United Airlines is changing the way it prices seats purchased with frequent flyer miles. On November 15, the carrier is switching to a system that prices award seats based on demand rather than specific tiers. The pricing strategy will allow United to slide award prices up when demand is high for a particular flight and ease off on costs when there are more seats available.
Portions of this system already went into place last month when several frequent flyers noticed that award seats on some routes were pricing out at rates lower than normal. As of Friday, that shift is now formally part of a full-fledged effort to apply dynamic pricing across United’s entire awards calendar.
The practice of dynamically pricing award seats as a function of demand is a stark contrast to the traditional system of award-tier booking where seats are priced into concise buckets available to consumers.
With tiered pricing, for example, a traveler can expect to pay roughly 25,000 miles for a standard, domestic, round-trip, economy ticket irrespective of demand. Dynamic pricing, by contrast, takes the brackets off of a particular award seat and allows prices to float down when demand is low and up when inventory is tight.
Among legacy carriers, that leaves only American Airlines with a tiered award seat model later this year.
As dynamic pricing doesn’t take advantage of a tiered pricing structure, United is also taking down its published award chart on November 15. Awards on partner carriers in the Star Alliance such as Lufthansa and Air Canada will remain on a tiered system for now, though Luc Bondar, head of MileagePlus, confirmed that the airline is also exploring the use of dynamic pricing on those fares.
Up until this fall, MileagePlus will remain on its current tiered system with the addition of lower-priced awards (and without higher-priced seats) that some passengers have seen over the last few weeks. On November 15, United will open up the system to full dynamic pricing and take the pricing cap off of award bookings. Additionally, at that time the airline will take away the close-in booking fees that many MileagePlus members have complained about.
United also won’t be changing the number of seats that it makes available for award bookings with the shift to dynamic pricing. “We’re not making any changes to the underlying award fare structure,” said Bondar. Put another way, the same number of seats available for awards on each flight will remain the same from November 14 to November 15 this year.
One area that may grow, however, is the fare bucket for premium award seats for elite frequent flyers. “We are very committed to finding ways to increase the availability of the IN [premium award] booking class domestically,” said Bondar.
Impact on The Airline vs. Consumers
United characterizes dynamic pricing as a good value for today’s loyalty customers. According to Bondar, consumers in United’s loyalty program have consistently asked for better price selection across the entire booking and travel experience, which includes flexible pricing on award seats when demand is low. Dynamic pricing can allow that; looking forward, the traditional 25,000 mile fare will certainly price higher every so often, the new model also allows for the occasional situation in which the round trip seat could cost 15,000 or 20,000 miles – a significant discount from today’s rates.
Consumers may find the value mixed, considering each approach to selling award seats has pros and cons. Tiered pricing is more transparent and allows passengers to carefully budget for upcoming travel, with brackets around pricing fairly rigid.
With a published award calendar, it’s also possible to figure out how much a cheap award seat should cost when one is potentially being charged a significantly higher rate than normal. Dynamic pricing can’t offer that, but it can offer award seats that are typically less expensive than tiered seats at certain times of the year. For passengers who struggle to save up 25,000 or even 15,000 miles each year, that model can bring a lot of value.
Lessons Learned from Delta
United’s choice to move to a dynamic award pricing model echoes a similar decision that Delta made in 2015. And despite the stated benefits for frequent flyers, it’s also likely that the move is rooted in the pursuit of extracting better revenue out of its loyalty program. From the airline’s perspective, dynamic pricing allows it to maximize revenue (i.e., charge more for award seats) when demand is high and fill up seats inexpensively when airplanes are empty. The rare occasion in which a passenger gets a bargain, tiered award seat on what would be an expensive revenue fare can also now be eliminated.
It’s not clear how passengers will react. When Delta originally launched dynamic pricing in 2015, many frequent flyers were up in arms about the lack of transparency around the potential cost of awards. But everyday passengers have generally been indifferent.
Looking back, Matthew Stolen, a frequent flyer on Delta, shrugged off the change. “While it was disappointing to see them move to dynamic pricing for their award flights, Delta continues to offer a superior hard and soft product compared to other US carriers. Additionally, I’ve felt that by Delta’s constant award flight sales helps to take the sting away a little bit more.”
The only passengers that may be irked are top-tier frequent flyers that are intimately familiar with award tiers and booking habits. “Delta’s move to dynamic pricing has definitely affected my booking habits,” said Nick Farina, a high-level elite in Delta’s loyalty program. “While it’s possible to find good deals, the unpredictability makes the miles seem dramatically less valuable to me… even if that isn’t rational.”