Delta’s latest quarterly earnings report, including a record $1bn profit, included very little discussion of the loyalty program. Which is not to say that nothing is happening in that aspect of the company, but the attention paid by most financial analysts is, well, less than towards things like fuel prices or ancillary revenue. And yet the discussion on ancillaries veered into the world of loyalty briefly, with a number which I’m betting many Medallion members probably don’t want to think about.
In detailing the revenue makeup the following was shared:
Total merchandising revenues and fees grew by 11%, led by incremental first class revenue growth of 17% and comfort plus growth of nearly 30%.
Anything growing that quickly is generally good news for the company. But it was the next line which will have some elites worried:
We increased our paid first class load factor to 57%, up 8% YoY, on a base of 7% more first class seats.
Around 5 years ago the paid first class rates on Delta hovered in the low teens. Medallion members, even at the lower tiers, could frequently find themselves in a premium seat without paying extra. And then the company decided that maybe it should make more money on those seats and the First Class Monetization (FCM) efforts launched. Since then the revenue is up significantly as more and more passengers are paying to sit there rather than taking the upgrades. And it worked. The company is selling more than 4x as many first class seats now and realizing a significant bump in total revenue for it.
Read More: Loyalty or Currency: The SkyMiles conundrum
Even more interesting is that Delta is not yet satisfied with the 57% paid number in its forward cabin. The target is 70% paid seats up front. And, based on the current trajectory, it seems that is possible in relatively short order. And, with that change, fewer Medallion upgrades will be seen.
Of course, with the so-called GAP fares, the cost to guarantee the seat up front rather than risk the Medallion upgrade is now much lower (on average) than it was 5 years ago. More and more travelers are deciding that it is worth paying the incremental amount to get that bump; even I did it back in March on a flight where it arguably made zero sense, and I’m not the type to typically buy up to first. But when, as a non-status customer, it was roughly the same as getting a Comfort+ seat, well, that made just enough sense for me to take it. And I know I’m not alone there.
Read More: Which type of loyalty junkie are you??
And Delta is very, very happy to take those incremental dollars from customers like me rather than upgrade a Medallion member. After all, the “free upgrade” programs were initially launched to fill the unsold first class seats, not to sell coach seats. And now the carriers are getting better about it. That’s good news for the airlines and for the “Want first, Buy first” customers. The only question still to answer is what it means for the Medallions who consider upgrades as their key benefit. Because odds are they’re going to see fewer going forward.
- Loyalty or Currency: The SkyMiles conundrum
- Which type of loyalty junkie are you??
- Can Credit Cards Dominate Airline Elite Status?
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