Airlines don’t exist.
I came to that somewhat Magrittesque conclusion after hearing from Julie Eisenberg, a loyal United Airlines customer who last year spent $1,700 per ticket to fly her partner and herself from Washington to Sydney.
For just $600 more, plus 30,000 miles, United promised her a chance to upgrade into a slightly roomier seat. But the ticket agent she spoke with failed to mention that there were no guarantees and that the money and miles would be deducted from her account then and there, many months before her flight.
“The only way I can get the miles and money back is to cancel my upgrade request,” she says. “They will have possession of the money and the miles from the date I booked, on May 10, 2013.”
Veteran frequent fliers know this is how it’s done at United, of course, but it didn’t sit well with Eisenberg.
“I’m really shocked that it’s OK for them to hold this amount of money and return it after almost a year, paying no interest on it,” she says. “Yet they continue to insist that they can’t confirm our upgrade.”
Why, she wonders, can United get away with that?
Well, there’s a simple answer — and a complicated one.
The simple one: because they can.
An airline is free to set its own rules and policies without government interference. It’s been that way since the industry was deregulated 36 years ago.
The complex — and somewhat controversial — answer: Maybe United is no longer an airline. Maybe it’s a loyalty company that happens to be running an airline.
You see, charging a customer months before a flight for a promise to consider an upgrade into a seat that should be standard on a marathon transpacific flight doesn’t make any sense if you’re an airline that cares about its customers. A caring airline gives all of its passengers a reasonably comfortable seat, no questions asked.
But it makes perfect sense if you’re looking at this from the perspective of a loyalty company trying to prod customers into buying more.
A look at United Airline’s latest annual report shows why it’s no longer entirely accurate to call it an airline. In 2012, it sold $5.1 billion worth of frequent flier miles to credit cards and other third parties. It expects about a quarter of those miles to expire or go unredeemed.
By comparison, United earned $25.8 billion in revenue from its mainline passenger operations for the year. In other words, 1 out of every 5 dollars earned was because of MileagePlus, and worse, it doesn’t always have to give customers something for their purchase. United will only have to honor 4 out of every 5 points earned through one of its partners. (If that number gets too high, no problem! Just devalue the miles, as it did for 2014.)
In 2013, airlines raked in a total of $18.9 billion from the sale of frequent flier miles to program partners, according to an estimate by IdeaWorks. That figure also includes some commissions from the sale of services to travelers. Hotels are less forthcoming, but in a recent conversation with a high-level executive for a major hotel chain, I was told that roughly half of every booking had a loyalty program component and that the programs were a “significant” source of revenue.