In the past four months, two major US airlines, United and Delta, have announced a shift from miles-based rewards programs to fare-based rewards programs. They will be the first traditional airlines to do so, joining low-cost carriers JetBlue, Southwest and Virgin America as the only US-based airlines with a fare-based rewards system. The shift in programs will help the average consumer, as United currently has the 4th highest dollar per mile ($0.19, Table 1), while Delta has the second highest ($0.21) making it more expensive, on average, for fliers to earn rewards. Spirit and Frontier have the lowest dollar per mile, at 8.1 cents and 8.8 cents, respectively. This means that, overall, a Spirit customer can fly over 1,200 miles for just $100, while United and Delta customers would only be able to fly 526 miles and 476 miles, respectively. The announcement of United’s new program came just three months after Delta announced they would be switching to a fare-based rewards program in January 2015.
Airline
Dollar per Mile
Rewards System
Spirit Airlines
$0.08
Miles
Frontier Airlines
$0.09
Miles
Hawaiian Airlines
$0.09
Miles
Virgin America
$0.09
Points
JetBlue Airways
$0.10
Points
Alaska Airlines
$0.14
Miles
United Airlines
$0.19
Miles
American Airlines
$0.20
Miles
Delta Air Lines
$0.21
Miles
US Airways
$0.21
Miles
Table 1: Average dollar per mile for largest US airlines (Note: As of today, only Virgin American and JetBlue have fare-based rewards programs)
On June 10th, United Airlines announced that they would be switching from a miles-based reward system to a fare-based reward system effective March 1st, 2015. Under the current program, flyers earn miles for each flight taken based on the number of miles flown, their status with United’s MileagePlus program and their seat class. For economy seats, the return ranges from 100% (Table 2, “Member” level), to 200% (“One K” level). For example, if a Member-level flyer flew from JFK-LAX on United (a 4,950-mile round-trip route), they would earn 4,950 miles, while a “One K” level flyer would earn 9,900 miles for the same trip. As of March 1st, 2015, this will change to a multiplier on the pre-taxes ticket price, ranging from 5 miles granted for every dollar spent on a ticket (“Member”) to 11 miles granted for every dollar spent on a ticket (“One K”).
Status
Miles Earned oer Miles Flown (Old)
Miles Earned per Dollar Spent (New)
Member
1
5
Silver
1.25
7
Gold
1.5
8
Platinum
1.75
9
One K
2
11
Table 2: United’s MileagePlus program,where new policy will take effect March 1st
Comparing the accumulated miles benefits of the two United programs, Hopper found that the new system will benefit flyers on 60% of routes; ranging from 57% of routes for Member level to 63% of routes for Silver level. However, overall, on the routes where consumers benefit from the new miles program, the miled collected will only increase by 2%. More importantly, the most popular United routes will see a negative impact, where miles collected will decrease by 11% (Table 3).
For routes where the new system is better, it outperformed the old system by an average 80%, while the routes prefered under the old system only realized a 56% lift. Overall, Silver level flyers will see the biggest benefit, as 63% of their routes are preferential under the new policy and those routes will earn them 84% more miles than the miles-based system.
Status
Markets Better Under New Program
New Miles Earned / Old Miles Earned (Mkts. Improved under new program)
Old Miles Earned / New Miles Earned (Mkts. Improved under old program)
Avg. Change in Earned Miles (Member, All Markets)
Avg. Change in Earned Miles (Member, Pop. Markets)
Member
57%
75%
62%
-4%
-16%
Silver
63%
84%
51%
7%
-6%
Gold
60%
80%
56%
2%
-11%
Platinum
59%
77%
60%
-1%
-14%
One K
62%
82%
53%
5%
-8%
Table 3: Percentage of routes with a better return under the new system, incremental improvement for return for better system
The new system favors low-mile, high-cost flights: 9 of the top 10 routes with the largest increase in returns are under 85 miles. Of popular flights, EWR (Newark) - PVD (Providence, RI) has the largest increases at the Member level, earning 2,000 miles under the new system and only 320 under the old. PSP (Palm Springs) - LAS (Las Vegas) and DEN (Denver) - GJT (Grand Junction) also see increases of over 300%.
Origin
Destination
Distance (mi.)
Price
Miles Earned (New System)
Miles Earned (Old System)
Change
EWR
PVD
320
$400
2,000
320
525%
PVD
EWR
320
$400
2,000
320
525%
PSP
LAS
347
$354
1,770
347
410%
DEN
GJT
423
$427
2,135
423
404%
GJT
DEN
423
$427
2,135
423
404%
Table 4: Popular markets with the highest increase in earned miles for Members
Conversely, United flyers will learn fewer miles on popular routes such as IAH (D.C.) - BOS (Boston), SFO (San Francisco) - FLL (Fort Lauderdale), and LAX (Los Angeles) - BOS (Boston), earning less than a third of what they would have previously.
Origin
Destination
Distance (mi.)
Price
Miles Earned (New System)
Miles Earned (Old System)
Change
IAH
BOS
3,191
$197
983
3,191
-69%
BOS
IAH
3,191
$197
983
3,191
-69%
SFO
FLL
5,158
$346
1,730
5,158
-66%
FLL
SFO
5,158
$346
1,730
5,158
-66%
LAX
BOS
5,211
$354
1,769
5,211
-66%
Table 5: Popular markets with the biggest decrease in earned miles for Members
The United changes come three months after Delta announced in late February that they would be switching to a miles-based rewards program. Similar to United, the new structure ranges from 5 miles granted for every dollar spent on a ticket (Member level) to 11 miles granted for every dollar spent on a ticket (Diamond level). This is in comparison to the current program which rewards anywhere from 1 to 2.5 miles for every mile flown.
Status
>Miles Earned/Miles Flown (Old: 500 min. return)
Miles Earned / Dollar (New) (mi.)
Member
1
5
Silver
1.25
7
Gold
2
8
Platinum
2
9
Diamond
2.25
11
Table 5: Delta’s SkyMiles program, who’s new policy will take effect January 1st
The new Delta program will be beneficial on 56% of routes, with only 43% of routes seeing a benefit for Gold-level passengers and 62% routes being beneficial for Silver-level fliers. On routes where passengers will see an improved return on miles granted. fliers will earn an extra 75% in miles while the preferred routes under the old system earned an extra 64%. However, overall consumers are losing, as the new system has an average increase of miles granted of only 1%, and top markets actually see a decrease of 22% in miles granted (Table 6). Once again, the rewards program is heavily targeting high cost per mile flights.
Status
Markets Better Under New Program
New Miles Earned / Old Miles Earned (Mkts. Improved under new program)
Old Miles Earned / New Miles Earned (Mkts. Improved under old program)
Avg. Change in Earned Miles (Member, All Markets)
Avg. Change in Earned Miles (Member, Pop. Markets)
Member
58%
76%
59%
2%
-18%
Silver
64%
86%
49%
14%
-8%
Gold
47%
65%
81%
-18%
-35%
Platinum
53%
73%
70%
-8%
-26%
Diamond
58%
78%
62%
0%
-20%
Table 6: Percentage of routes with a better return under the new system, incremental improvement for return for better system
The flight data presented in this analysis comes from Hopper’s combined feed of Global Distribution Service (GDS) data sources which includes about 10 million queries and 1 billion trips per day. Demand is represented as the number of queries not actual ticket purchases, and is calibrated across all GDS sources for each market. Good deal prices are represented by the 10th percentile prices. For example if the 10th percentile price is $800 dollars it means that only 10% of trips are priced at or below this price.