United's MileagePlus Further Differentiates the Elites

Posted by: Justin Bachman on September 21, 2011

Some members of United’s frequent flier program will soon discover that elite isn’t what it used to be. The airline will start giving more weight to how much you spend when doling out the perks.

Starting in 2012, United Continental Holdings will award additional elite-qualifying miles for customers buying first-class or full-fare business or coach tickets. That’s an effort to further differentiate the various levels of program members and will cull some people from the top elite ranks, program experts say. It also could make United’s mileage program more attractive to business travelers who log the most miles and to those who pay the highest fares. “There are people now among their elites that the airlines view as not sufficiently profitable to warrant those benefits,” says Tim Winship, editor of Frequentflier.com, a site that tracks airline mileage programs.

To date, major U.S. airlines have based their frequent flyer programs around mileage accrual with little thought toward how much a traveler had paid. (Upstarts such as JetBlue Airways and Virgin America structure their loyalty programs around points that are calculated from base fares.) As a result, travelers on cheap, short-haul flights could often accumulate many of the same program benefits as globetrotters spending thousands of dollars per flight. “Thirty years ago when these programs started you didn’t have the enormous chasm between the cheapest and the most expensive fares that you do today,” says Henry Harteveldt, a travel industry analyst with Boston-based Atmosphere Research Group. He expects other airlines will watch United’s changes closely, and gradually begin to use customers’ spending to set top-tier status.

United’s program will have four elite membership levels, ranging from 25,000 miles or 30 flight segments, to 100,000 miles or 120 flight segments. The lowest level of elite membership, Premier Silver, will no longer be able to check more than one bag for free and cannot choose seats with more legroom until check-in. Previously those members could select seats in United’s Economy Plus cabin when they bought a ticket. The airline, formed last year by merging United and Continental into the world’s largest, was trying “to include better recognition and reward for our top-value customers,” MileagePlus President Jeff Foland told Bloomberg News.

Mileage programs have become a major source of revenue for U.S. airlines, accounting for billions of dollars from the sale of miles to marketing partners. Moreover, the mileage program has been the primary source of retaining a business traveler and keeping him from flying a rival. “The loyalty effect of giving someone elite status is huge,” Winship said. An estimated 1.25 percent of American Airlines’ 64 million frequent-flier members delivered 26 percent of the company’s worldwide passenger revenue in 2009, according to research by IdeaWorks, a Shorewood, (Wis.)-based travel and marketing consultant.

But such loyalty can also risk diluting the programs as more people join the ranks of the elite. First-class cabins have a finite number of seats, for example, and the security lines set aside for elite members can quickly become clogged, Winship said. “It’s a zero-sum game,” he said of airline perks.

Early feedback to the changes at Flyertalk.com, a site for mileage junkies, was generally positive. Many had expected United would add a revenue requirement for elite status to the 2012 program. “Yes, lower tiers (mainly silver) get the shaft, but that is in exchange for rewarding ‘better’ customers…that is fair, in my opinion,” wrote a commenter named rggale.

Continental’s OnePass mileage program will be folded into MileagePlus on Jan. 1, 2012, with a combined membership of about 85 million. “Not to be snotty,” says Harteveldt, “but there are some passengers that airlines serve that are not profitable.”