Wednesday, June 5, 2013

United laying the groundwork for big changes to MileagePlus?

In what seems to be a product launch without a customer base United has announced new "subscription" services for things that are (currently) covered by attaining MileagePlus status:

United Airlines Launches Annual Subscriptions for Economy Plus and Checked Baggage. United, PRNewsWire

United Airlines has launched subscription options that offer customers access to Economy Plus seating or pre-paid checked baggage charges for a year.
"The Economy Plus and checked baggage subscriptions offer our customers more of the comfort and convenience they value year round," said Scott Wilson , United's vice president of merchandising and e-commerce. "We are pleased that, as we launch these services, we are able to provide new options for customers to tailor their travel experiences."

Couple this with Jeff Smisek's recent comments during an Address to the Chicago Chamber of Commerce  that the airline was moving away from the "stack 'em deep, sell 'em cheap" to focus more on profitability per seat and I think the picture becomes a little more clear.

Back to the press release.

At first blush, this feels odd.  You can already get a free checked bag, and other perks, through using a co-branded United credit card when booking your flight.  You also receive priority boarding (now on-par with low & mid-level Premiers) not to mention club access etc.  All things that are currently "perks" at the Silver and Gold Premier status.  Looking at the price points for the service it doesn't make much sense either.  In order to gain anything resembling a decent ROI you'd have to fly to a level that you would receive Silver Premier status regardless.  In short: the only people this would benefit are (possibly) large families making two to three trips per year or first year fliers taking an initial stab at Premier status.

For this to make sense I believe you have to imagine what MileagePlus is going to look like in 2015, and make assumptions that big changes are coming soon.

1. The elimination of Silver and Gold Premier status. - I truly believe that this is coming.  I had an inkling of it when they grouped credit card boardings with the same group as these two statuses.  Given the profitability of selling miles to banks for the airlines on these cards there's a clearer profit model than worrying about the bottom half of the Premier group who, if scheduling carefully, can qualify for somewhere around $1K.

2. Broadening of Platinum Premier status - There's still a large swath of loyal fliers that United is going to want to protect below the Platinum level.  Because of this I see them lowering the base qualification to 60,000 miles with a revenue minimum of around $5K.  While that seems low it prices out the flier whose only going to use the 4 cents per mile "special" or "mistake" fares and prices in the business flyer to makes 3 to four trips to Asia every year.

3. Adding additional perks to the Credit Cards. - Pre-boarding is great, but I think you'll soon also see complimentary domestic upgrades added to a credit card soon. If not this, then they'll do it in the form of certificates, much as they do with lounge access for MileagePlus Explorer Card holders already.

These changes are not only going to help the airlines trim their loyalty pools, thus freeing up upgrade space for the upper-tier members, but it's also going to create some pretty intense competition among the former mid-to-lower tier members who are now on par with the credit card (and subscription) customer.  It's going to be incumbent on these credit card companies to recoup their investment in miles with increased interest-income collections.  I believe you are going to see many, many commercials on TV and hear many of them on the radio in the coming years, probably with the above increased perks and generous mileage bonuses for signing up, annual spend etc.

This also means that travel miles & points blogging is going to continue down the "pimp my card" road and that the "game" for them is certainly not over, in fact, I'll argue that it's really just about to begin, in earnest.  Whether or not this is a good development for THE TRAVELLER (you know, that person whom all of this consolidation was supposed to help?) remains to be seen.  In the early analysis, my guess is no.  While airline prices might dip slightly, the fees charged will be going up with fewer ways to prevent paying them.  Also, not included into the price of the ticket is the interest cost that's going to be incurred buying one with interest on rewards cards being significantly higher than those for non-rewards cards.

Of course, the financial prudes among us will state that you should pay with a credit card and pay it off immediately anyway and, in a perfect world, they'd be right.  The fact is though that the majority of consumers do not do this so, for them, these changes will end up costing them more money in the long-haul.  I'm not suggesting that this is a reason why these changes should (or shouldn't) occur, but it is reality and, no matter how hard you try, you can't tut-tut it away. It should be good news for the credit-card peddling bloggers however, as a large group of newly devalued, former loyalty program members will be scrambling to figure out new ways to fly in a market that's made a sea change while they were napping.  Undoubtedly the legacies will be paying this group a rather sizable dividend, whether by design or by chance.

Unknown in any of this analysis is the coming effect of the US Airways/American Airlines merger and what impact their reduced capacity will have on certain routes.  Regardless of this, it seems safe to say that big changes will be coming soon and it would seem that the smart money lies with them taking effect in 2015.

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