Who Will Profit From United’s MileagePlus Program Changes?

As airlines refocus their rewards programs on big spenders rather than cost-conscious frequent fliers, there are opportunities for other companies to fill the mileage gap.

Jun 18, 2014 at 8:03AM

United Continental Holdings' (NYSE:UAL) announcement last week that it's restructuring its MileagePlus program to give more free miles to passengers who spend the most -- and fewer to the folks who fill the cheap seats -- was no surprise to industry watchers. The decision, which takes effect in 2015, follows similar moves by budget carriers JetBlue (NASDAQ:JBLU)Southwest (NYSE:LUV), and Virgin as well as Delta Air Lines (NYSE:DAL). American (NASDAQ:AAL) is expected to follow suit once its merger with USAirways is settled.

Some people are pretty upset about United's decision. Gordon Martin at Skift wrote, "So the wealthy, last-second business traveler will get richer with more miles while the poor, budget traveler will remain poor." A Wall Street Journal article's headline said United's new policy will "penalize average fliers." The consensus is that the changes are unfair to budget business travelers who are required to stuff themselves into coach seats frequently for work and who will see fewer upgrades and free trips for the same amount of travel they've been doing.

While the changes will undoubtedly sting for the passengers knocking their knees against tray tables in coach, they reflect the financial reality -- customers who spend more on premium seats are more profitable for airlines. Nobody in the airline business is getting rich on volume. Airline profit margins dwell in the basement with grocery stores. The key to bumping up those margins is to attract higher-spending customers and earn their continued business, similar to the way retail stores such as Neiman Marcus and Nordstrom offer tiered perks programs that reward their biggest spenders with special events and discounts.

There are still ways that beleaguered budget business travelers can earn miles, of course. And certain companies would be smart to capitalize on that now, while these fliers are looking for ways to maintain their mileage-program status and keep earning trips.

Miles as a weapon in the credit card 'perks war'

Travelers who don't fly often can earn more miles on the ground than in the air by using certain credit cards when they shop. Frequent coach-class flyers can make up for some of the mileage-program changes by using those cards, too. Airlines offer their own co-branded cards, but there are plenty of retail cards, such as Chase Sapphire and American Express Platinum, which offer points that can be traded for miles.

The competition to offer the best perks to new customers is already hot, because Americans are carrying less credit card debt and are more selective about opening lines of credit. Now would be an ideal time for competing card issuers to promote their air miles deals to business travelers.

Miles for booking hotel stays

No matter how travelers get to their destination -- kicking back in business class or folded into a coach seat -- they all have to stay somewhere when they arrive. The change in air miles programs could give a boost to start-ups like Rocketmiles, PointsHound, and JustBook.

Rocketmiles in particular has earned a lot of press coverage for helping travelers book rooms while rewarding them with airline miles. The mile options aren't piddly, either. A Rocketmiles search for hotels in San Diego, for instance, turns up mileage rewards between 4,000 and 14,000 miles for a three-night stay, along with room rates in the middle range for the area. Now is a smart time for these services to promote their mileage deals to economy class fliers.

A new air miles normal

In an ideal world, the move by airlines to court big-spending passengers would lead to higher margins, less need to compete on price, and more competitive services and amenities for all passengers. In reality, though, the real opportunity is for credit card companies and booking sites to recruit new budget-minded customers and keep them -- by helping them racking up miles on the ground.

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