cannibalization of revenue generating seats (Airlines don't want to give away seats that someone would have paid for). Of course, when FF members perceive awards as difficult to redeem then the value of the FF program diminishes and the customer becomes less loyal. It's a very fine dance the airlines have to do to balance not giving away seats that would generate revenue while maintaining a high-perceived value (i.e., ease of getting free seats) from the customers for the FF program.

Probably a greater concern to airlines these days is that they are having to make significant cuts in service, amenities, etc. in order to get back to profitability while the airlines that created the environment requiring cost cuts (LCC's) are moving more upscale. An article from another thread provides very good insight into the challenges both Legacy and LCC carriers face. This very detailed analysis tellingly doesn't mention frequent flyer programs, so I would doubt that those programs are such a liability that airlines would consider scrapping them.

http://www.economist.com/business/displaystory.cfm?story_id=2897525
 
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RE: Heretical UA Cost Saving Idea: End Mileage Plus

Sat Jul 10, 2004 2:54 am

Sean, isn't it somehow booked as a contingent liability?

Yes. It is booked as the INCREMENTAL cost of providing the service and then too ONLY WHEN a certain threshold is reached.

So for example, say an airline deems that the average incremental cost of a domestic RT is $10 in catering, $5 in insurance and $10 in fuel (hypothetical only) - it will book a liability of $25 for every 25000 miles in a single account (which represents a redeemable domestic RT). 24999 miles = no liability booked.

They use historic redemption patterns (eg. 50% Domestic RT, 25% Europe RT, 10% First Class RT, etc...) and book their liabilities proportionately according to those, corresponding to the deemed average incremental cost of providing each of those services.
"The A340-300 may boast a long range, but the A340 is underpowered" -- Robert Milton, CEO - Air Canada
 
B747-437B
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RE: Heretical UA Cost Saving Idea: End Mileage Plus

Sat Jul 10, 2004 2:56 am

somewhere in the neighborhood of $0.015/mile (for large partners) to $0.025(for small partners)

Your numbers are a little on the high side but the premise is correct. Most ad-hoc partners can cut deals for miles in the 2c/mile range and the larger contracts can go as low as 0.8c/mile.
"The A340-300 may boast a long range, but the A340 is underpowered" -- Robert Milton, CEO - Air Canada
 
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Starlionblue
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RE: Heretical UA Cost Saving Idea: End Mileage Plus

Sat Jul 10, 2004 2:59 am

There are literally thousands of ways to earn miles without ever flying.

Earning miles you can do without flying. But in almost all FF programs you have to fly to get to the higher classes.
"There are no stupid questions, but there are a lot of inquisitive idiots." - John Ringo
 
ltbewr
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RE: Heretical UA Cost Saving Idea: End Mileage Plus

Sat Jul 10, 2004 3:13 am

About 2 weeks ago, I posted a topic "Future of Frequent Flyer Programs". I questioned the future of these programs due to the costs to the severly finanically strapped airlines. I got a few responses and I was pretty much shot down for suggesting that they might end or be become more restrictive as to gaining and redeeming points. There are now fewer airlines. All costs have to be considered subject to cuts. Almost all USA based airlines are running a/c with fewer available seats, especaily fewer 1st/biz class seats to upgrade to or claim on FF points. Many flights are near impossible to redeem FF points on (LAX-Hawaii for example). There are many people like me who don't fly as often as I would like for business or pleasure, but like the idea of getting a free ride sometimes, but with today's pricing enviorment for majors are FF plans too expensive? Could the end or making plans more restrictive hurt airlines as many of you here think?.
What I think you could see is already happening - like 50% of actual miles for the highly discounted fare. This could be extended to fares purchased by an employer who purchases at a discount. Some flights may have to be blacked out totally for redemption flights or at double points requirements and make it clear in the redeption information. Let's face a reality too - most people who travel for a larger employer don't have much choice in the airline used. If the co's primary airline from whom they get a volume rebate is AA or if your based in Detroit where your pretty much stuck with NW for all but a few flights, then in either case, you really don't have a choice.
Perhaps the number of miles to claim a flight with FF redemption trip should vary with the length of the proposed trip. Most programs require at least 25,000 to claim selected flights, but you can go EWR-SEA (which I did claim in 1995 with UA). Maybe a flight of 3000 miles should require more miles like 35,000, but if travel 1000 miles (EWR-ORD), maybe you use fewer miles (like 20,000). With today's computer systems and websites, this may not be impossible to consider. It would be fairer to those who don't live on the coasts. This would also encourage redemption.
 
BostonGuy
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RE: Heretical UA Cost Saving Idea: End Mileage Plus

Sat Jul 10, 2004 4:13 am

"Perhaps the number of miles to claim a flight with FF redemption trip should vary with the length of the proposed trip. Most programs require at least 25,000 to claim selected flights, but you can go EWR-SEA (which I did claim in 1995 with UA). Maybe a flight of 3000 miles should require more miles like 35,000, but if travel 1000 miles (EWR-ORD), maybe you use fewer miles (like 20,000). With today's computer systems and websites, this may not be impossible to consider. It would be fairer to those who don't live on the coasts. This would also encourage redemption."

This is already done in some form by many airlines. Intercontinental travel, or travel to Hawaii, frequently require more miles for awards.

Within the continental US, however, most people book an award on a flight to a destination they need to travel to (family reunion, wedding, they want to vacation in Florida so they "need" to fly there), rather than booking the longest segment possible. People who live on the East or West Coasts usually use FF awards for non-trans-con segments. Instituting a "zone system" (based on point to point mileage) would, however, result in perceived unfairness to many of those living on either coast.

From your post it sounds as if you want to fly somewhere for free and use fewer miles to get the award ("Maybe a flight of 3000 miles should require more miles like 35,000, but if travel 1000 miles (EWR-ORD), maybe you use fewer miles (like 20,000)" and "It would be fairer to those who don't live on the coasts."" It sounds as if you want to tweak the FF programs so that you can earn travel faster than you can right now while causing those on the coasts to sometimes have to use more miles for certain flight awards than they currently are using. What you're proposing is actually a disadvantage to both the airline (free ticket for less mile points) and customers (those on the coasts who do use awards sometimes for trans-con segments). I don't see how the airlines will be helped by serving someone like you while taking away something from so many others. For most FF members, both middle-country and East Coast/West Coast, there is no disadvantage in the award scheme for travel within the US. Good try on your part to get free seats for less points, but it ain't gonna work!

Your tiered-approach within the US would, in my opinion, be be harmful to the relationship airlines have with their FF members.
 
antares
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RE: Heretical UA Cost Saving Idea: End Mileage Plu

Sat Jul 10, 2004 9:02 pm

If some of the reports I have heard are true the UA scheme has just about ended if you try to redeem your points on other Star carriers. The allegation is that it has either stopped or is very slow to pay the fee each member of the alliance pays each other to cover a redemption of reciprocal schemes.

Perhaps someone can clear this up.

It sounds like a re-run of the Ansett Golden Wings scandal, where the other Star carriers didn't want to know about you the moment Ansett died.

Incidentally, I think the value of these schemes is being seriously eroded by the sale of points to non airline customers, like mortgage lenders and the like. People who have no loyalty to the airline concerned are clogging the system with points the carrier sold to non-flyers.

Personally I don't give a bugger how many points I don't earn chasing a better deal on an airline that has a scheme I don't belong to.

 
Lufthansa
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RE: Heretical UA Cost Saving Idea: End Mileage Plus

Sat Jul 10, 2004 10:20 pm

Ctbarnes

As an economist, I'd like to take a moment to explain to you and everybody else exactly how a loyalty program effects business. I'm going to assume you all have a most basic understand of the principles of supply and demand... if not, let me know and i can provide a reading list if your interested.

Firstly, United, AA, Lufthansa, Cathay and Qantas all have one thing in common. PPL who travel a lot, are willing to pay slightly more to travel with them. Why? That is the question I want you to keep in mind thoughout this discussion.

Loyalty programs as designed to effect supply and demand curves for a particular good. You all should be aware, that at a certain price level, the market will demand a certain Qantity of a good.

A loyaly program attempts to effect this by shifting the supply and demand curves to the right. In order words, to get consumers to demand a higher qantity of a good at a higher price than they otherwise would. I'd draw a diagram to explain it normally but it is a bit difficult to do it in this program.

Anyway, this is achieved by raising the switching cost. That is, by giving the consumer a bigger loss for switching to alternative goods.... in this case, alternative airlines or an alternative mode of transport altogether. This is achieved by making loyalty scheme's non-linear. Meaning, that they more of them you earn, the more generous the rewards are, so you incur a much greater loss by using an alternative product. That is why frequent flyer programs have elite levels. It is a way of raising the switching costs for their most important customers, and the idea is to raise it to a level, where people would rather pay a little more and use your service. The idea in theory is to try and earn both more loyal customers and higher profits, except that the level of this varies from market to market, due to the different price sensetivites of customers.

Now ask yourself the question. What keeps flyers loyal to United? Lets say i want to fly LAX-JFK. I've got lots of options. Frequent travellers are aware of jetblue's deal. Leather seats, PTV's and more leg room for most ppl are a pretty good deal, and while you are in a narrowbody, this is no different to the days of DC-8 or 707 flights on this route, plus you can only sit in one seat at a time, so this isn't likely to be that bigger deal. Some may even prefer it because they may feel they're getting more personal service. So, how does a carrier like United seperate themselves? Easy. If you fly a lot, there is a very good chance, that you'll be happy to pay an extra $30 for united on this route. And if the price is the same, you'll most likely definately use United. If you don't fly a lot, it doesn't really matter because you will probably never redeem your miles anyway, so, earning them is purely a pyscological thing. You may still stay loyal because of it so its worthwhile issuing you a card.

The next thing to realise is, that it takes roughly 6 times more money to earn a new customer than to retain an existing customer. So, the lifetime value of a customer is a very important consideration. In 1998, British Airways estimated the lifetime value of a Business class customer was 150 000 United State Dollars. A first class customer is a hell of a lot more than that. So, keeping these customers both happy and loyal is an extremely important thing. A frequent flyer program may seem expensive to maintain, but, the loss of such high customer's revenue would be even more expensive. You have to spend a dollar to make a dollar.
So there you basically have the motivation for a loyalty program and why UAL has such a generous one. IF your worried about the cost, perhaps a better way to save money would be cutting back some of the customers, and perhaps increasing the flight benifits even more at the same time (raising the switching cost even further). It would seem that many American airlines have gone overboard with the amount of non-flight partners they have in their programs. Still, if united were to take up this suggestion, they can kiss goodbye half of their first and business class customers overnight.

The switching cost is the reason why united award miles for TED flights. Both ted and its LCC compeition offer similar products.... but only TED offers mileage plus. UAL have a large customer base already in these cities... who they know are know more price sensative then ever, so they want to still somehow raise the switching cost (via miles for TED flights) yet give them the price that they are demanding. And so far... it appears to be working!

So there you have it! I hope this is interesting for some. Any questions or if i haven't explained anything well (i've just received a large quantity of Stella Artois and am a little under the weather right now) please feel free to ask.

Cheers
Lufthansa
 
ctbarnes
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RE: Heretical UA Cost Saving Idea: End Mileage Plus

Sun Jul 11, 2004 12:54 am

Lufthansa,

The one thing that jumps out in reading your discussion is the assumption that the customer is going to operate in a predictable, rational fashion. Yet consumer behavior is a far more random element than I think airline exectives want to admit to themselves. Customers will continue to pay slightly higher fares in order to get the goodies (and yes, I'm one of them-I fly often enough to get a free ticket once in a while but not often enought to get gold-encrusted card status), but at the point where customers feel their loyalty is not being rewarded, or they feel they are being taken for granted, they will jump to someone else's program. The second random element is that some of the perks are beginning to lose their luster. I have heard many stories of 1K travelers who have more miles than they know what to do with, and do not have the time to use them (donations welcome  Smile ). Bypassing security lines, lounge access, priority boarding etc. are often seen as far more important, as are novel ways to use their miles. When Canadian Airlines was still in business, for example, you could purchase 30 minutes in a DC-10 simulator for 100,000 miles.

Therefore, while it is true that customers are willing to incur a greater loss for a perceived greater good, this only works if the customer perceives they are getting added or future value to compensate for that loss. Once they stop perceiving that (and it may or may not be because of anything the airlines do or don't do), they then begin to realize they have nothing to lose by switching over.

Have a Stella for me!

Charles, SJ

[Edited 2004-07-10 18:03:39]
The customer isn't a moron, she is your wife -David Ogilvy
 
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Starlionblue
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RE: Heretical UA Cost Saving Idea: End Mileage Plus

Sun Jul 11, 2004 1:04 am

The one thing that jumps out in reading your discussion is the assumption that the customer is going to operate in a predictable, rational fashion. Yet consumer behavior is a far more random element than I think airline exectives want to admit to themselves.

I may only have a BA in Economics, but let me responds to this. In general, if consumers have good information (the big "if") they will behave in a rational manner AS A GROUP. There may be individual discrepancies, but on average this will happen. If this were not true, most economic theory would be useless (and some say it is  Big grin).

Also, the consequence of making FF programs non-linear is that customers will tend to stay with the airline where they first earned miles. That's were marketing comes in.


Also, as you say, perception is everything.
"There are no stupid questions, but there are a lot of inquisitive idiots." - John Ringo
 
ctbarnes
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RE: Heretical UA Cost Saving Idea: End Mileage Plus

Sun Jul 11, 2004 1:11 am

True enough, starlinonblue. The operative word in your argument is 'if.' Problem is we live in a world of imperfect markets and, especially in the case of airlines, imperfect information. Therefore, customers basically do their best with the information they have.

Charles, SJ
The customer isn't a moron, she is your wife -David Ogilvy
 
Tango-Bravo
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RE: Heretical UA Cost Saving Idea: End Mileage Plus

Sun Jul 11, 2004 2:24 am

What if Unted scrapped Mileage Plus?
---------------------------------------

It would be one of the best -- quite possibly the best -- move United could make to ensure its survival and even long-term profitibility.

Frequent flyer programs devised by the legacies, Mileage Plus included, have devolved into nothing more than costly programs whose underlying rationale (when one sees through all the smoke and mirrors) is based on the premise that customer loyalty and repeat business can be bought. While true, there is a deadly flaw in their assumption: the costs of buying customer loyalty are subject to inexorable pressure to constantly increase. Which is to say that customers have a pronounced tendency to "up the price" for buying their loyalty and repeat business once they become aware of the game.

Inevitably, as costs for buying customer loyalty go up while revenues needed to support the game do not keep pace, the law of diminishing returns deals the airlines who play the game a punishing blow -- perhaps even a knockout blow.

At the same time a caste of elites becomes established, who become the proverbial inmates who are allowed to run the prison. While airline pax are not prison inmates and airlines are not prisons, the parallel is valid: when self-seeking wards (elites) of a given institution (an airline) are allowed by management to dictate the terms of how they will be treated (with costly undue favoritism, even beyond the generosity and largess called for by policy), costs go up and efficiency goes down as employees are compelled to practice all manner of costly undue deference that I would compare to the high costs added to medical care when doctors are forced to practice defensive medicine in the interest of their survival.

Would other airlines "fall in line" if United were to rationalize or phase out Mileage Plus altogether? Regardless of what would happen, United would do well to allow customers who would defect over the issue to become the high-maintenance, high-cost liabilities of their competitors. The RASM represented by those who would go elsewhere would be replaced on a one-for-one basis by pax who pay the same fares but do not bring the high-cost "I'm Mr/Ms Big and deserve obsequious treatment from your airline" baggage with their business.

Please keep in mind that I have no issues with elites: my issue in this regard is entirely with airline managements who allow such programs to become a high-cost, high-maintenance liability and go even further in the wrong direction by caving in to individual elites who demand even more than the largess offered by policy. And then, to compensate for the cost trap that management has created, employees are theatened and intimidated into giving concessions to subsidize the unsustainable costs of management's myopic folly.
 
StarGoldLHR
Posts: 1346
Joined: Mon Feb 16, 2004 1:29 am

RE: Heretical UA Cost Saving Idea: End Mileage Plus

Sun Jul 11, 2004 3:02 am

Ive currently got 350K miles in my UA Account.
I have burned 300K in my time as well.

This is 650K miles in UA alone.
Although Ive over a million airmiles in a few airlines, plus hotel points, plus plus plus etc etc as a business traveller and as someone one who is not paying the air fare (some company pays my expenses) and as someone who needs to fly on hours notices (for on demand work)...

I pay very high fares (e.g. £850 / $1300+) for a LHR-NYC only a week ago in economy for a 24 hour NYC trip.

I fly United...

why...

Because of what the airlines kick back to me is occasional Business Upgrades, The lounge access, and the air miles... all which cost me zip. which I then use and take my parents on holiday with .. all around the world.

UA Does very well out of me and I do very well out of UA.
And companies do very well from my services and pay for me to visit them.

Why do I not go AA or VS ?

Well I know AA's service is very good, but I always get row 44B or somewhere near the back. I never get upgraded and I have no lounge access. but I have 1k AA miles...

doesnt mean a thing to AA, so they don't mean a thing to me.


What about VS ?

Excellant service, probably the best LHR-NYC offering...

half the time there fares earn no airmiles at all.
Destinations are limited, beyond NYC they only fly 1 time a day, sometimes only a few days a week.

But to me.. no Airmiles, no upgrades, no bonuses so they don't get my business.

CO / US ?

Last time I flew these airlines I was a student, no loyalty, no points no incentive.


BA ?

Well they are probably the most tight fisted rule regulated and unfriendly airline on the LHR-NYC route. The run it like prison. No chance of an upgrade and generally I find BA FF'ers want the BA status in the same way Aeroflot members have there status.. Because it's a status symbol. But If you want a kick back to yourself for your loyalty when a company flies you somewhere.. dont bother...

Recently me and my boss flew LHR to NYC on a long arranged low cost trip.(I do it about a minimum of once a month and the rest of the US 4 or 5 times a year). He flew BA, very proud to be a member.. was gutted he earned just 1750 miles for his round trip. I earned 14,000, same route same itinery both of us have the same FF status, same BA terminal in NYC, and only 10 minutes difference in flight departure times... redemption in BA or UA's program is just the same: 50,000 for a US roundtrip...
Oh an United invited me to there Business cabin for the flight... My Boss...seat 57K.

See why I dont fly BA ?

You dont think the airlines dont know how good there programs are and how they work ?

UA's probably have over $100k + from me to date in return for there airmiles they gave to me.

Oh and finally..
I forgot all about NW and BMI....

BMI no complaints.. I'm star gold with them too...not quite as generous as UA.. but there service is up there with VS...they really need to goto NYC though !!

and NW...

No complaints.. I have over 100k with KLM generous FF program and a few years ago NWA offered me Silver Elite.. I took it and flew many many miles with them.. but when I moved to Europe and joined KLM they took it away so now I earn my KLM miles on LCY-AMS only which I also fly monthly and they lost quite heavily...

You see

I'm fickle, I have money,I have no loyalty and I fly regular.
If you give ME the kickback I will fly with them regardless of service and a company paying the expenses picks up the bill. I work many many hours for my job and almost never waste a flight to do some work.
For this amount of effort, customer deadlines, problems to fix, hours to work I want something besides my pay packet and lost weekends with friends to make it work for me...


Thats why Airlines have FF programs.

ps. If your an airline... offer me the status and I may switch from UA. It's as simple as that,..
So far in 2008 45 flights and Gold already. JFK, IAD, LGA, SIN, HKG, NRT, AKL, PPT, LAX still to book ! Home Airport LCY