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United Pulls A Delta, Chooses Sticks Over Carrots

If you want to motivate people to do something, there are basically two ways you can do that: “carrots” (reward them for doing what you want them to do) and “sticks” (penalize them for not doing what you want them to do). In many cases, a combination of the two approaches is most effective, and airlines are no exception:

  • “Carrot” – the more you fly, the higher “status” we’ll give you, the better perks (upgrades, bonus miles, customer service, etc.) you’ll get
  • “Stick” – if you don’t have any activity in your account over a period of X months, your miles will expire

The changes made by the major legacy airlines (United, American, Delta) to their award programs over the past few months are a clear reflection of which tactic they think will be most effective at driving increased loyalty and increased revenue from their customers:

  • Delta clearly falls on the “stick” side of things. They introduced minimum spend numbers to their Medallion levels as an additional qualifying requirement, making it harder to earn Medallion status. Translation: “if you don’t do what we want (spend more on Delta), we’re going to penalize you (take away your status)”. The fact that this spend requirement does not include partner revenue (except in the case of specific codeshares) only emphasizes this position. Then they cut the mileage earning rates on many partners, essentially doubling-down on the fact that they really, really want you to spend your money on Delta (as opposed to partners). One Mile At A Time had a great write-up on that change. Nothing inherently wrong with that objective, but they could have opted to take the “carrot” approach and they didn’t.
  • American on the other hand, announced “Elite Rewards”, which is much more of a “carrot”. I talked about why I think it’s a really smart move back when it was announced. The more you fly, the more perks you get – and those perks are generally one-time use rather than a whole new elite level with an enhanced level of service on each and every flight you take. American’s bet is that by having more milestones for people to shoot for, they will have more people stretching just a little bit to hit that next level. That’s not to say they won’t follow Delta and United’s lead on this spend requirement (for the record, I think they will), but at least it will have been balanced with some nice program upgrades and enhancements.
  • Oddly enough, the recent JetBlue changes are somewhat of a “carrot” for a behavior I would assume they¬†don’t¬†want you to have (low frequency of activity in your account). I’m not really sure what the thinking was behind that change, and View From The Wing also questions what is in some ways an inherent tilt toward infrequent customers and away from more frequent customers.

United hasn’t been doing especially well since the merger, trailing their major competitors on most major financial performance metrics. So it isn’t particularly surprising that they felt the need to do something to get people to fly more and spend more. The fact that they’ve followed Delta’s lead in introducing minimum spend thresholds indicates that they think “sticks” are a more effective means of motivating (“if you don’t spend a minimum amount of money with us, we’re going to take away your status”).

In other words, I don’t see this as an attempt to “weed out” the mileage runners. I don’t necessarily see it as a way to steer money away from partners (though I do think that’s more plausible *update – Live and Let’s Fly certainly seems to think so*). This is simply a way to get people to fly more and spend more with United, and they (like Delta) believe that “sticks” will be more effective than “carrots” at accomplishing that.

You can visit mileageplusupdates.com for the full announcement and details, but the basic gist is that there are now spend minimums for all 4 Premier levels: $2500 for Silver, $5000 for Gold, $7500 for Platinum, and $10000 for 1K. The spend requirement is waived for Silver, Gold, and Platinum if you are a United credit card holder and spend at least $25,000 on the card.

I expect that there will be fewer elites in the United program once this change is in full effect, and that the mix will shift somewhat downward (i.e. 1Ks will be a smaller % of the new pool). I also expect to see a similar thing happen at Delta. If American stays the course, I wouldn’t necessarily expect there to be a huge increase in the total number of elites (unless there is a mass defection from United and Delta), but I would expect to see a slight shift upward in terms of the mix across levels (i.e. Platinum and Executive Platinum representing a slightly higher % of the total pool).

As for me, these changes likely won’t affect my travel plan materially. Most of my paid travel is for work purposes, and so my average amount spent per mile flown is probably above the 10 cents / mile benchmark now required (I haven’t yet run the numbers, but I’m pretty sure). The one consideration is that depending on how things shake out with partners and codeshares, I might end up flying United more often when traveling abroad, rather than partners (international business class tickets are how I’ll hit the spend minimums).

For all you United flyers out there, how will these changes impact your plans going forward, if at all?

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