Airborne between Paris and Hong Kong on a Global Airlines Boeing 2000ER, John and Jane Harbinger are lingering over lunch in the gourmet restaurant on the top deck (not much point in fast food on a 16-hour flight) figuring how they’re going to spend the rest of the afternoon. Jane decides on a soothing séance in the beauty parlor: John will make a few calls from the business center and polish his presentation. They’ll meet for drinks at six in the suite before dinner. ‘Would sushi hit the spot? I’ll book a table downstairs.’ John asks a passing ‘skycop’ for directions. ‘Head down the main corridor towards the tail and take the elevator down to the bottom deck.’
Planes such as this three-deck 1,000-seat Goliath – which entered service in 2015 – are derived from the 600-seat super jumbos promised (or threatened) by Airbus and Boeing in 1999. They are flying villages, allowing infinite scope for social congress, with half a dozen restaurant concessions – from classical French to McDonalds’ junk food – casinos, shops, cyber-cafes with Internet access, and health clubs. About the only things missing are a pool and an outside jogging track. But you never know!
There is no such thing these days as first, business or economy class. The price you pay depends on your choice of seating, cuisine and entertainment along with the kind of service you want on the ground. Accommodation ranges from standard cattle class and ergonomic sleeper seats with more personal space to air-conditioned cabins with beds, bathroom and butler service, that convert to a daytime lounge. For an extra charge, the airline will deliver a container to your home or office, transport you through the airport and load you onto the plan. Some tycoons have converted their offices into flight containers, re-creating the private railroad cars of a century ago – the ultimate in seamless travel.
Many people travel ‘a la carte.’ You book a seat or cabin and pay extra for meals and in-flight facilities and lounges, limos and other trimmings on the ground. Traveling cattle class is no longer much of an ordeal. You only have to stay in your seat for take-off and landing; the rest of the time you can move around freely. Skycops patrol the crowded aisles ready to deal with unruly or abusive passengers who can threaten not only the well being of other passengers but the safety of the aircraft. After all, on a long-haul flight you can be in the air for up to 18 hours – almost long enough to get married, start a family and get divorced, although not necessarily in that order. Some enterprising agents are using reservations computers to help people choose in-flight companions. They punch in your high-altitude likes and dislikes and match you up with a suitable seatmate.
Global Airlines is one of three mega-carriers that together share 80 percent of the world air travel market – the culmination of the giant airline alliances and code-sharing deals that carved up the skies in the late 1990s. These compete with consortia of regional airlines in Europe, the Middle East, Africa and Asia Pacific, along with half a dozen long-haul carriers mainly serving the business market.
Code sharing, whereby two or more airlines operate the same flight, and ‘block seat’ arrangements, whereby one airline sells seats on another airline’s flights, became commonplace by 2000. The abundance of space on the superjumbos allowed several airlines to share the same plane with their own fares, flight attendants, in-flight cuisine and service.
This led to the concept of the ‘virtual’ airline. You don’t need to own aircraft and infrastructure when you can ‘brand’ your own cabin in a superjumbo. Travel agents can buy blocks of seats (and hotel rooms) and market them under their own brands to corporate customers.
Since 1999, superjumbos – along with advanced technology for better control of the airways with new satellite navigation systems and new airports and terminals – have diminished the specter of gridlock in the skies by quadrupling air traffic capacity since 1999. But the challenge was daunting. Since 1999, air traffic has been growing at around 10 percent a year.
Thus the number of passengers has doubled every seven years, reaching a staggering 20 billion in 2020. Where are all these people going? And, more to the point, why do they all seem to be going with me?
The growth of tourism in China has been phenomenal. The Chinese government set the ball rolling when it cut the working week to five days, giving the nation’s workers an extra half-day off a week.
This was even better news for the travel trade, because – assuming a workforce of 750 million from a total population of 1.2 billion – it meant an extra 15 billion days’ leisure time coming on stream. And with more disposable income and the liberalization of passports, the Chinese have become international travelers.
According to the World Tourism Organization, China now generates more out-bound tourism than any country in the world apart from Japan, Germany and the United States. China has also become the world’s top tourist destination with 137 million visitors in 2020.
The world’s top 30 airports will handle more than 16 billion passengers this year. The traditional mega-hubs such as Chicago O’Hare, Los Angeles International, Atlanta, London Heathrow, Hong Kong’s Chek Lap Kok and Singapore’s Changi are bursting at the seams, each handling around 200 million passengers a year. But an airport building boom, especially in Asia, has added capacity. China has built more than 50 new airports since 1999.
Meanwhile, the creation of ‘wayports,’ or new hubs, in remote parts of Norway and Siberia has siphoned off a large amount of connecting traffic. More than 30 percent of the people milling around Heathrow, for example, were simply trying to get somewhere else.
Supersonic travel has become space age with Orbitol, a 50-passenger space plane that travels in low earth orbit enabling it to fly from London to Sydney in 45 minutes. Unlike the old space shuttles, Orbitol takes off and lands under its own power. After accelerating through Mach 5 to 80, 000 feet, the plane leaves the atmosphere, continues to accelerate and becomes a satellite itself after reaching 250,000 feet – around four times the cruising altitude of Concorde – with an orbital velocity of Mach 25 to 30.
More down to earth, high-speed maglev (magnetically levitated) trains traveling at 300 miles per hour have replaced air travel on journeys of up to 500 miles, releasing slots at major airports, most of which have train stations, for long-haul traffic.
Regional airlines serve ‘thinner routes,’ enabling business travelers to avoid mega-hubs. Thus ‘regional long-haul’ services allow travelers to fly point-to-point between cities such as Manchester and Osaka, Seattle and Perth, Stuttgart and San Francisco.
Mega-hubs, with a larger daily population than many major cities, are no longer a means to an end but an end in itself, destinations in their own right. They form a worldwide network of alternative cities – what you might call the terrestrial equivalent of space stations – with their own business communities and civic amenities, hotels and conference centers. Who needs to go downtown when you are already there? Many people don’t travel to cities any more, just to airports.
John Harbinger, on-line to his office in Broken Springs, Colorado, asks himself a routine question: whether he really needed to make this trip.
Technology enables (and requires) him to be totally wired at all times. The No. 1 rule for business travelers is wherever you are, always to be on the phone to somewhere else. So why travel? John rationalizes that this is a working vacation – a chance to bring Jane along. He’s looking forward to a round of golf with his Chinese associates. And he and Jane plan to take off for a five-day airship cruise among the Hong Kong islands.
Modern airships are safe, comfortable, and environmentally friendly, as they sail and hover less than 100 feet above the ground. An airship cruise is a spectacular way to see many wonders of the world, such as the Amazon and what’s left of the rain forests in Brazil and Peru, chateaux of the Loire, fly along the Nile to see the pyramids, explore Venice or make an air safari in Kenya.
‘Virtual conferencing,’ has done away with the need for many business trips. A 100-inch (256 centimeter) illuminated high-resolution screen with ‘wrap-around’ sound makes everyone seem life-like and gives the illusion that you’re in the same room. This means that you can participate normally in the discussion; using the same body language.
Travel was in danger of becoming an end in itself. I am therefore I travel: I travel therefore I am. Travel is about human interaction, hands-on experience. Getting the best return on your ‘interaction expense’ is a trade-off between cost in terms of time, money and hassle and the opportunity of staying doing something more productive somewhere else.
Of course, there’s sometimes a need to be somewhere in person – the eye contact, the real, compared to the cybernetic, handshake, the impromptu meeting and, of course, the social dimension can be pure gold. It is not something you can quantify; it’s intuitive, gut feeling. Who goes to a conference to listen to the speakers? You can pick up a transcript or receive it live in your office. It’s real-time networking that counts.
In the words of Alfred Lord Tennyson’s Homeric hero, Ulysses, back in 1842:
‘I am a part of all that I have met;
Yet all experience is an arch where thro’
Gleams that untravelled world, whose margin fades
For ever and for ever when I move.’
But business travel is less poetic and a good deal less sentimental. Which is why John Harbinger makes fewer trips these days. This excursion with Jane is a fairly rare experience in real-time reality. Like most other road warriors, John embraces the new ‘travel avoidance’ technology, such as virtual conferencing and virtual meetings in real or ‘displaced’ time, with chiliastic zeal.
The technology is rooted in voice recognition software developed back in the late 90s that enabled you to call a computer from anywhere in the world, check your e-mail your voice-mail and faxes, either by computer or through the telephone. You could convert them from voice to text, or vice versa, and re-direct them by any medium.
Recent advances in artificial intelligence make it possible to hold an open-ended discussion through a computer. The machine not only understands the meaning of what you say but replies to you in a normal voice – which might be the digitalized voice of a real person.
John Millennium, along with his colleagues, has had his voice ‘digitalized’ and stored on-line. Early computer-generated voices sounded robotic because words were mechanically strung together into sentences, thereby losing the rhythm of the dialogue; whereas digitalized voices are produced by recording entire sentences, then shoehorning in numbers and letters of the alphabet.
Voices are recorded in three ways. If you say the number nine, for instance, at the beginning of a word, it sounds different from if you say it in the middle or the end. The same applies to words and phrases.
It’s hard to detect a digitalized voice in displaced time from a real voice in real time. Meetings can thus be conducted in real or displaced time. You program your responses, to say, a budget meeting, in advance and your digitalized voice conducts a dialogue on your behalf. Cognitive programs are being designed whereby John can participate vicariously at several meetings while he is away. It beats the old way of having answering machines talk to one another, or batting e-mails back and forth, communication lost in fruitless volleys of non sequiturs.
Back in their suite, the Harbingers are mentally packing their bags for an ‘out of this world’ space vacation. They have been armchair astronauts for years and are looking forward to five days in a Disney Space Resort 300 miles above Earth. They will take off from Cape Canaveral, Florida, in a NASA space shuttle adapted to carry 40 tourists, experiencing weightless for about 15 minutes.
The resort accommodates 300 people in cruise-ship luxury. It takes an hour and a half to make a complete orbit of the Earth, spinning like a roulette wheel at about one revolution a minute, thus developing artificial gravity.
You stay in an outer ring, where you experience about half of normal gravity – just about half your normal weight – so you can use bathroom facilities and such at practically normal conditions. A central column section has zero gravity. This is the entertainment and recreation center, which guests can visit for an hour or so at a time. There are windows in the central column to view the Earth.
There are lots of entertainment possibilities at zero gravity, including a gym with padded walls. Astronauts have found that blood that is normally drawn down to your legs is released and drifts upwards. You become thinner, your chest expands by two to three inches, your face fills out and wrinkles disappear.
While Jane muses about a second honeymoon in space, John is thinking about the final frontier in space travel – to experience Einstein’s paradox of relativity, that if you travel faster than the speed of light, you are younger when you get back than when you left. Daunting implications for a career in international business.
Travelers will welcome the cascade of cuts in fuel surcharges by airlines such as British Airways, Virgin Atlantic, Lufthansa, Air France/KLM, Thai Airways, Cathay Pacific, Singapore Airlines and El Al, in response to a sustained fall in the price of oil, with jet fuel now half the price it was in the summer. Air Canada has eliminated fuel surcharges altogether on North American flights, instead “folding them into advertised base fares.”
This raises some questions: What is the “benchmark” price for jet fuel on which surcharges are based? And with the price of jet fuel accounting for more than a third of most airlines’ costs, are surcharges just the means of protecting airline profits during the downturn?
But what incenses travelers more than anything is that the price of an air ticket they have purchased online can just about double when it comes to the final amount charged. Just as we have become reconciled to a raft of taxes - as wide-ranging as the U.S. Animal & Plant Health Inspection Tax, the Sydney Noise Tax and the Canadian Airport Improvement Tax - here come the airlines with charges for almost everything, from checked baggage to onboard beverages, even soft drinks and water, to changing tickets.
The airlines believe that “à la carte,” pay-for-all-the-extras pricing is the magic bullet for restoring profitability.
“Airline customers clearly resent these often unclear fees, but they have incredible potential to boost the bottom line of an airline,” said Christopher Staab, a managing partner at Airline Information (www.airlineinformation.org), a consulting firm in Miami. So much so, he continued, that despite the worldwide economic downturn expected to hit most airlines very hard in 2009, many of the mainstream U.S. airlines “are expected to be very profitable next year thanks to à la carte pricing.”
But there’s still a lot of anger out there.
Stan Juster from Karmiel, Israel, writes: “Any day now, I expect airlines to charge for turning on the overhead air spigot. It’s an absurdity for airlines to think the public will accept extra fees for checked luggage, seat selection, food and water, pillows and blankets etc. - all under the guise of compensating for higher fuel costs. It’s a boondoggle; just another way to increase their profit margin, particularly in light of the recent decrease in the cost of fuel.”
Martin Bleasdale from Les Baux de Provence, France, agrees: “They may as well include the rest of the fuel, airport landing fees, amortized price of the plane, meals, drinks, cabin lighting, crew salaries …,” he writes. “That way they could charge full price for a free ticket.”
Staab said that every time airlines need revenue they simply increase their à la carte fees: Some U.S. carriers “are charging $15 or $25 for the first checked bag; all except Southwest Airlines now charge between $25 and $50 for the second bag, and have reduced the maximum weight from 70 pounds to 50 pounds,” or from 32 kilograms to 23 kilograms, “in economy on international and domestic routes.”
Fees vary radically, Staab added: “You go to book and you don’t know what you’re going to pay. This is a particular problem with online travel agents, like Opodo and Travelocity. I booked a fare on Expedia for $300 and I finally paid $600. They didn’t tell me; there was just a little flag saying, ‘Extra charges may apply.’ But you have no idea what those fees are; it’s not their fault, they cannot keep up.”
À la carte pricing will work for both airlines and travelers provided it is “transparent” and offers customer choice; after all, why pay for a meal and beverages, or baggage services that you don’t need?
Air Canada’s à la carte pricing model is being followed by other carriers. American Airlines, for example, has announced it will fully implement à la carte pricing next year. There are likely to be a few basic fares, giving travelers the option of paying for additional services.
At Air Canada’s Web site, you can choose from four basic fare levels. The top tickets, Latitude and Executive Class, are all refundable and come with priority check-in, food, drinks and all the frills. The cheapest fare, Tango, requires extra fees for meals, advance seat selection, flight changes and airport lounge access; Tango passengers can save $3 if they forgo frequent flier miles, or do not check a bag.
Speculating on the scope for a la carte options with the Airbus A380 Super Jumbo some time ago, I envisaged one of the airline alliances, such as Star Alliance or Oneworld, operating the ‘flying village’ for member airlines, who might share the same plane on certain routes, with their own fares, flight attendants, in-flight cuisine, and style of service. Franchises would be sold for wining and dining and other amenities.
There’s nothing new under the sun, they say. Some twenty years ago, the Canadian carrier Wardair (long since subsumed by Air Canada) offered quality at reasonable prices with a single standard of cuisine and service throughout the plane and a ‘Big Seat’ option. No matter how much you paid for your ticket, you could trade up to a Big Seat in the front of the cabin for about 50 Canadian dollars.
In the spirit of Bravo TV’s Millionaire Matchmaker, we bring you Mileage Matchmaker, a.k.a. Merger Madness. In preparation for this article, we polled frequent flyers visiting WebFlyer.com and found that more than 75 percent expressed an interest in the outcome of the swirling rumors about airline mergers. And why? Well, it’s all about the miles. Thirty-six percent of those polled expressed a concern about the fate of their frequent flyer miles, easily surpassing the 25 percent of those polled who were worried about passenger benefits. And these worries are not without merit, although most frequent flyer program members aren’t sure what to worry about at this stage. Even here at InsideFlyer, we’re worried. Not about the fate of members’ miles, as we absolutely believe there is no danger whatsoever that members will lose of any of their hard-earned miles — regardless of the outcome of any of the rumored airline mergers. But we do worry deeply about the fate of the makeup of some of these programs if certain rumors come true. And more importantly, what the landscape will be in the near and far future for benefits and competitive partnerships. We’ll look at several possible mergers: Delta-Northwest, United-Continental, United-US Airways and American-(fill in the blank).
The Background
Unlike the environment of past mergers, currently there are no airlines near the bankruptcy cliff driving these mergers. Rather, the possible mergers are driven by what appears to be a colossal mistake by Delta Air Lines.
Sure, record fuel prices are enough to make any airline take the big gulp and start searching for a partner to help share expenses. But with the handiness of added “fuel surcharges” popping up in places from FedEx to UPS, and even on the local level, it’s a bump in the road that most businesses can adjust to. And you don’t have to look any further than across the pond to see how high fuel prices can impact an airline’s bottom line. For years Europe has had much higher fuel prices than the U.S., and yet airlines there seem to be flourishing.
To get back to the colossal mistake by Delta, which may put into play the very scenario that has been suggested since the first Gulf War — the consolidation of the airline industry. Delta’s mistake? Not being very good at running their airline. When Delta was in bankruptcy recently, they decided to “manage” their future by turning down a respectable $9.5 billion offer from US Airways. Sure, we’ve got the same joke list as others as to whether they would have been better off with that offer than they are today, but Delta seems to have based much of their ability to emerge from bankruptcy on oil being at $65 a barrel. Now that oil is at $100 a barrel, it looks like they did not leverage or hedge their fuel in a manner that would have proved that strategy a good one.
We’re sure there is much more to this than our simple view of the matter. But it is that particular mistake by Delta and their inability to make the right decisions during these difficult times that now leads them scurrying to merge with another airline. In all news reports we’ve seen, they are the aggressor, which means they feel they really need to find a way to share the costs of doing business.
And there is more. From 1998 to 2003, Delta Air Lines shared a frequent flyer program alliance with United Airlines which by most measures worked fairly well. It would have been during this time that Delta would have sized up the advantages and its “fit” with United. But of course in 2003, Delta left that partnership to amend their new relationships with both Continental and Northwest during the evolution of the SkyTeam alliance.
With the reported demands of Delta to retain its name and headquarters location, there is little doubt that Delta would be laughed at by United if the airline asked to return to the merger table with United. And that is where we are today, Delta pursuing a merger with Northwest, an airline with shared experience of the senior management of Delta, and for whatever reason, the shadow of still being “Northworst” Airlines.
So, with all that in mind, let’s take a look at the differences in the frequent flyer programs between the various merger partners and take a look at what members of the programs might be looking at in the future — if the mergers go through. We’ll try to keep the speculation and wishful thinking to a minimum.
Delta SkyMiles — Northwest WorldPerks
This is the most logical and easiest of mergers to happen. Since 2003, these two airlines have shared a partnership in not only a domestic alliance of their two programs, but an international alliance as well in SkyTeam. Philosophically, SkyMiles has changed more over the years than WorldPerks, with WorldPerks having long been seen as lenient on upgrades and offering other imaginative promotional efforts. So let’s compare these two programs.
Change: We’ll start with the important stuff — change. SkyMiles reserves the right to change program rules, benefits, regulations, travel awards, fees, mileage Award levels and special offers at any time without notice. However, they will give us all six months’ notice if they decide to terminate the program. WorldPerks may change the program rules, regulations, benefits, conditions of participation or mileage levels for awards, tickets and cities served, in whole or in part, at any time without notice and has the right to terminate the WorldPerks program at any time. We sure hate to start things out this way.
Expiration of miles: For SkyMiles members, accounts with no activity for 12 consecutive months after enrollment will be deleted and after that period, miles will expire after 24 months unless there is some activity in the account including earning miles not only from Delta flights but from earning miles with program partners, redeeming miles for an award or buying miles from Delta.
WorldPerks rules for expiring miles are a bit more murky, though more positive: WorldPerks miles have no expiration date. However, consistent with the general terms and conditions of the WorldPerks program, Northwest Airlines reserves the right to change the WorldPerks program at any time without notice, including imposition of expiration limits or reactivation fees. If a WorldPerks member’s account does not have any mileage earning or redemption activity within three consecutive years, the account is subject to termination, including forfeiture of all accrued mileage. See what me mean by “murky”?
Bottom line: Should this merger come to pass we believe that the combined program will include the language that governs the SkyMiles program. Not a real loss to WorldPerks members and melting WorldPerks miles into a SkyMiles account will count as activity so everyone who has the two types of miles can be guaranteed at least two years before the mileage police come knocking at your door.
Elite Membership: Over the years these two programs have progressed to about a 90 percent overlap of benefits and rules, but there are some differences. WorldPerks members can gain elite through segment qualification. You can earn Platinum when flying 100 segments, Gold with 60 and Silver with 30 segments within a calendar year. Delta does not allow elite qualification through segments, only miles.
However, Delta has had this second elite qualification ability in the past and we believe that the combined program would go with the WorldPerks program, thus adding segment qualification again to SkyMiles.
And there are more differences. WorldPerks has an extra award level for elites called ExtraPerks. Only Gold and Platinum elite members can qualify for this and once members reach 60,000 Elite Qualifying Miles (EQMs) they have a bonus choice of 1) 2,500 bonus EQMs; 2) two WorldClub day passes; 3) $50 Marriott Bonus Bucks coupon; 4) $100 NWA WorldVacations discount certificate or, 5) a $50 FTD.com gift certificate. Additional bonus awards are available at 90,000, 120,000, 160,000, 200,000, 240,000, 280,000 and 320,000 EQMs.
What is outstanding about this is that as members reach each EQM threshold, you are eligible to select an ExtraPerks award. From 160,000 miles upward your picks include 1) 30,000 bonus miles; 2) one-year WorldClubs membership; 3) four one-way confirmed domestic upgrades; 4) two one-way confirmed system-wide upgrades or, 5) 50 percent off World Business Class PerkPass award (value up to 120,000 miles).
Delta has their version of extra benefits for those who fly the most. Delta’s Million Miler program awards Silver Medallion status for members reaching one million MQMs, Gold status for reaching two million MQMs and Platinum status for those reaching four million MQMs.
At this time Northwest does not have a formal million miler program and we predict that if this merger goes through, ExtraPerks will be discontinued and the SkyMiles Million Miler program will be adopted.
Furthermore, SkyMiles currently has an exclusive benefit for all their elite members called the Medallion Marketplace which allows elite members to redeem miles for merchandise and other assorted non-flight awards (TVs, DVD players, hotel stays, golf outings, gift cards, etc.) and we feel that this program would replace ExtraPerks for WorldPerks members.
Another difference is the flight mileage bonuses for elites. SkyMiles elite-level members earn mileage bonuses of 25 percent (Silver) and 100 percent (Gold and Platinum). WorldPerks elite-level members earn 50 percent (Silver), 100 percent (Gold) and 125 percent (Platinum). Advantage goes to WorldPerks. But, if this merger goes forward, we believe that the current SkyMiles policy would prevail because it is similar to both American and United’s elite mileage bonuses.
Want more differences? WorldPerks members earn a 50 percent elite qualification bonus (not award miles) when flying Y or B class on Northwest, while SkyMiles members earn the same 50 percent bonus when flying Y, B or M fares. The difference here is that the WorldPerks bonus is for elite qualification, while the SkyMiles bonus is for award miles. Other subtle differences are that Gold and Platinum elite members of WorldPerks enjoy unlimited confirmable (one day prior) upgrades on both PerkSaver and PerkPass award tickets (a wonderful benefit) while SkyMiles Silver members enjoy unlimited companion upgrades in select fares, something that only Northwest Gold and Platinum members currently enjoy.
Fees: While we find it unfortunate that this part of frequent flyer programs is even an issue, it is a reality that the convenience of redemption is not a free ride.
If you wish to redeposit your awards you can do so for $25/$50 (nwa.com/agent) if a WorldPerks member and for $75 if a SkyMiles member, although Platinum members of both programs escape this fee.
Roughly all other fees are similar including government and airport imposed fees such as Federal Excise Tax, PFC and September 11th Security Fee and International Air Transportation Taxes. However, SkyMiles does nick members in a day and age of “e-tickets” — $75 per ticket for award redemption 20 days or less from departure (Platinum Medallions are exempt from this fee). Our best guess here? Show them the money. This means sticker shock for WorldPerks members.
Awards: When it comes to awards, there are distinct differences such as WorldPerks requiring a Saturday-night stay over with most PerkSaver awards (domestic flights) and SkyMiles offering a new Pay with Miles option. Of course, we’re pretty partial to the mixed one-way awards (PerkChoice) that Northwest recently introduced which allows members to mix one-way awards with money, while SkyMiles members can mix coach and first class awards one-way for better award availability.
There is likely no other merger that could offer the breadth of award redemptions as these two programs. Northwest might have a slight edge since they would probably continue their popular Cash & Miles options that SkyMiles members do not have. Overall, a few mileage redemption levels here and there are different such as Delta’s biz to Europe at 90,000 miles vs. 100,000 for either biz or first class in the Northwest program, but the programs’ award redemption charts match up for the most part.
As for award redemption, both programs have above average reputations for redemption. In 2006 (last year of available statistics prior to bankruptcy) Northwest flew 9.3 percent of their passengers on awards while Delta flew approximately 9.1 percent of their passengers on awards. The industry average is 7.2 percent of passengers flying on awards.
Intangibles: The most striking challenge for this merger would be who gets to keep the plastic. American Express has long been the exclusive credit card partner for Delta and the airline owes its very survival to American Express because Amex ponied up hundreds of millions of dollars in advance miles purchase to get Delta through bankruptcy.
US Bank did the same over time with Northwest, but does not have the history and favor that American Express has. Looking closely at the US Bank card and WorldPerks, you’ll discover several unique and rewarding benefits for members, such as award discounts. US Bank also offers an ATM/Check Card that earns miles (American Express does not) and US Bank for non-elites has prohibited rules such as for purchases less than or equal to $10,000, earn one mile for every $1 spent. For purchases over $10,000, you earn one mile for every $2 spent. And there is a yearly award level: If during the calendar year, purchases exceed $50,000 (WorldPerks Visa Card), $60,000 (Platinum Card) or $80,000 (Signature Card), all miles for the rest of the year are earned at the rate of one mile for every $2 spent.
In contrast, the Delta American Express card does not have these types of earnings dilution. And American Express has the popular every day double miles and the new Pay With Miles program.
In the high stakes game that plastic is for these carriers, we just don’t think there’s room enough for two credit card issuers and unfortunately, we predict that over time US Bank will be voted off the island.
Any good news? Well, since Delta is the main partner to the American Express Membership Rewards program which Northwest is not a partner with, we can see that program getting stronger with the addition of Northwest into Delta. And for all those WorldPerks members who wanted that relationship, well, while it’s a long way around, you could soon have it.
United Mileage Plus — Continental OnePass
This potential merger is an example of why we wish mergers were not pushed to happen — it brings with it more heartache and headache than any other merger. Why? In an age when a majority of members (and pundits) think that all frequent flyer programs are the same, we’ll define these two programs’ vast differences and what the result could be if our greatest fear comes true. Fact is, we’re fans of both programs for their individuality and are not convinced a combined program would be better than each is now.
It all starts with understanding the vast cultural differences of these two frequent flyer programs. While both have pursued the business traveler, they go about it in a much different manner and with differing amounts of success.
Let’s start with each airlines’ attempt to thwart the low-cost carriers. Continental introduced Continental Lite in 1993 as a pilot program that quickly got out of control with the wrong management. Among the first major airlines to launch low-fare service, it heavily promoted and trumpeted Continental Lite as an industry-leading innovation. But it turned out to be a mistake and was later cancelled, although at one point it commanded nearly 40 percent of Continental’s domestic system.
United had its turn at the concept with the introduction of Shuttle by United, a low-fare, short-haul service on the West Coast. Like Continental Lite, it represented an effort to establish a so-called airline-within-an-airline, and existed from 1994 to 2001. “U2″ as it was called, was folded back into mainline United when it became clear that cost savings had not materialized to justify the separate operation of the airline. In December 2002, when United declared bankruptcy, it hinted at a revival of the Shuttle. But instead, it created a leisure destination carrier called Ted, a second generation of “airline-within-an-airline” which continues to this day. “Ted” comes from the last three letters in the United brand name, which gave rise to the joke “Ted is United without “U-N-I” — get it, you and I?
But beyond these similarities of success and failure, there is the role of the airlines’ frequent flyer programs. The biggest differences are Continental’s very generous upgrade policy vs. United’s and United’s very generous commitment to legroom with its Economy Plus seating vs. the seating in coach at Continental.
And say what you will, we’ll take Star Alliance over SkyTeam any day of the week. Don’t think we’re done with these two programs just yet, there are many more differences, so let’s take a look.
Change: With mergers come change. According to the Mileage Plus terms and conditions, United has the right to terminate the program or to change the program rules, regulations, benefits, conditions of participation or mileage levels, in whole or in part, at any time, with or without notice, even though changes may affect the value of the mileage or certificates already accumulated.
Continental on the other hand reserves the right to change any aspect of the OnePass program at any time with 60 days notice to active members or discontinue the OnePass program with six months notice to members.
We have no doubt that United’s more restrictive notice of change will rule out — but only after the 60 days notice to active OnePass members one last time.
Expiration of miles: For Mileage Plus members, accounts will never expire as long as you have account activity at least once every 18 months. This activity includes flying, using Mileage Plus partners, redeeming miles for award travel and buying or transferring miles.
OnePass miles however, currently have no expiry date. Our guess is that a combined program would have definable expiring miles under the current Mileage Plus rules.
Elite Membership: Before we discuss the different upgrades offered by the two programs, let’s start with the difference between elite mileage bonuses. Mileage Plus elite-level members earn mileage bonuses of 25 percent (Premier) and 100 percent (Premier Executive and 1K). OnePass elite-level members earn 50 percent (Silver), 100 percent (Gold) and 125 percent (Platinum). Advantage goes to OnePass.
However, if this merger goes forward, we believe that the current Mileage Plus policy would prevail because it is similar to both American and Delta’s elite mileage bonuses. And why be more generous than you need to be with less competition?
As for upgrades, Mileage Plus and OnePass come at the benefit from different directions. There’s little doubt that the upgrades OnePass offers have been a major reason for the success of the program. Unlimited complimentary upgrades for the member and companions (Gold and Platinum) goes a long way toward loyalty to this program.
But while most of the upgrade attention is on Continental, United does have an upgrade policy. For every 10,000 paid miles flown on United, members earn four free 500-mile upgrades valid for travel in Region 1 (North America, Hawaii, the Caribbean and Central America). And similar to OnePass, United offers full-fare coach upgrades on Y and B fares within this same Region 1.
The upgrade window between the two programs varies slightly, OnePass upgrading their top elites 120 hours in advance, Mileage Plus at 100 hours in advance. They are even at 72 hours upgrade advance for mid-level elites and United holds honors for base elite members with 48 advance hours vs. 24 hours for OnePass.
While we have loved the unlimited upgrades and companion upgrades over the years with OnePass, the winner of this tug-fest of benefits is anyone’s guess. We would normally tip the hat to Mileage Plus controlling this outcome, but if this merger happens because of Delta-Northwest, United will have to compete with Delta’s unlimited upgrade policy which mirrors that of Continental. Too close to call. United does offer their elite members the opportunity to purchase additional e-upgrades in 500-mile increments at $50 per upgrade.
Both programs have stealth elite levels, United with Global Services and Continental with both Chairman’s Circle and Co-Stars. It’s likely that both versions will continue with slight modifications. Other differences between the two programs are how they treat their million-mile members. OnePass does not have a formal million mile program, although a limited number of their top Platinum members have earned lifetime elite status from a promotion that OnePass offered years ago. OnePass is rumored to be near announcing a million miler program, though it is unlikely to be related to a possible merger with United.
United on the other hand has a Million Miles and Beyond program in which once you have flown one million lifetime base miles with United, you earn Premier Executive for life, two confirmed regional upgrades at the end of every year and three system-wide upgrades to be used one-class, one-way. When reaching two million miles flown, you earn additional rewards such as a lifetime Red Carpet Club membership (can you say HELLO!), a choice of several gifts and four system-wide upgrades to be used one-class, one-way. If you really have wings, flying three million miles earns even more: personalized status upgrades, another exclusive gift and four more system-wide upgrades to be used one-class, one-way. Advantage clearly is to United here and this program would certainly continue forward with any possible merger. Recently United invested in a fancy dual-lane boarding benefit which means that the only choice in the future would be what the entrance carpet color is — red or blue.
Both programs have elite qualification by segments, United’s being by flight segments and Continental’s being by points earned by air fare paid. It is likely to be United’s flight segment qualification as the survivor here.
Fees: When it comes to fees, United is all business. Cancel an award and need to redeposit your miles? United charges a flat $100 while Continental charges $50 for non-elite and $35 for Silver/Gold. Both programs do not charge their top elite members. Need to change an award? Continental charges $50 for non-elite and $35 for Silver/Gold. United charges different fees based on the time and type — some aren’t too bad, others will cost you dearly. A change of city pairs or routing connection will cost Mileage Plus members $100. However, for flight and date changes (same itinerary) there is no charge for United members unless these changes occur within 7-13 days prior ($50) or six days or less ($75). But OnePass is no saint here, they do charge a fee for award requests less than 15 days in advance which is $50 (4 to 14 days) and $75 for travel three days or less. Both these fees are $15 and $25 less for elite members with even the Platinum elites paying on this one!
We believe that with a merger United will make the rules here and OnePass members will have to cope by earning more miles when paying these fees with their Chase-issued credit card.
Awards: When it comes to awards, this is going to be tricky, but because of the 60-day change notice which we outlined before, OnePass members may be able to take advantage of some extreme award differences. For instance, in the Round the World award category, OnePass members enjoy the award at 140/220/280,000 miles for coach/business class/first and BusinessFirst. The same award on United is 200/300/400,000 miles. Advantage goes to OnePass but surely with Star Alliance being a big part of this, OnePass members will see their “value” fly away.
Little things like Continental’s stopover “rewards” for U.S. travel that are ingenious awards that allow members a way to creatively get around road blocks for award redemption will likely go away. But there is one other thing likely to go away which can’t come too soon — Continental’s insistence on a Saturday night stay over at the 25,000-mile redemption level. Actually, this might not be that easy to make go away. Many years ago United introduced a similar policy and it was overturned by some intense lobbying by this magazine. We’ve never been able to make that same case with Continental and so while it might be assumed to go away, United may revisit the Saturday night stay policy. (The concept of the restriction is to thwart business use of award redemption, those very welcome $800 fares for single and two-day travel).
Also likely to go away is the OnePass 20,000-mile short haul award for awards less than 1,500 miles roundtrip. United has a similar award for 15,000 miles for award flights less than 700 miles in distance one-way. Because American has a similar award at 15,000 miles, it’s our guess that United will stay with their status quo.
All other general domestic awards in OnePass and Mileage Plus are similar for both saver and standard miles, as are awards to Hawaii. Differences occur because United still has three-class service internationally while Continental has its popular two-class service featuring BusinessFirst. At this point, we can’t even speculate as to what will happen to the Continental product vs. United’s three-class system.
For awards to Asia, coach awards are similar while business class on United is 90,000 miles and Continental is 120,000 miles. The largest difference here is a standard award on Continental to this region is 300,000 miles while a similar award on United is 200,000 miles in business class and 240,000 miles in first class. We beg Mileage Plus to not raise the rates here and perhaps for OnePass members to see this bargain for what it is. European awards are similar with differences up to 30,000 miles for premium awards at the standard rate.
Upgrade award honors go to Continental which is consistently thousands of miles lower in their requirements. Domestic upgrades at most discounted fares match up at 30,000 miles roundtrip, although upgrades to Hawaii with United cost 5,000 miles less. To Europe, United is 60,000 miles roundtrip against most discounted coach fares while Continental is 40,000 miles roundtrip. Upgrading to Asia is 60,000 miles on United and 50,000 miles on Continental, although on both Europe and Asia flights, Continental requires a co-payment service fee to upgrade using miles.
As for award redemption, United has a slightly better history and reputation. In 2007, United released 2.2 million awards to their members and Continental released 1.5 million awards. In terms of statistics, United had 8 percent of passengers flying for free on awards while Continental had 7.2 percent of passengers flying for free (a higher percentage equates to a more generous redemption policy).
Intangibles: Continental employs a service fee system for members wishing to use their miles for upgrades — miles are only part of the redemption. These associated fees range from $200-$450 in addition to the miles when upgrading from select economy fares to BusinessFirst. American AAdvantage has already adopted this policy and we believe should this merger happen that United would adopt this Continental policy. We’re not saying we like it, we don’t, but it’s too tempting for United to pass up.
As well, we believe that United will push forward with their Economy Plus seating on Continental metal including adding a limited number of first class seats to their RJ (regional jet) system. While an expensive push forward, United has had extraordinary success with forging revenue from their Economy Plus Access program.
Another intangible is the Choices program by United’s credit card partner Chase. Since Chase is also the existing credit card partner with Continental, we easily see this program being expanded if for no other reason than the fact that Delta SkyMiles has now introduced a similar Pay With Miles program and this looks like a trend going forward.
As for the “Tums” moment. It is well known that Chase does not play well with American Express and protects their plastic turf very well. So, what happens to the OnePass relationship with American Express Membership Rewards? Well, we don’t think it looks good long term. Over the years United has resisted every recruiting attempt from Membership Rewards and given that this merger will only happen if the Delta-Northwest merger happens, then maybe it’s a draw since Membership Rewards would get Northwest in the deal with Delta. This is just one more of many relationship decisions that will need to be made by these programs once the trigger is pulled.
United Mileage Plus — US Airways Dividend Miles
Should the Continental-United scenario not fall into place because of Continental’s pride in running a very good airline, there’s always the back-to-the-drawing-board option for United to return to US Airways to “pump” themselves up.
This scenario has been brought out before since they were close to a deal at one time. The problem this time may be that US Airways has yet to settle down from their merger with America West and it just may be too soon and too much of a headache to move the cheese one more time. But don’t fool yourself — airlines will do whatever it takes to stay competitive. Same global alliance, same existing mileage partnership, so there is great familiarity with this possible pairing.
American AAdvantage — (fill in the blank)
If and only if the Delta merger happens which forces a change at United, then there’s no doubt that American will be under even more pressure to also pair up. We know from previous reports that some American Airlines shareholders are impatient with the airline wanting it to monetize some of its assets. And certainly industry consolidation would be another pressure point.
If the other two go as rumored, then that leaves American with the possibility to either rejoin former partner US Airways or strike a deal with Alaska Airlines which has a current frequent flyer and business arrangement with American. Of the two pairings, American and US Airways were the earliest to bring partnership benefits to the market. In 1998 American enabled Dividend Miles members and AAdvantage members who belong to both programs to combine miles when claiming travel awards on either airline. The pooled miles could only be used toward an award on American or US Airways, not for an award ticket on program partners.
So indeed, these airlines have virtual frequent flyer program experience and oneworld would no doubt like to have more U.S. partners to help serve their international flights into the U.S.
And as we know, US Airways also has a history with another oneworld partner — British Airways. This situation might be like a class reunion. Of course if anything were to come from this, it might tear down the current wall that both American and British Airways have toward each other in relation to their frequent flyer programs -(the second longest feud running in the industry right after the American-American Express Membership Rewards feud).
We mention only US Airways because it might be difficult for United to continue their relationship with US Airways, which is not fully compliant yet anyway, given the addition of Continental (if that happens). The reason why we suggest this is that there may be a challenge from regulatory oversight if United and their current US Airways relationship were to then try and add in Continental as a full merger. That’s way too much consolidation for the industry at this point for any government approval.
Then of course American may go with the cleaner Alaska Airlines which has a really superb reputation and leave US Airways out on its own because it still seems slightly dysfunctional from their current merger pains. Alaska provides a complimentary addition without a lot of headache and together would combine many of the best practices in frequent flyer programs today. Since Alaska is alliance agnostic, there is far less headache involved.
Bottom Line
While we could go on and on with the various scenarios, we’ve tried to give members of these programs insight into what the differences are between various merger partners along with some thoughts on where the winners and losers will be. As we hear more about any of these deals being completed, we’ll do a more in-depth comparison as well as offer advice on how to take advantage of the changes to come.