DL Adds Revenue Requirement for 2014 Elite Year - Effect (if any) On MileagePlus?

Discussion in 'United Airlines | MileagePlus' started by J.Edward, Jan 16, 2013.  |  Print Topic

  1. J.Edward
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    J.Edward Silver Member

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    Per our friends at the DL forum, SkyMiles will be introducing MQDs - Medallion Qualifiying Dollars - for the 2014 program year with $2,500 - $12,500 being required for US based residents of the program.

    Also of note: customers who spend $25k annually via a DL AX product will waived from the MQD requirement.

    So if that's where DL's going what implications are there, if any, for MileagePlus for 2013, 2014, 2015+?

    More info:
     
  2. thebkwee

    thebkwee Silver Member

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    I would think that any airline is doing two things:

    1) Figuring out what, if anything, they can do to attract high value disenfranchised customers.

    2) Figuring out if they can make a similar model profitable for them.

    I wouldn't expect any changes in the near term but I would not be surprised if United moved to a similar model down the road.

    Of course I could also just be wrong.
     
  3. HaveMilesWillTravel
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    HaveMilesWillTravel Gold Member

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    I guess the vanilla churners in the US will run up the $25k at their local CVS.

    Haven't looked at the (assumed) firestorm over on FT, but if I had to guess, I'd think AA/US won't follow this year, and neither will UA. But a year later they will make a similar switch.
     
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  4. genemk2

    genemk2 Gold Member

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    *effect, not affect.
     
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  5. mht_flyer
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    mht_flyer Gold Member

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    I'd guess if UA implements they would do it in 2015 earning year i.e. a year after DL puts it in. They'd be smart to monitor it to see if DL is successful or fails. And I hope DL fails at this.

    Even though I generally could make the requirements on UA (if they did the same as DL), I do have some leaner years, last year was a good example, I did more leisure travel than business travel due to changes in my company. Luckily this year it will re-pickup for me (especially long haul international flights :) )

    But as I mentioned this make DL look more at rewarding short term loyalty than long term loyalty relationship. And I think that is bad.
     
  6. HaveMilesWillTravel
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    HaveMilesWillTravel Gold Member

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    I am really not convinced that it matters that much and that the flying public wants to be loyal. IMO they want the best deal for themselves. I don't really consider loyalty programs to be about loyalty. More about lock-in :)
     
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  7. mattsteg
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    mattsteg Gold Member

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    So think in terms of aligning short-term and longer-term real or perceived self-interest of airlines and of the flying public. We all know that that is what loyalty is code for anyway.

    Either way, you'll have people saying, with greater or lesser amounts of knowledge or credibility, that different proportions of short, medium, and long-term incentives are the right mix.

    There's value in attracting individual transactions through low fares and/or good product, attracting annual spend via elite programs, periodic spend via awards, and longer-term loyalty via things like lifetime programs etc. The question is how much value in each, and how much does it cost to extract that value. Loyalty programs are an important tool to de-commoditize air travel.
     
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  8. HaveMilesWillTravel
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    HaveMilesWillTravel Gold Member

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    [quote="mattsteg, post: 1827778, member: 5563"Loyalty programs are an important tool to de-commoditize air travel.[/quote]

    Perhaps, but it seems less so for, say, WN.
     
  9. Wandering Aramean
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    Wandering Aramean Gold Member

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    It makes sense in many ways, but doesn't in others.

    As a company I want to reward my customers who are, on average, spending more money with me than others. The 10cpm number is actually probably a bit below average based on recent RASM numbers. But as a customer I want to believe that I'm valuable to the company, even if I'm below average in this context. A business traveler spending someone else's money isn't as personal as someone spending their own money on a vacation or leisure travel. To that leisure traveler the $3000 spent on trips is a lot of money, even if it is still below average.

    For the big spenders this means better recognition and less competition for the benefits. That's a good way to attract the high yield customers. For the low spenders this reduces loyalty, forcing the carrier to market only on fare is a gamble. But if they can easily unload the $300 transcons whether passengers are Medallion or not then why incur the additional costs by giving them double miles, free bags and upgrades?

    It sucks for the small customer being marginalized but I'm not so convinced it is a bad business move
     
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  10. mattsteg
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    mattsteg Gold Member

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    Their loyalty program fits fairly well within the value proposition that they offer - simple, basic transportation that people thing they are getting cheaply. Their customers value anytime award availability, no blackouts, etc. You may not put a great value on that, and I don't, but that doesn't mean that their customers do not see the program as valuable and preferentially direct their business to WN with that as a factor.

    Heck, if you like the WN experience, the companion pass is a pretty compelling value.
     
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  11. HaveMilesWillTravel
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    HaveMilesWillTravel Gold Member

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    I find the $25k credit card spend aspect interesting. How much does Delta get if I spend $25k on my Amex (if I had one)?
     
  12. mattsteg
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    mattsteg Gold Member

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    Whatever Amex pays them for 25k (+10-15k if plat or reserve) skymiles, plus 10-15k MQMs if plat or reserve, plus whatever amex pays Delta for the other card benefits. Say Amex is paying .5 cpm for the miles, that would be $125-200+ there, plus whatever amex pays for the companion certs, MQMs, lounge access if reserve, etc. It's super simplistic and highly imperfect, but airlines aren't profit machines and if doing well bring in maybe 5% profit margin, so let's call that the profit they get (difference between what they carry the miles on the books at and what amex pays). With all of these caveats, they may be getting a similar profit that they get from a typical several thousand dollars of flight revenue.

    Obviously way too many caveats in there to be of any real use, but remember that airlines tend to being in single-digit profit margins at best and it's easy to see just how little profit a low-fare flyer brings in, especially if DL thinks they could sell the seats anyway.
     
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  13. sithlord
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    sithlord Silver Member

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    If they increase elite benefits and recognition I'm all for it. Delta used to allow upgrades on q class and higher intl and one could earn status by trans oceanic sectors. The credit card spend shows what a profit center it is and how little leisure travel is to them.
     
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  14. Weatherboy

    Weatherboy Gold Member

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    Since UA already gives its highest status away based on spend, did/does DL do that today too?
     
  15. Wandering Aramean
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    Wandering Aramean Gold Member

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    I would bet that number is quite low. Also, the banks and airlines can negotiate cuts of anything associated with the cards, so fees or interest could be split, too. There is a lot of money to be made from CC holders, and it comes without the pesky costs of actually transporting them from A to B.
    Nope.
     
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  16. mattsteg
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    mattsteg Gold Member

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    Yeah, it's just a random number pulled from my nether regions, of course, and really used more as a proxy for profit than cost.

    As you say, there's a lot of money to be made from CC holders, and it's a lot tougher to make money by transporting them.
     
  17. sithlord
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    sithlord Silver Member

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    United getting rid of class of service bonuses makes me think they would rather not reward top customers. Global service is a shadow of what it once was as know its more like 1k +.:)
     
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  18. rookie10

    rookie10 Silver Member

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    My prediction, Delta will expand the use of SWU to l,u,t fares. The bottom is line is that this change will improve them financially...now its time to give back.
     
  19. anabolism
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    anabolism Gold Member

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    On domestic business trips, I must purchase the lowest fare and comply with corporate rules. For personal travel, it's all up to me, and I chose to spend more on airfare and live with a 13-year old car, 10-year old TV, no home theater system, etc. But I'm sure I'm not average :)
     
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  20. rwoman
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    rwoman Gold Member

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    For those looking for the specific details and discussion since DL's announcement, see:

    MP: LINK
    FT: LINK

    I know there was a recent thread on FT about UA offering matches to DL folks. I'll see if I can find it...might plus up UA's elite ranks..
     
  21. rwoman
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    rwoman Gold Member

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  22. Wandering Aramean
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    Wandering Aramean Gold Member

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    I might agree if United actually did that across the board. But they didn't. The RDM bonus for premium cabins on JV partners and UA metal is as high as ever. PQMs still earn bonus there, too. For non-JV partners the bonus options are not as high as they were last year under the "mistake" rules but I believe they are rather similar to what UA used to offer.

    Is UA giving more to folks who fly on JV partnerrs in premium cabins? Absolutely. Slightly more generous than the DL approach.

    Also, apparently *A hhas been working to upgrade their back-end systems so that they can track revenue per flight coupon. That will ultimately lead to *A carriers implementing a similar approach.

    Finally, remember that doing this will allow the airlines to "cut out the riff-raff" which means they can actually offer real benefits to the folks who earn them. Is it easy for LH to justify HON benefits because there are no discount means to get there easily. Would it be all bad if other carriers pursued a similar track?
     
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  23. mattsteg
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    mattsteg Gold Member

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    They can add benefits, they question is if they will, and of course who the riffraff really are (and how well or through what mechanism they discern that).

    Will they deem added benefits profitable additions to the program?
     
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  24. Black Cloud
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    Black Cloud Gold Member

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    It depends a lot on customer behavior and the competitive environment and I don't think there's an answer today that will be correct in six months or a year. It's fluid.

    At the end of the day this is an attempt by the airlines to truly quantify the value of their customers and reward them for that behavior. The magical equation is whether a customer is profitable or not, inclusive of the benefits received. DL isn't "firing" their unprofitable customers, they're just mitigating the amount of their loss.

    UA does it with GS the old CO did it with CO*, but only at the highest levels. This is an attempt to track and reward at all levels.

    This is totally anecdotal but when I look at the comments and behavior mainly on FT (and a bit on this board) from self-professed mileage runners, one has to wonder why any business would want to keep giving them loads of free stuff. Compared to 95% of the traveling public who just wants to get from point A to point B the airline should be providing the highest benefits and creating the stickiest loyalty program to those that are doing it at a premium (business travelers), with discretionary spending abilities.

    The move by DL is an acknowledgement that when you're spending someone else's money (business travel) you generally will pay a premium for loyalty. But when you're spending you're own (leisure travel) you tend to be more price sensitive. As a NYC area based traveler I've never flown B6 for a work trip, yet I've flown them a few times for leisure travel.

    While there are a gazillion exceptions to this rule, and we can spend all day talking about how the airlines have effectively made a commodity of themselves, the underlying data supports what I'm saying.
     
  25. Weatherboy

    Weatherboy Gold Member

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    Overall, I'm not too phased by this approach. We all know the elite ranks are swollen so anything to improve the link between the better perks with the better passengers, in terms of revenue, is a step in the right direction. United already has the bar set high at $40k+ for GS, so if they came out and issued thresholds for other levels that were comparable to DL, I don't think it'd too much negative other than push discount riff-raff further down the elite pole.
     
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