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.
But what about the 375k award (one way, business class) from Los Angeles to Sydney?!?
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.
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- Which type of loyalty junkie are you??
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- Will Targeting Millennials Change Loyalty As We Know It?
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“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.”
Excellent point to highlight and consider.
For most American consumers/travelers, award travel is done in Economy. For these Americans, the fact of exorbitant rates for premium class, especially longhaul, awards is not likely a big factor. So DL can play this game with less slippage in its loyalty than many herein may otherwise assume.
For those of us who aspire to travel longhaul in premium classes, however, the DL approach is justification for abandoning DL altogether–unless you’re living by a DL hub and trapped into only or largely flying DL as a result. I thankfully live near SNA/LAX, so I’m not trapped…and I avoid DL like the plague unless I have a trip to a DL hub city that permits me the nonstop flight.
I continue to earn points/miles using credit cards/spending that works with UA and AA and avoid all programs/credit cards that earn only DL Skymiles. I just dumped almost all of my AA miles on Business Class awards to Tahiti on TN and First Class LAX-MIA on AA in their 772s–since I expect the AA program to devalue in the coming months once the AA-US merger is completed or near completion. But that was a lot of value for those AA miles. There’s nothing even remotely comparable to that value with DL.
Say what you want, but I find UA and AA to be quite comparable to DL in flight experience based on the routes I fly from SNA/LAX. And I find UA and AA to be far superior to DL in terms of route maps and award availability/value for where I want to go from SNA/LAX. To me, there is no question that UA and AA are the ways for me to go. DL is for suckers.
Hardly for “suckers” as you put it. That is very much a single-minded, myopic view of the industry and the business models in general. There are good reasons to fly DL for a lot of people, even if not hub captive. SKyMiles might – or might not – be one of them, but the points programs are rarely the only driving factor in such decisions. Usually not even one of the top two.
I think the reality is that Delta’s High Value Customers, as they refer to them, are not telling DL that outsized premium class redemptions drive their loyalty. Clearly the airline feels it is being overly generous. Otherwise why would it incur the expense to radically reshape a profitable loyalty program?
We have long read and known that the heaviest spenders and business travelers value upgrades and other perks of loyalty over air redemptions. And Seth’s point about the preponderance of domestic, low value awards seems to indicate the points and miles insiders’ obsession with cheap premium class redemptions is a minority position.
We may have sensible arguments for why DL should not gut our favorite awards, but most of us are not customers the airline cares that much about. To them the risk is alienating high spenders and although they have devalued them modestly, they have been savvy about obscuring that fact.
United may have said frequent flyers are over entitled, but Delta has done far more to manifest that belief. They are operating in a competitive landscape, loyalty-wise, and they seem to be winning even though competitors offer better award redemptions and more generous loyalty perks. Expect more of the same.
Who benefits from the changes?
Ultimately this weakens DL’s credit cards as there are certainly better places to put your spend than Skymiles. Will customers figure that out?
The company benefits. And it is not a 100% kill on the credit cards. For people who earn via a combination of flying and CC the ability to top off makes all the points more valuable. CC-only earners may still do better withe SkyMiles, depending on volume and types of awards.
It is bad for the people who want the luxury travel experience at a discount. But that segment has almost certainly never been profitable to the company.
@Bill I wouldn’t say suckers. I get really good (north of .02/mile) value out of domestic redemptions on Delta that has a nonstop on what is a very expensive flight to visit family that I take with the mrs. about 3x times a year. I’ve always found good value in that, I use Delta as saving me real $$$ on trips I would be out of pocket several grand per year, as there are really no direct route or quality alternatives.
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