22 Responses

  1. Charlie
    Charlie at |

    Great analysis and data, Seth. Hard to argue with numbers.

  2. Steven
    Steven at |

    This is what I’ve assumed to be the case with this change all along. The shorter the route, the better off you make out with the new system versus the old. However, longer routes really shift the equation the other direction. And, of course, buying the ticket closer to the date of departure helps across the board, but with so many travel policies being structured these days to encourage earlier purchases as much as possible, there are a lot of us road warriors that would be far worse off under Delta’s new system than the current rules.

  3. Gary Leff
    Gary Leff at |

    We already know that Delta’s changes benefit short haul flying on expensive tickets, because those tickets didn’t previously earn all that many miles.

    I’m actually surprised we aren’t seeing more green in your charts, so this is a really helpful contribution towards understanding just how bad Delta’s changes will be for most flyers, even business flyers.

    These are predominantly short routes that SHOULD turn green, I would have expected that the 7-day fare chart for what are almost entirely short routes would be almost completely green but it isn’t.

    This illustration shows how high the break-even 20 cent a mile threshold is, even for short business routes. And remember, that’s a break-even average, you don’t just need to hit that on one trip or a few trips but it has to be your AVERAGE.

    So what you really want to know, if you fly on a mix of fares, isn’t whether you’ll do better on a given trip than you did before — but whether you will do ENOUGH better to offset losses from tickets flown on cheaper fares.

  4. Carl
    Carl at |

    I think the ratio of passengers who will win vs. lose is less than 1:10

    Even Delta has already admitted that they will be awarding less miles under the new program

    The chart shows that it is mainly short non-stop routes (using the median chart) or ones where Delta has a near monopoly where fliers might come out ahead. And remember, that chart won’t apply if that short route is part of a connection. Passengers on short non-stop routes likely weren’t top level elites since that requires much more flying.

    There’s already a rough parity point around 20 cpm (excluding taxes) which applies close to equally well for non-status and for top status since the earning factors are 5 points/dollar for non-status and 9-11 points/dollar for the top two levels who also get 100% and 125% bonus today. (Golds need a substantially higher average fare than 20 cpm since they get 100% bonus today).

    I believe that Delta’s yield is about 14cpm (per passenger mile flown). There’s probably a bell curve around that which has a fairly small tail above 20cpm. Because even a pax that has a few LGA-ATL and LGA-DCA probably also mixes it up with JFK-LAX and LGA-DTW-NRT and gets a blended yield. If they are buying full C/J fares, then they’ll win, but even discounted business class fares sometimes yield less than 20cpm.

    I think Delta is counting on people finding mixed examples and not really understanding and doing comparisons that include taxes and/or credit card bonuses to keep themselves confused.

    The data would be more interesting if there were some travelers where you had access to their fare data from 2013 and did a comparative calculation. The winners are going to be the long tail. And if they are buying last minute non-stops, are they influenced by Delta’s frequent flyer program or by who has space on a nonstop flight on the route & time they need? Will it shift share?

  5. jkealing
    jkealing at |

    Would love to see an anlaysis on MSP-BOS. Everything I can tell indicates it’s bad news.

    I’ll also note GMs seem to be taking it the worst here.

    /me disgruntled GM

  6. Geoff
    Geoff at |

    ATL or DTW to LAS?
    Very wonky fares.

  7. ptahcha
    ptahcha at |

    Great analysis. Even with the benefit associated with more miles with short routes, the elite qualification scheme still falls under the old rules, which means it’s still that much harder to earn Medallion status.

    Would be interesting to see the analysis with transoceanic business class flights mixed in.

  8. GUWonder
    GUWonder at |

    Why not red for all the areas where SkyMiles customers are worse off?

    What percentage of DL’s revenue miles flown are from customers who only fly non-stop flights? DL’s still a hub-and-spoke carrier, right?

  9. Jason
    Jason at |

    All the whining and crying aside, this comes down to Delta wanted to RE-pin the “rebate” to the fare in a quantifiable manner. Known costs are easier to manage. They never know when a competitor is going to offer $200 transcons that they need to match, but they’re not going to be handing out a disproportionate rebate while doing it. Also, why should they hand out more of a rebate because someone wants to fly to NRT from LAX via DTW in a cheaper fare?

    I’m told that airfares used to more closely track distance flown hence the “miles” model worked. However with current revenue management charging $800 for CVG-ORD while JFK-LAX goes for $250 it was only a matter of time before the legacies started reigning in the awarded rebate. In 3 years, UA and AA will have done the same thing and frankly it’s the right thing to do. How many business owners here would offer a larger rebate on something that sells for less and has a higher cost basis?

    I would agree with those that say in the short term Delta will lose some flyers to UA and AA. But who are they losing? The bargain shopping, mileage running segment? And that’s only until the others match the program. Let me tell you something, a small business owner who is ultra price sensitive doesn’t rank FF program in his top 3. Delta isn’t losing that guy. I would argue that the guy who ranks these changes as important isn’t really price sensitive and will find a way to pay the higher fare whether it’s coming out if his pocket or not.

    This is the future. The old way was more generous, yes. But who can blame them for trying get to a fixed cost rebate per revenue dollar? It’s what smart people do.

  10. Rich
    Rich at |

    Hi Seth,

    Do you plan to bring hack.travel back online?

  11. hobo13
    hobo13 at |

    Green, white, red. Nice data analysis. No doubt, some will win.

    But you didn’t address the point about whether or not you actually need to reward these customers who were going to fly your airline anyway, or whether you need to reward the margin.

    I still maintain that anybody who argues Delta is doing the right thing here doesn’t really understand airline economics.

    Sorry, but I side with Gary here.

  12. Jason
    Jason at |

    If Delta wants to boost earning on fares they make more profit on, I see the value in that. If they give an extra 5x on business class to attract a higher profit producing customer, that’s smart. But I don’t agree with Gary’s the rewarding the margins argument because Delta controls the capacity. If they’re losing Mr. MileageRun and his “I want to earn 20000 rdms on a $140 fare” to United, I honestly don’t think Delta is losing any sleep. Since they ultimately control the amount of seats on a route, they will fill the planes and do it at their price. That’s the beauty (or nightmare for us) of airline consolidation. If your planes are full there’s no need to reward the margins.

    There is one thing that I agree wholeheartedly with Gary on and that’s his assertion that the frequent flyer programs print money for the airline and Delta is risking a lot by messing with a good thing. Where I tend to disagree is when the argument bends toward the FF program is necessary to fill up the planes. I believe that the programs are defined by the redemption side for most people and that’s where Delta can really screw themselves if they get greedy. Remember that most of the members of FF programs are redeeming for domestic coach. That’s why the 25k seat is untouched.

    1. Carl
      Carl at |

      But the way that the FF program makes money for the airline is by selling miles to partners – mainly credit card companies, but also hotels, car rentals, shopping malls, florists, etc. So far, DL hasn’t devalued that aspect of the program. We’re not totally sure what the 5 levels will mean, but assuming there’s no drastic change, the economics of the miles they sell and people redeem aren’t necessarily in danger. What they’ve done is award a lot less for flying, especially discount flying. The danger would be that this leads to less engagement with their program, and people prefer to shift elsewhere, whether AA/UA or toward UR, SPG etc. But the savvy already know that Delta’s miles are Skypesos… I wonder if DL’s program is less profitable than AA, UA & US as a result? Is it broken out on their financials in any way?

  13. Nick
    Nick at |

    I flew LAX-SFO every week on 1
    week advance or walk up fares for 2 years, would I choose Delta now because my earnings would be better – not sure. I don’t like that I might be suspected of buying more expensive fares to earn more miles. I also don’t like that I would earn much less on personal travel. There are other ways to reward spend, like say prioritizing upgrades based on the previous years spend or having spend based bonuses. The 10% who spend the most may be the passengers you want to reward the most, but if a sizable portion of the other 90% loses interest that might hurt.

  14. Qantas Frequent Flyer switching to a fixed-earning scheme | Wandering Aramean

    […] Winners and losers with Delta's new revenue-based SkyMiles earnings […]