Why the Delta SkyMiles changes don’t really matter


Delta is changing the way travelers will earn points in its SkyMiles program next year. The news came out yesterday and, not surprisingly, there was a combination of outrage, confusion and misinformation. Both ABC and NBC carried the story on their 6pm broadcasts and CNNi did a segment with it as well. Some “experts” have decried it as anti-consumer while others have suggested that it is groundbreaking.

It is neither.

image

Delta is, at best, the sixth airline to implement a program where the points earnt for flights are based on dollars spent rather than distance flown. Nothing about this policy is groundbreaking at all. They are the largest airline to choose this approach, but definitely not the first. And Southwest isn’t all that much smaller; in some metrics they are actually larger.

So Delta isn’t actually doing anything especially new here. But it is different from what they were doing. Is that necessarily bad? Unfortunately we don’t have enough details to say for certain. For many customers and for many flights the earnings will be lower under the new program. In other cases the earnings will be higher. Delta is very clearly tying the reward value they give customers to the value those customers present to the airline. They (along with pretty much every other US carrier) have been moving in this direction for several years now and the fact that they’re more or less there now is surprising only in that they finally wrote up the plan and built the systems to process it, not that they wanted to be there.

Some passengers – particularly in the low-cost, leisure segment – will earn fewer miles as a result of these changes. Some business travelers will be affected as well. But given the relative weakness of the SkyMiles program over the past few years it seems unlikely that this change will drive customers away in the broader travel world. Yes, the mileage runners are losing out here but this is not the first time Delta has done things to discourage those customers and it probably won’t be the last. And those customers are still playing the SkyMiles game.

Another (likely larger) aspect at play is the credit card factor. Delta and American Express have a nice, cozy relationship and AmEx provides a lot of revenue to Delta. And they still will continue to do so. With CC-based points earning being such a large component of the “game” these days it seems quite unlikely that much of anything is changing for the most aggressive arbitrage players. They likely weren’t earning the bulk of their points via flying anyways so the game stays very close to the same as it was before.

image

The big unknown today is what the award charts will look like. Delta has promised five tiers (up from the current three), one-way awards, cash+points redemption and “more Award Seats available at the lowest redemption levels.” We’ll see what comes to pass with each of these promises but without that half of the data it is impossible to know for certain what the impact of these changes are. It is entirely possible that premium cabin long-haul awards will be priced out of the market, making them inaccessible to most customers. That would suck. But it is also not a guaranteed outcome from these changes. We simply don’t know yet.

I believe Delta made a significant mistake in the way they rolled out this change, particularly by only sharing part of the data rather than having the full story ready to go. That uncertainty and confusion is causing far more trouble than the changes alone would have.

As it stands today the highest revenue customers appear to mostly benefit from the earnings changes. Credit card-focused earners appear to potentially benefit from the changes (via one-way awards and theoretically more low-level space, pending details showing up). And the people buying the lower fare options are likely doing so because the other factors, namely price and schedule, are best for their needs. They were likely to fly Delta anyways given those circumstances.

So, yes, this is a big change. But is is one where we still don’t have all the data so jumping to conclusions seems a bad choice. The game will continue to be played and those who want to be involved will remain so, finding the arbitrage opportunities and exploiting them where possible.

Or, as a good friend commented to me yesterday, “This is like a nuke on an already bombed city.” Once the overall structure has changed so much even a “massive” change such as this one doesn’t really have all that much impact.

Related Posts:

Never miss another post: Sign up for email alerts and get only the content you want direct to your inbox.


Seth Miller

I'm Seth, also known as the Wandering Aramean. I was bit by the travel bug 30 years ago and there's no sign of a cure. I fly ~200,000 miles annually; these are my stories. You can connect with me on Twitter, Facebook, LinkedIn and .

17 Comments

    1. I think you’ve missed the point, Patricia. I expect that the other programs will continue to move in this direction as well. And even when they also do so it won’t really be that huge a deal.

  1. Well put, Seth. The fact that airlines are businesses should temper any outrageous responses to this move, or to any similar move any other airline might make. They need to make money. If some fliers are gaming the system then it would make sense that they’d try to limit that. If I were a business owner I would do the same; look for the best way to keep my customers engaged while not negatively impacting the business. I don’t love the changes but I certainly don’t disagree with them. And, as Seth pointed out, if we start complaining about all the changes before having all the information we’re very short-sighted.

  2. The sky is not falling.

    I will continue to fly Delta – I prefer their product to alternative airlines on domestic travel and the service from my home airport is far and away more convenient than competitors. However, I’ll be banking flown miles over to Alaska until I see what the new redemption options look like (as a hedge). As a coach traveler, I’m envisioning only minor tweaks and love that they’re finally allowing one-ways. Once the new charts are out, it shouldn’t take me long to determine if I’m better off crediting to Alaska or Delta. No need for alarm until we have all the details but I do hate that they are making so many changes in quick succession. That’s a good way to lose trust.

  3. Nice…”Nuke an already bombed city”. Scorch the earth of an already burned program.

    Nice post. I don’t think this will drive away that much business in hub cities but it might drive away some travelers that don’t fly Delta much. For example I typically fly out of STL or MCI to the West coast. Basically AA, SW, UA and DL are the players that work for my schedule and flights the best. I like Delta as they have flights that go through SLC so it cuts down on the extra travel time versus AA (DFW or ORD) and SW which always wants me to fly to Vegas or PHX it seems. Alaska flies those routes in the evening via Seattle and UA is way too high for me on those routes. Downside to Delta is the regional jets they use to service those routes. It doesn’t do me much good to earn elite status to earn upgrades on a regional jet. Heck some don’t even have an upgrade. I just have to close my eyes and pretend I’m on my private Lear 🙂 So I guess what I’m saying is that I will choose Delta less over the other airlines because of this change and credit those odd few flights to Alaska. I really like Delta but no crazy about the program changes. I agree with you that it matter little overall but it could cost them business in the end. I guess they have a choice: Are semi-frequent flyers more valuable than award redemption’s earned off cheap fares? At the end of the day it’s just business, not personal.

  4. The way I see it Delta is just redefining its relationship with its customers. Your loyalty per se doesn’t really mean very much to them, at least as far as the traditional definition of loyalty is concerned. In their own words “This transition will better reward our most loyal customers”. They mean those who spend big time. And that’s fine, because planes are flying full. Once you realize that Jeff almost certainly sees things the same way it’s probably a matter of months before UA makes the change.

    1. The whole point of loyalty is that you do it because you want to do it, not because you get something out of it. In many cases the true test of loyalty is maintaining it in the face of a challenge, not when you are profiting/benefiting from it. The belief that time spent or miles flown is a true measure of “loyalty” is just as broken as revenue. It just happens to be the option chosen 25+ years ago.

      That doesn’t mean it was the correct choice; it just happened to be the choice.

  5. Most DL passengers — and most DL elites — will be earning less miles from their flights than is currently the case. DL has wanted to reduce the proportion and the number of miles that are given “freely” for DL flights, and this is DL doing what it has wanted to do for years now.

  6. When it comes to the High Revenue Customers, I think all we can say is that HRC come out best, rather than saying definitively they benefit. I suspect that when Delta finally decides to tell us the new award charts, it may very well be the case that those HRC are worse off than they are now. I also suspect that the way Delta is doing this will make it very difficult to actually assess that reality. But really, who knows. All Delta has told us is the earnings rate for a currency we have no idea what to expect from.

    I’m also completely puzzled as to why Delta rolled it out this way — why announce half of it now, and the other half some unknown date down the road? I suppose it’s nice that they at least told us a chart change is coming. But this weird split comes off, at best, as them rolling out an unfinished product, or, at worst, as Delta intentionally withholding information from their customers. Its as if on principle they want to hold to their policy of providing limited to no advance warning of chart changes.

    To me the big surprise is that the award chart (apparently?) won’t be revenue based, which is really all that truly matters in this game.

  7. I think you hit the nail on the head about other airlines following suit. If they do, it will be because they are planning to anyway, not to copy Delta. Frequent flyer program rules, procedures, and policies seem to be an area where there are and have always been substantial differences between airlines. On many aspects they clearly do not blindly copy each other, but rather each goes its own way. I personally don’t care a lot about revenue based methods on the earning side, since only a small percentage of my points comes from actual flying. It’s on the redemption side I’d be concerned, and of course we don’t see the details of that yet from Delta’s latest changes.

  8. I can’t help but think that we all dodged a pretty big bullet with redemption not going revenue-based. That would have been the killer. Delta was smart in that people may complain about the revenue-based earning, but ultimately they’ll overlook it as long as redemption rates “appear to be” flat rates. I think the flying public will still see Skymiles as a better program than those of Southwest, JetBlue or Virgin America whether the rewards math supports it or not.

    1. Seems I missed something where they announced the new redemption options, huh?? 😉

      We really don’t know yet, Jason. If they come back and it is a bad valuation, revenue-based system then things will quite likely be worse than they appear right now. But until that happens we really don’t know. And, FWIW, the research I’ve seen and done about the revenue-based redemptions suggest that the general public gets that a lot more than they understand tiered charts and limited inventory.

  9. You implicitly accept Delta’s premise that higher-revenue fares generate greater profit for Delta. That’s nonsense.

    1. Really? Which low fares are generating high profits?? Please feel free to provide specific details to support this assertion.

      Yields are tightly tied to fares. Not 100% in lock-step, but very, very tightly tied. Far more than they are related to distance flown.

      It may not be a perfect association, but it is definitely closer to reality than the old model.

      1. May be ed is saying that a full fare Y customer may be more profitable than someone buying a discounted J on the same flight (even though the absolute fare for the Y seat is lower that the discounted J price).

Comments are closed.

BoardingArea