I promise, this will be my last piece about the United re-valuation, but I’ve had a few days to think about this and chat with people about it, and here’s where I’ve landed:
I think the major US airlines have made 2 serious miscalculations over the past 10 or so years, one of which they’ve made an effort to rectify, and a second they are now dealing with.
First: throughout the 2000s certainly until the economic crisis in 2008, legacy carriers talked about “service” as one of their key tenets separating themselves from low cost airlines. Low cost airlines were supposedly no-frills operations, while legacy carriers were chock-a-block with frills and service. Until suddenly, they weren’t. JetBlue was able to succeed so quickly because they offered a notably different experience, plus legroom and televisions. A few years after they launched when legacy carriers started cutting back on in-flight food and before they had started investing in in-flight entertainment, the world was suddenly turned upside down: JetBlue and Southwest were viewed as service leaders (because “service” no longer meant chateaubriand – it meant a smile when you got on board), and legacy airlines had a terrible product (especially domestically).
The legacy airlines were either kidding themselves, or somehow thought people were too stupid to notice that their product was horrible, and a much better product was just a click away. Southwest realized this because they can now often charge MORE than legacy airlines. JetBlue was able to expand all over the place. Virgin America, though not profitable, was able to command share on Transcon routes. Oops. And so a couple of years ago the majors decided to re-look at their more important domestic routes and are now investing heavily in the Transcon market, while offering amenities like wi-fi on shorter flights. This will benefit travelers, who actually will have great service options, and it will benefit the airlines, because it appears that people will pay for better service (they won’t pay crazy amounts, but JetBlue is betting that you’ll gladly pay $1200 round trip for one of their new suites).
Second: Airlines sold frequent flyer miles to banks like they were going out of style. They printed those points like they were Zimbabwe’s Finance Minister. And this was amazing for those airlines, because during the bad times their frequent flyer programs were profitable, bringing in cash from the sale of points to banks. At the same time, between Flyertalk and the blogs there was plenty of information out there about how to optimize the whole system. And many of us woke up realizing that it’s so much easier to earn miles through credit card signups than by actually flying. And we were redeeming those miles that we got from doing nothing on nutty around-the-world first class Star Alliance-partner riddled award tickets that were – GASP! – actually COSTING United money.
(We can no longer pretend the blogs have absolutely no impact on the airlines. Let’s just do a back-of-the-envelope calculation: I consider there to be 5 major frequent flyer blogs (View from the Wing, One Mile at a Time, Million Mile Secrets, Points Guy, and Frugal Travel Guy). 3 of them are full-time endeavors, and 2 are part-time though significant activities. We’ll have to assume that those blogs are bringing in north of $150k, a number I’m only guessing because 2 (and soon 3) of them employ staff to help write them. I’m sure the number is higher. Figure the average app pays $150 (some higher, some lower), each of those blogs is generating 1,000 approved credit cards per year. I’m sure it’s more than that, based on my own numbers. I know it varies, but for the sake of argument let’s say that the average card bonus is 40,000 miles. Each blog is generating 40 million miles for its readers per year. Times 5. So each year the 5 major blogs are, conservatively, generating 200 million miles for their readers. Add in Vanilla and 5X Office Depot, etc. Likely 300 million miles each year generated by those 5 sites alone. And that has no impact on the airlines?)
Frequent flyer program rules and award charts were created well before the massive printing of the frequent flyer currency. Premium cabin awards were meant to incentivize business travelers to fly the airline more and more so they could – one day! – maybe! – earn enough miles to take their family to Hawaii in business class. It was not set up to allow some schmuck like me to open a handful of credit cards and get the same award, especially if that award involved paying Austrian Airlines to allow me to fly their airline in business class for free because I signed up for a credit card.
So of course United (and the others) woke up over the past couple of years and realized that this whole thing needs to change. Delta decided to change it by creating 3 tiers of awards, severely restricting availability for the lowest tier, and essentially repricing awards by 1.5 – 2x because, sure, awards were always available, but they were going to cost you. American Airlines frequent flyers were screwed because of the fuel surcharges levied by British Airways, their primary option for flights to Europe; though AA also made awards widely available on their own metal at double the base price. And this week United decided enough was enough, and decided to roll it on back: if they’re going to print miles they can now primarily be used for coach tickets on United. And if United has to pay a partner for a premium class ticket, you, the passenger, are also going to pay by increasing the mileage required.
But what if you were someone (like one of my readers who wrote me today) who flies frequently and primarily redeems for international coach tickets (if you read the blogs enough you start to believe that nobody redeems points for international coach tickets)? He describes himself as a “traveler” — he actually wants to go visit as many places as possible, which he does by flying coach instead of burning miles on business class. For him, almost nothing has changed.
And that’s where I am now: we were living in a crazy arbitrage age. Airlines printed miles but they didn’t bother to change the value of the currency. That can’t go on forever. And it didn’t.
For people who love to travel and can survive without business class, nothing has happened. The airlines will continue to print points – churn away! And before you go burning those points over the next 3 months as some blogs are suggesting, take a deep breath and think about whether you’d prefer to fly more frequently in coach in the coming years. That, sure, business class is better – but isn’t it still great to be able to travel at all? Why burn off those miles when you can take a few trips in coach.
That’s not for everyone, I understand. But if you’re a “traveler” and not just someone who likes to fly up front, you’re probably sitting and laughing at all of us who have been freaking out.
And if you are someone who likes the good life, there are plenty of redemption options available — go get yourself the Amex SPG card and have a field day.