United MileagePlus – Financials Show Stagnation

United MileagePlus Financials Show Stagnation – Won’t Put Up With Devaluation Anymore

At first, United assumes 18% of the miles they issue will expire unused. Miles expire after 18 months of inactivity in an account. Won’t let your accounts go dormant

  • United discloses an assumption of 16% expiration in the prior filing, but 18% the year before that. These assumptions affect the profitability of the program, so it’s interesting to see the assumptions adjusted both down and up.
  • It doesn’t mean that 82% of miles will be used. Delta doesn’t expire miles but discloses in their 10-K that they assume a certain percentage of miles never get redeemed. Not everyone will earn enough miles for the award they want, even when miles do get redeemed people don’t draw their balances down to precisely zero.

Last April United President Scott Kirby shared that credit card signups were lagging.

American Airlines revealed something similar in an SEC filing. That’s taking its toll in revenue, both marketing & deferred revenue from mileage sales fell year-over-year in 2017.

Taken with American’s disclosure in 10-K of the risk of being outcompeted by bank proprietary programs such as Membership Rewards & Ultimate Rewards this is very significant. Sometime that there’s a limit to how much airlines could devalue programs without financial consequence. It seems we’ve reached that limit.

The claim that frequent flyer programs are more valuable than the airlines that own them (thus the case Stifel analyst Joe DeNardi makes for spinning off programs to unlock value) rests on an assumption of 4% – 5% annual growth but United’s mileage sales revenue doesn’t appear to be growing at all, as a matter of fact we see it shrinking slightly.



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