As yesterday’s news of the revamped Delta SkyMiles award rules came down I mentioned the details to a colleague sitting next to me in my office. His response was a simple one:
Well, there goes any sense of loyalty. Fixed Pricing on awards creates loyalty; people know what they’re saving towards.
And that view has been echoed online by many. But is it truly the end of SkyMiles as a loyalty scheme versus a currency play? Probably not.
For one thing, economy class domestic tickets are still the main air travel redemption across the programs. Some of these may increase with the change, but that’s not entirely clear yet. And Delta is still pushing the 7,500 point reward options. Sure, “no one cares about those” except, of course, for the people who do. And smaller redemptions continue to grow as a share of total redemptions, suggesting that these little awards might be doing more good than not for the overall SkyMiles membership base.
Yeah, that’s a ton of points. And reading through the reactions online it would seem that the only viable option now is to abandon the loyalty program and choose cash-back credit cards and shopping by lowest fare. Those may not be horrible ideas, but it really does depend on the target redemption. The cash rate on that ticket is just over $8000 r/t right now, suggesting a redemption value of 1 cent per point. A cash-back card can beat that rate, but the reward also isn’t always at 375k points nor is the fare always $8000.
Read More: The power of low-value redemption options
The retail rewards options are nearly universally capped at a penny per point. In that context the 375k award is still a “good value” as it exceeds the other options. It happens to not be a good value compared to what the rates were previously and possibly compared to other companies in the same market, but there are also differences in acquisition cost and ease of spend.
Still, at the end of the day, as the points get closer and closer to a fixed-value currency (and, no, Delta is not there yet), does that really erode loyalty? My guess is that JetBlue, Virgin America and Southwest Airlines would all say that loyalty is still strong within their programs. And, more and more, the programs are clearly defining two halves of the loyalty programs: The “currency” and the “status” which helps with day-of-travel experiences. For the customers who mostly care about the at-airport experience these changes may matter less. But that also changes the question of whether a consumer is loyal to the brand or just accruing a currency.
Read More: Which type of loyalty junkie are you??
If you’re just accruing a currency then the loyalty may trail off once the account is drained. If there is real loyalty then the customer comes back and tries to refill the account rather than seeking alternates. Airlines have, thus far, been successful at keeping their members loyal, showing increased earn rates after a member redeems points. Shifting too much towards a commodity product with a more fixed redemption value makes it harder to convince the consumer of the potential “big win” type of redemption but may still keep some loyal. After all, getting something at the end of the day is still better than getting nothing. The biggest challenge will be ensuring that the co-branded credit card customers continue to spend; reduced returns on that activity could spell trouble for the Delta/American Express relationship.
And all of this is not to say that they are necessarily “good” changes – they are definitely negatives for me personally – but they don’t suck for everyone. And even where the value is being reduced, it is not clear that it is going to be worse than all the alternatives. It is still generally a better value than buying food in the terminal with your points, for example.
- The power of low-value redemption options
- Which type of loyalty junkie are you??
- Can Credit Cards Dominate Airline Elite Status?
- Will Targeting Millennials Change Loyalty As We Know It?
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