Data Shows Premium Fares Are Going to Take Off
Whatever else they may accomplish, airline mergers do not benefit travelers.
The primary objective of a merger is to reduce competition—meaning fewer and fuller flights. That makes it easier to push through fare increases, especially on routes lacking a low-cost competitor such as Southwest, and particularly in Business and First Class.
The proof lies in the last big merger, between Delta and Northwest. I compared some of Northwest’s summer 2009 First Class fares to Delta’s 2010 First Class fares and found that on most routes, fares had increased. For example: A First Class ticket from San Francisco to Minneapolis on Northwest, for travel in June 2009, cost $1,108 (plus taxes). Today that same ticket on Delta is $2,156, a 94% increase. Mergers also make it harder to use miles to obtain upgrades and award seats, as there are fewer overall seats on a given route.
For the premium cabin traveler, what could be worse than a merger?
I expect a similar pattern to emerge from the merger of United and Continental, both Star Alliance members. The deal was announced on May 3, and is slated to close at the end of this year. Until then, both airlines will operate separately. The new airline will be called United, but will retain elements of Continental’s livery. The big changes of course, are in the fine print.
Here’s more on what I think is coming at you.
Mileage Program Benefits Will Decrease
In the last year, United’s Mileage Plus upgrade program has become almost a mirror image of Continental’s OnePass. (Were they working on the merger secretly so that the changeover from one to the other would be a snap?) Both charge the same number of award miles for Business and First Class, no matter the region. In fact, not all the changes benefited Mileage Plus members. United’s old economy to Business Class upgrade program was superior, as it offered upgrades on mid-range fares (H and M) with no surcharges. Now it allows an upgrade with any fare, but imposes a surcharge of up to $1,000, which Continental has done for years.
Take the Chicago-Frankfurt route for travel this summer: Under the old program, the lowest upgradeable fare was $1,310. The current program allows upgrades from a lower fare ($999, code V), but adds an $800 surcharge, to total $1,799. Continental’s similar $1,899 ticket adds a $900 surcharge to its best upgradeable economy fare ($999, code W). True, there are slight differences on the upgrade side. For example, United offers Asia for 10,000 fewer miles than Continental. Either way, the price of perks will only increase, given less competition.
Hype: Don’t Believe It
Both airlines state that the new frequent flyer program “will combine valuable features of both United’s Mileage Plus and Continental’s OnePass.” Right. What else are you going to tell governmental anti-trust oversight committees? Delta promised its post-merger mileage program would be the best in the air, which has not happened. On international routes, Delta’s upgradeable economy fares (M and B) can cost as much as a discount Business Class ticket. When Northwest merged with Delta, the best about Northwest disappeared. Now, all those former WorldPerks members must pay twice as much for an economy ticket, just to use miles to upgrade.For many, the new Delta program is worthless.
Earning Top Elite Status for Continental Platinum’s Will Get Harder
Reaching United’s top tier, known as “1K,” requires 100,000 EQMs (Elite Qualifying Miles) or 100 EQSs (Elite Qualifying Segments), whereas Continental top elites (Platinum) need only 75,000 EQMs or 90 EQPs (Elite Qualifying Points). I think the odds of 75,000 EQMs earning top status in the merged program is slim. My prediction: Continental top elites are going to have to fly harder to keep their status.
Watch for the Benefit Hustle
If history repeats itself, look for the new UA-CO to jerk elites around a little. It will announce a huge cutback, then, after members get all wound up, it will “give back” half, just to make them think they have a voice—“it’s all your program, and we care.”
United did just that in 2009 with Regional Upgrades: abolished and then reinstated them, saying “Sometimes no change is good news. After our last announcement, we heard from our 1K members how much they value their Regional Upgrades. To thank them for their ongoing loyalty, we’ve decided to continue issuing Regional Upgrades to 1Ks…”
Not All Bad: A First for Continental Mileage Members
United offers a three-cabin configuration on international routes, which means Continental’s mileage program members will be able to use miles to upgrade to First Class. (Continental flies only two-cabin aircraft.) First Class upgrade award tickets can be scarce, but the savings astronomical—up to 80%.
Continental Top Elites Might Gain
After the merger, Continental’s top elites can look forward to gaining a perk United gives its 1Ks: Six system-wide upgrades, valid on almost all United fares to anywhere it flies, which are exempt from the $1,000 surcharge. (Two more are earned for every 50,000 EQMs.) 1K’s also receive two Regional Upgrades for each quarter in which they fly at least 10,000 paid qualifying miles. What makes Regional Upgrades special from Unlimited Domestic Upgrades (UDU) is that they are valid on transcon routes (JFK to LAX and SFO), whereas UDUs are not. Even more important, the upgrade is guaranteed in advance.
United Elite Members Score
Continental has been more “elite friendly” when it comes to domestic upgrades (see FCF, May 2010, page 6), exempting elites from upgrade surcharges that can reach $300. United addressed that on May 20, announcing that Mileage Plus elites will enjoy the same exemption from surcharges—the result of a competitive landscape.
Buying Miles: Continental’s Members Will Win Again
United allows members to buy up to 60,000 miles per year, whereas Continental allows members to buy only up to 25% of the miles needed for an award. Will the new program be generous? In effect, United’s plan enables anyone to buy a mileage upgrade to Business or First Class, anytime—cutting premium fares up to 85%. By far, my favorite upgrade is to First Class. United requires only 40,000 to 50,000 miles (see FCF, May 2010, page 8) on discounted Business Class fares, plus a surcharge of $1,000. Can you still save on First Class travel even after buying the miles and paying the surcharge? Yes. Take the San Francisco to Paris First Class fare of $15,679: If you buy the lowest 50-day advance Business Class fare ($2,800), add the $1,000 surcharge and the cost to buy the miles ($1,970), you still save about $9,900.
Wishful Thinking
Here are features I hope the new airline will keep or expand:
Low Holiday Business Class Fares
Continental is known for starting the year-end holiday Business Class fare promotions to Europe (look for them at the end of this summer), and at times, even to South America and Asia. Last year, its Thanksgiving Business Class fare from New York to London was $1,000 round-trip, while United’s was $1,900, 90% more. If the new airline offers $1,000 Business Class fares to Europe on routes where United offers First Class, that would be a benefit. You could conceivably upgrade the Business Class fare to First Class for a total of $2,000 (fare + surcharge), getting a First Class ticket that would otherwise cost well over $15,000.
Better Credit Card transfer option for United Flyers—Amex Rewards Partnership
Continental is a redemption partner with Amex Rewards, and if the new airline keeps this relationship, then United members would finally have a good credit-card transfer partner. Chase, United’s current partner seems to have the carrier locked up: United doesn’t allow one-to-one redemptions with any other card. That’s most evident in United’s relationship with Starwood, with United’s members getting only a two-to-one credit, rendering the partnership almost worthless.
With Amex, United members could buy up to 500,000 miles annually (at 2.5¢ per). That comes in handy when Business Class fares are high and you need at least 100,000 miles for an award ticket. For example: Miss the 50-day advance on Washington, DC-Buenos Aires, and your ticket costs more than $10,000; buy the points via Amex Rewards and pay only $2,500. Alas, the merged airline will probably snub Amex, leaving the fast-start option that the Continental-Amex relationship gave us a thing of the past. But we can hope!
Better Coach for Continental Flyers: United’s Economy Plus
It offers five inches more legroom. That might not sound like much, but its better than normal economy. I hope that the new airline will install Economy Plus on Continental’s former aircraft. In fact, let’s reach for the stars: Have the new airline introduce a true Premium Economy product, with a separate cabin and seats that recline to 125 degrees, like so many other international airlines have done recently.
Now that you know the possible implications of the United-Continental merger, I encourage you to write to either (or both) airlines, and make your voice heard before they decide for you.
Continental OnePass email United Mileage Plus email