Why United's devaluation changes everything (and why Delta's didn't)

By now you've undoubtedly heard about United's overnight announcement of a major award chart devaluation. Here's a roundup from around the web:

I think this is more than a devaluation, making it that much harder to earn enough miles for premium cabin award tickets: it calls for a paradigm shift.

The traditional view in the frequent flyer community is that US-based airline programs have some advantages over their foreign counterparts. The most important of those advantages is that US airlines don't typically charge fuel surcharges on award tickets booked on their own flights, and often don't pass along their partners' fuel surcharges.

Delta's August devaluation announcement was treated with disgust by those who were already frustrated with Delta's non-functional online award booking tool. But while there's no such thing as a "good" devaluation, that devaluation is offset in part by the fact that Delta miles remain among the easiest to earn, since Gold Medallions and higher earn 100% bonus miles on paid flights and the American Express Delta Platinum and Reserve cards earn 1.4 and 1.5 miles per dollar, respectively, at their annual bonus thresholds. Most importantly, Delta left untouched the basic deal between frequent flyer programs and their members: you can redeem your miles for "aspirational" awards in premium cabins anywhere their partner airlines fly.

United's award chart devaluation breaks that deal with their customers. The problem with United's award chart devaluation is that the "partner" award chart is activated when any one of your flights is on a partner airline, even if United doesn't fly to your ultimate destination . Lucky elucidates this point nicely.

So far bloggers have been thinking about the devaluation from the point of view of a person trying to redeem United miles. But if you take one step back, you can see the consequences are actually much further reaching than that.

Let's say I'm trying to redeem my flexible Ultimate Rewards points for a round-trip, business class ticket between Boston and Prague.  Since I can redeem United miles on their partner airlines, in this case Lufthansa, at the same mileage cost as on United metal, using the current award chart I'll pay 100,000 United miles and $97 in taxes and fees. After February 1, when the new partner award chart takes effect, that'll increase to 140,000 United miles (let's assume the taxes and fees stay the same for now).

With British Airways Avios, also an Ultimate Rewards transfer partner, I'll pay those enormous fuel surcharges you're always hearing about, in this case about $1,028. But I'll pay just 98,000 Avios. That values 42,000 Ultimate Rewards points at $931, or about 2.2 cents each. That's on the high side, but it isn't crazy, for example if you're planning a high-value Hyatt redemption.

Let's take this example one step further.

Under the current United award chart, the Chase British Airways Visa credit card isn't a great value for most people. It comes with 50,000 Avios, which many people use for short-haul American Airlines flights, which cost just 4,500 Avios each way. But the companion pass that you earn after spending $30,000 during the calendar year has the major drawback that you still have to pay the formidable taxes and fees attached to the second award ticket.

Under the new United award chart , the calculus changes completely. Using the example above, where we found that the British Airways award ended up costing about the same as the United partner award when we value Ultimate Rewards points at 2.2 cents each, now when we book a companion ticket for an additional $931 we're saving not 100,000 Ultimate Rewards points, but 140,000. That's like buying Ultimate Rewards points for just 0.67 cents each. Since you can redeem Ultimate Rewards points for cash at 1 cent each, this is a no brainer.

In other words:

  • Two round trip tickets on Lufthansa using United miles: 280,000 miles and $194;
  • Two round trip business class tickets on British Airways: 98,000 miles and $2,056 (plus a $95 annual fee);
  • Cash value of 200,000 Ultimate Rewards points: $2,000.

This is the example that came to mind most readily because British Airways and United are both Ultimate Rewards transfer partners. But I suspect there are a lot more situations like this, where increased redemption costs under the new United award chart – especially in premium cabins – will make it worth paying potentially astronomical fuel surcharges to their rivals.

United is simply abdicating its position as America's most coveted airline currency, and this decision is going to have unforeseen consequences throughout the industry.  What do you think?