United tightens mileage program - Trillions of unused miles worry airlines
United tightens mileage program - Trillions of unused miles worry airlines
By Julie Johnsson
Copyright © 2007, Chicago Tribune
Published January 20, 2007
It was once taboo to mess with airline frequent flier miles.
But with more than 495 billion free miles on its books, United Airlines is doing just that.
The Elk Grove Township-based carrier said Friday that effective Dec. 31 it will cancel the Mileage Plus accounts of infrequent fliers: travelers who haven't flown on United, redeemed miles or used their Mileage Plus Visa credit cards during the past 18 months.
United used to let frequent-flier accounts lay dormant for three years before dumping them; that was the previous industry standard.
Now United, like many airlines, is clamping down with new restrictions as free miles proliferate and cost-cutting becomes very important.
US Airways will also close mileage accounts that have been inactive for 18 months, as of Jan. 31. Southwest Airlines cancels any freebies that fliers do not use within 24 months. Holdouts like American Airlines are expected to take similar measures, experts say.
"The glory days of the frequent-flier programs are over," said Joe Schwieterman, transportation expert and professor at DePaul University. "With low fares so pervasive, they don't generate the loyalty they used to."
Airlines are concerned about the high cost of these programs. Miles have to be carried on the books as a liability, and with a multitude of less-frequent travelers hanging on to miles, the carriers would prefer to pare the rolls. Moreover, competition for free seats is more intense than ever.
United tried to put the best face on the move Friday. Representatives said that shortening the amount of time a Mileage Plus account can remain inactive means that its loyal customers will compete with fewer people to redeem miles to claim free tickets.
"We are trying to make the program better for our most loyal customers," said United spokeswoman Robin Urbanski. "This also reduces our frequent-flier liability."
Indeed, such customer loyalty programs are proving a double-edged sword for airlines. Founded a quarter-century ago by American Airlines to reward faithful passengers, frequent-flier programs have proven wildly successful.
More than 180 million people around the world belong to these programs, estimates Inside Flyer magazine. They are entitled to nearly 10 trillion miles. Only about one-third of the members are active.
With airlines packing record numbers of passengers onto their planes, it is becoming increasingly difficult for frequent fliers to cash in miles for free trips.
Still, the costs to airlines of carrying these unused miles are burdensome because they represent future free rides by passengers. United estimates that about 427 billion of the 495.2 billion miles on its books will eventually be used--at a cost to the airline of $3.5 billion, according to a recent Securities and Exchange Commission filing.
United estimates in the filing that every 1 percent reduction in its outstanding number of miles would shave about $41 million from its frequent-flier liability.
Urbanski, the United spokeswoman, would not say how many Mileage Plus accounts would currently be considered inactive.
Even so, eliminating the free miles accumulated by passengers who rarely fly the airline could produce considerable savings, says Henry Harteveldt, travel analyst with Forrester Research.
"There will be some people who are very angry," Harteveldt said. "But those probably aren't core United fliers. . . . If the customer isn't into United, why should United be into the customer?"
Frequent-flier programs have changed over time, with the requirements for redeeming a free ticket becoming more stringent.
However, the concept remains a sacred cow among fliers and United risks provoking a customer backlash, said Britt Beemer, chairman and founder of America's Research Group, a consumer behavior and strategic marketing firm based in Charleston, S.C.
"If the flier perceives this as an effort by the airline to steal their points, then they'll have a revolt on their hands," he added.
United's attempt to weed out people who rarely fly from its Mileage Plus rolls could inadvertently cost it valued business customers, Beemer says. The 18-month cutoff will not distinguish passengers who have made one or two trips from road warriors who have accumulated a large number of miles in the past but might not fly United in their current jobs.
"If I had 75,000 miles on United and tomorrow morning they decided to eliminate my account, I'd never fly them again--regardless," said Beemer, who flies between 350,000 and 500,000 miles per year.
"To my mind, they just stole three round-trip tickets from me," he said. "I think they're going to have a lot of passengers feel that way."
----------
jjohnsson@tribune.com
By Julie Johnsson
Copyright © 2007, Chicago Tribune
Published January 20, 2007
It was once taboo to mess with airline frequent flier miles.
But with more than 495 billion free miles on its books, United Airlines is doing just that.
The Elk Grove Township-based carrier said Friday that effective Dec. 31 it will cancel the Mileage Plus accounts of infrequent fliers: travelers who haven't flown on United, redeemed miles or used their Mileage Plus Visa credit cards during the past 18 months.
United used to let frequent-flier accounts lay dormant for three years before dumping them; that was the previous industry standard.
Now United, like many airlines, is clamping down with new restrictions as free miles proliferate and cost-cutting becomes very important.
US Airways will also close mileage accounts that have been inactive for 18 months, as of Jan. 31. Southwest Airlines cancels any freebies that fliers do not use within 24 months. Holdouts like American Airlines are expected to take similar measures, experts say.
"The glory days of the frequent-flier programs are over," said Joe Schwieterman, transportation expert and professor at DePaul University. "With low fares so pervasive, they don't generate the loyalty they used to."
Airlines are concerned about the high cost of these programs. Miles have to be carried on the books as a liability, and with a multitude of less-frequent travelers hanging on to miles, the carriers would prefer to pare the rolls. Moreover, competition for free seats is more intense than ever.
United tried to put the best face on the move Friday. Representatives said that shortening the amount of time a Mileage Plus account can remain inactive means that its loyal customers will compete with fewer people to redeem miles to claim free tickets.
"We are trying to make the program better for our most loyal customers," said United spokeswoman Robin Urbanski. "This also reduces our frequent-flier liability."
Indeed, such customer loyalty programs are proving a double-edged sword for airlines. Founded a quarter-century ago by American Airlines to reward faithful passengers, frequent-flier programs have proven wildly successful.
More than 180 million people around the world belong to these programs, estimates Inside Flyer magazine. They are entitled to nearly 10 trillion miles. Only about one-third of the members are active.
With airlines packing record numbers of passengers onto their planes, it is becoming increasingly difficult for frequent fliers to cash in miles for free trips.
Still, the costs to airlines of carrying these unused miles are burdensome because they represent future free rides by passengers. United estimates that about 427 billion of the 495.2 billion miles on its books will eventually be used--at a cost to the airline of $3.5 billion, according to a recent Securities and Exchange Commission filing.
United estimates in the filing that every 1 percent reduction in its outstanding number of miles would shave about $41 million from its frequent-flier liability.
Urbanski, the United spokeswoman, would not say how many Mileage Plus accounts would currently be considered inactive.
Even so, eliminating the free miles accumulated by passengers who rarely fly the airline could produce considerable savings, says Henry Harteveldt, travel analyst with Forrester Research.
"There will be some people who are very angry," Harteveldt said. "But those probably aren't core United fliers. . . . If the customer isn't into United, why should United be into the customer?"
Frequent-flier programs have changed over time, with the requirements for redeeming a free ticket becoming more stringent.
However, the concept remains a sacred cow among fliers and United risks provoking a customer backlash, said Britt Beemer, chairman and founder of America's Research Group, a consumer behavior and strategic marketing firm based in Charleston, S.C.
"If the flier perceives this as an effort by the airline to steal their points, then they'll have a revolt on their hands," he added.
United's attempt to weed out people who rarely fly from its Mileage Plus rolls could inadvertently cost it valued business customers, Beemer says. The 18-month cutoff will not distinguish passengers who have made one or two trips from road warriors who have accumulated a large number of miles in the past but might not fly United in their current jobs.
"If I had 75,000 miles on United and tomorrow morning they decided to eliminate my account, I'd never fly them again--regardless," said Beemer, who flies between 350,000 and 500,000 miles per year.
"To my mind, they just stole three round-trip tickets from me," he said. "I think they're going to have a lot of passengers feel that way."
----------
jjohnsson@tribune.com
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