Come January, United and Delta will undergo a massive rewards program restructuring, changing the way that airline miles are earned. The changes they’ll be implementing have many travelers jumping ship to other airlines and loyalty programs – in some cases, to their own partner airlines (some of which have no plans to change their own programs).
What’s the story? Beginning January 1, 2015, United and Delta will start awarding miles based on fare price, not distance traveled as has been the case thus far. High-fare business travelers will likely welcome the change, but for the average price-conscious leisure traveler, the change is not likely to garner much support. Even for the high-fare business travelers, it may come as a shock next year when their 14-hour trip from San Francisco to Hong Kong only nets them 4,000 reward miles when they would have received close to 14,000 miles under the current rules (when traveling on a non-discounted fare). To help counter this, United’s rules include some provisions for mileage doubling. Still, it will take all travelers longer to earn mileage rewards under the restructuring.
So some travelers are jumping ship to other airlines, highlighting a loophole that United and Delta haven’t yet determined how to close: at least a few of their partners are continuing to operate under the old rules, and have stated they have no intention of changing their policy. With negotiations underway, it is likely that we’ll either see changes to partner policies despite their current resistance, or some restructuring of partner relationships.
The program restructuring obviously benefits the airlines and shareholders. To answer detractors, airlines point to the widely accepted hotel industry model where points are redeemed based on purchase price. Some airlines have already changed to fare-based rewards, including Southwest Airlines and JetBlue Airways. If their travelers aren’t happy about it, it doesn’t appear to have impacted either airline’s net income growth yet; both closed the third quarter with a revenue growth of more than 5%.1 Delta maintains that its customers have longed complained about lack of available frequent flyer award seats. They say the new program will address that long-standing complaint, actually making award travel more accessible.
So while elite-level and business travelers appear positioned to gain from the changes, the average vacationer may benefit, too. Members of airline credit card programs already realize a higher mile-per-dollar bonus in most cases, and under the new rules, could see a marked improvement in their earnings. For example, under the new rules, a non-elite customer with a Delta connected card can earn 7 miles per dollar in some case, a 40% improvement over the current program’s earnings. Delta SkyMiles members and those with the American Express cards offered by Delta may be able to reap enough benefits this way to offset the switch from a miles- to fare-based rewards program.
It remains to be seen just how much this change will affect airline allegiances. There is quite a bit of buzz on sites like milepoint.com and flyertalk.com about the impending changes, but that can be the nature of change. Like any other service, loyalty programs should be reevaluated from time to time. If the program doesn’t work for you, it’s likely that you can look elsewhere to find one that does.
1 The Wall Street Journal, http://quotes.wsj.com/LUV and http://quotes.wsj.com/JBLU