While living in New Jersey and having family in the Los Angeles and Orange County area, I’ve always found that United Airlines has had the best fares. And because 75 percent of my total airline travel has been to these locations, I decided a few years ago to make my main credit card the United MileagePlus credit card (formerly Continental OnePass). While in general, cash back rewards credit cards are the best deal for most people who use rewards credit cards, because I flew United frequently enough and was happy to spend my rewards on flight upgrades, the MileagePlus card is the card that made the most sense for me.
Some recent changes are convincing me to switch to a different credit card, perhaps one that earns generic travel rewards that can apply to any airline or a straight cash back card. First, my travel destinations have expanded. With family now in San Diego, a girlfriend in Phoenix, and an eye to visit more cities in the future, I’m using a variety of airlines once again.
Perhaps more importantly, United has just made some significant changes to its frequent flier program. Rather than rewarding travelers with frequent flier points based on miles traveled, United is rewarding customers based on the amount of dollars they spend.
Here’s how this would potentially affect me.
Next week, I am flying to San Diego, California, and the week after, I’ll be returning. The trip is business-related; I’m making several presentations at the Digital CoLab event, speaking about entrepreneurial leadership one day and leading a session on crafting effective mission statements in another. I’ll also get a chance to see my family and girlfriend while I am on that side of the country. I booked my flight several weeks ago, spending $507.90, or $568 including all taxes and fees. The tickets available were “class S,” or a deeply-discounted economy fare.
I also spent $150 and 40,000 miles to upgrade both flights to first class.
Under the old system, which is still in effect, I will earn 4,850 award miles. The new system will reward me, a non-elite member of the frequent fliers program, five points per dollar, or 2,540 miles. This new system will be put into place in 2015 and will put people who frequently fly United, but perhaps only several times a year, at a significant disadvantage.
The most frequent travelers, in United’s Premier 1K elite level, will earn 11 points for every dollar. Business travelers who often purchase full-fare or first-class flights will receive a significantly better benefit than those of us who search for the lowest price economy fares.
United’s change follows a similar announcement from Delta.
This illustrates the danger of rewards credit cards. Points aren’t real currency; the company that issues the points can, at any time, decide to change the rules about how points are earned or decide to change the value of each point. Today, a one-way flight with any particular airline might be 50,000 points; next week, that same flight might cost 75,000 points. Airlines certainly use a calculation to determine what makes the best conversion rate for points taking many variables into account, but to the traveler, changes in the reward program can be arbitrary and frustrating.
It also means that anyone who considers himself to be a master of his own personal finances must continually reevaluate the rules and terms of the rewards program. It’s legal bait-and-switch; consumers are inclined to sign up when a program is a good deal, and as the company erodes the value of what they are offering, they are counting on consumer inertia. Inertia is a powerful force. It’s partly what has kept in me bad employment situations much longer than I should stay, inertia has kept me living at the same address, and it’s the same force that has kept some of my money in the same national bank for twenty years.
Companies rely on inertia to maintain profitable customers. But this change, for me, comes at the same time that United will have less value to me as an airline.
Here’s why this is great from United’s perspective. It’s the same reason that airlines are more inclined to add more incidental fees. United and other airlines can keep fares low. Anyone can easily search for the lowest fares across multiple airlines, pitting airline against airline for the same routes. This used to be the job of travel agents, but now anyone with an internet connection can see the same information that travel agents used to see. Even with airlines that keep consolidating, this has driven competition in price — at least, in advertised base fare price.
With the frequent flier program changes from Delta and United, the airlines can keep advertised fares low while reducing the total expense of each fare booked. It’s rare for there to be any real win-win scenarios between companies and their customers. There is no way for United to paint this program update as a positive experience for most customers because most customers simply search for low prices and end up with discounted economy fares.
The biggest winners, other than the airline, are people who frequently fly first class, and most of those fares are paid by corporations. Even those who buy full-fare economy tickets with the new program terms next year will likely have an advantage over the current program. There’s only one reason someone would buy a full-fare economy ticket when a discount is available — for the ability to receive a refund if travel plans change — but this is a small percentage of customers.
Will you be affected by Delta’s and United’s changes to their respective frequent flier programs? Will you be on the winning side or losing side? Will you reconsider how you earn miles, such as through a mileage reward credit card?