Considering how important frequent flyer programs are to airlines – they drive billions of dollars of high margin revenue – they disclose very little about that portion of their business. Delta filed its SEC 10-K annual report on Friday, and included tidbits about the inner workings of the SkyMiles program, though they also included a copy of financing agreements for the money they’ve borrowed against its revenue.
- 8.5 million people joined SkyMiles in 2022. They don’t disclose how many members stay active in the program.
- Award travel made up 10% of Delta’s revenue miles flown. That’s up by about 25% compared to before the pandemic. People kept earning miles and weren’t spending them, and were miles-flush. Meanwhile, leisure travel (where people are more likely to spend miles) has continued to dominate.
- Members claimed ~ 25 million award tickets in 2022.
- There’s still $7.9 billion in deferred revenue waiting to be recognized when members redeem their miles.
- They signed up 1.2 million co-brand American Express cardmembers in 2022. They do not disclose how many people in the portfolio closed their cards so it’s unclear what net growth looks like.
- Revenue from American Express was over $5.5 billion. Amex is Delta’s biggest customer by far. You now need a co-brand Amex in order to get the best pricing on award travel (there’s a mileage penalty when redeeming out of an account that isn’t associated with a card).
- Cash sales from SkyMiles marketing agreements totaled $5.7 billion. Considering how much American Express is spending, this number is very low. Delta doesn’t have many other lucrative partnerships, nor sell miles as aggressively, as competitors.
- While Delta raised $9 billion against the loyalty program in fall 2020, SkyMiles program-backed debt is down to $7.964 billion.
Debt instrument covenants limit the ability of delta to change program terms that would reduce revenue in such a way as to impair repayment, and they cannot sell more than $550 million worth of prepaid miles. (In past crises they’ve pre-sold $1 billion in miles to Amex, which is essentially debt backed by miles.)
SkyMiles is really four separate companies – SkyMiles Holdings Ltd.; SkyMiles IP Finance Ltd.; SkyMiles IP Holdings Ltd.; and SkyMiles IP Ltd. – all registered in the Cayman Islands.
If you’ve got a decent balance of points, you might join the 25 million other redemptions and claim a trip to Grand Cayman to visit your miles.
thank you, Gary, for a fact-based article on a topic that is fact-based rather than just anecdotes and opinions.
The real value of the information you provide would be to compare the metrics you cite between DL/Skymiles and other carriers but the “static” numbers on their own tell a compelling story.
It isn’t hard to see from these numbers why Delta has the world’s most valuable loyalty program and why the Amex relationship is so important not just to DL but also to Amex.
The data does show that Delta does show that DL allows large numbers and value of Skymiles to be redeemed for travel and, if you compare that number to AA and UA, DL compares well.
DL said when it took out the debt backed by Skymiles that it intended to keep the loan facilities in place even if pays down some of the amounts
It is precisely because of mortgaging their loyalty programs that US airlines provide data that we as the public would not otherwise be able to see.
@Tim Dunn – “It is precisely because of mortgaging their loyalty programs that US airlines provide data that we as the public would not otherwise be able to see.”
On the contrary, while there was some public disclosure around the marketing of these debt instruments, the 10-Ks really don’t provide more information about loyalty programs than they did pre-pandemic.
Oddly, American Airlines used to provide quite a lot then ~ 5 years ago stopped doing so.
@Gary – “ On the contrary, while there was some public disclosure around the marketing of these debt instruments, the 10-Ks really don’t provide more information about loyalty programs than they did pre-pandemic.”
Isn’t it the *type* of debt instrument that warrants how much information needs to be made publicly available? It’s not choice (well the type of borrowing is a choice) but rather how the money is borrowed.
@OCTinPHL – I am not at all suggesting airlines aren’t meeting their *legal* disclosure requirements.
Gary,
UA and DL provided far more info post mortgaging their FFPs than they did before.
Whether it is as much as you or I or anyone else wants doesn’t change that the information that has been provided shows why Skymiles is as valuable to DL as it is.
And while it isn’t necessarily in your lane, DL’s investment in the refinery and in Tech Ops, its maintenance services division for other airlines, is a big part of the reason why DL’s margins are so much higher than other airlines and will continue to be.
Very informative article on SkyMiles.
@Tim Dunn – I’ve written on the role of ops in Delta’s performance for the past 5 years. Their oil refinery has done cyclically well recently, for quite some time it was an albatross despite huge subsidies. And it rather belies their environmental claims.
Looking at my own travel, about 31% of the MQM I earned in 2021 (which is pretty close to percentage of revenue miles flown) came from award travel, so above the 10% average. About half of that was on one international trip to BCN I got via a flash sale, the other half was on leisure trips to ski country, Hawaii, Caribbean, etc.
With MQM earnings, the ability to get upgraded, and now the 15% discount, it is very easy to burn SkyMiles, and I need more in my account. I just with Delta did International flash sales more consistently in order to make international business class redemption more useful.
After some of the recent coverage here, I can’t help but think SkyMiles is turning into some sort of bait & switch scheme, or maybe a pyramid scheme. They peddle all the co-brand credit cards that earn miles (along with other benefits, but with a steep annual fee), and then they keep drastically devaluing the miles at what appears to be multiple of the inflation rate.
Mark – Greg at Frequent Miler now says that Delta SkyMiles are worth close to 1.5 cents per mile (for those that hold an Amex Delta card), up a bit over the past couple of years. I agree – the points have not been devalued for most redemptions.
https://frequentmiler.com/no-catch-deltas-15-discount-is-real/
Gary,
you have indeed accurately noted that Delta’s operational performance is a driver behind its revenue premium.
Delta Tech Ops works for Delta in part because Delta’s mechanics are non-union which gives Delta the ability to flex its maintenance workforce including by bringing retirees back as short term contractors to meet workload. It works for Delta’s current and retired mechanics and it works for Delta. No other airline that has a unionized mechanic workforce in the US can do it.
Many analysts – and probably you – solely looked on the financial performance of the refinery on a standalone basis – which Delta is required to present to stockholders just as any other company has to do with major subsidiaries. The refinery was never intended to be profitable on a standalone basis and Delta made that clear. For nearly all of the time DL has owned Trainer, it reduced Delta’s fuel costs relative to its competitors – often as little as 3 cents/gallon. it is only by failing to include the fuel cost reduction benefit that one comes to the conclusion that the refinery has not contributed to Delta’s bottom line on a near continuous basis. Now, however, the refinery is contributing a savings of $750 million/year or more and that is not expected to change because the reasons that the refinery is contributing so much to Delta’s bottom line are structural – related to the lack of refining capacity esp. in the NE. No other airline can duplicate what Delta has which is esp. why airlines like United that talk about matching Delta’s profit margins are not dealing w/ all of the facts.
I fail to see how owning a refinery makes one environmentally less focused. As long as all jet airplanes are powered by jet fuel, whether Delta owns a refinery or not is immaterial to the US’ environmental situation.
and Delta’s higher systemwide fuel efficiency than AA or UA does demonstrate that DL is doing what it can for the environment within the technology that exists.
Here are Wall Street folks who actually get paid for this kind of stuff have to say about UA, against all US airlines. And yes, that’s despite some people arguing that UA is forced to buy new planes with debt.
For investors who prefer to focus on U.S. carriers, United Airlines Holdings Inc. (NASDAQ: UAL) is up 35.07% so far in 2023 and 18.92% in the past year.
MarketBeat earnings data show that United beat sales and earnings views in the past two quarters
and United Airlines also outperformed its peers precisely because it chose not to retire old, fuel inefficient airlines like other carriers including AA and DL did.
UA was focused on getting the short term quick capacity and revenue bump when demand returned and they got it.
The degree of their earnings beat diminished in the 4th quarter compared to the 3rd quarter relative to both AA and DL.
What UA accomplished in the 3rd and 4th quarters does not translate into the wholesale rearrangement of the ranking of financial performance that Scott Kirby has brainwashed himself and his fans into believing has or will happen.
United is still worth less than 2/3 of what DAL is on a market cap basis. If there was a true wholesale rearrangement of the industry, UAL’s market cap would not still be at about the same percentage of DAL’s that it has been at for years.
And DAL and UAL’s investor guidance shows that DAL will once again overtake UAL in margin performance in the 1st quarter and in the year to come. Since DAL reported its earnings and gave its guidance for the year first, United tried to claim it would match or exceed DAL’s and yet there are multiple of those professional analysts that questioned UAL about its earnings projections on the earnings call. It rarely happens in the airline industry and yet shows that there is considerable doubt that UAL will achieve what it says.
DAL’s stock recommendations are higher than for UAL by the same group of those professional market analysts.
and United cannot possibly avoid increasing its debt and lease costs at a much faster rate than any other airline given the massive value of new aircraft that they are taking on.
UAL is simply going to become the most indebted US airline, precisely what weighed down American and what American is working hard to undo.
Delta has long generated far more cash than American or United and its spending is much better matched to its cash generation which supports DAL’s stated and intended plan to continue to reduce debt even while spending half what UAL is going to spend on fleet.
AAL does not generate the amount of cash that DAL or UAL does so they are reducing their debt by dramatically reducing their spending to use their cash to pay down debt which they are already doing.
UAL has simply provided no guidance that it will be able to keep its debt level from skyrocketing, let alone to reduce it by the amounts that AA and DL are doing.
thanks for the informed and logical discussion – exactly what people like you and Howard Miller bring to the table even if you don’t necessarily see all of the facets of the issue.
and specific to the loyalty program aspect of this discussion, Delta’s loyalty program generates far more cash than UA’s does and it is precisely that increased cash from ancillary revenues including Amex and Skymiles that is allowing Delta to spend as much as is necessary to keep UA from achieving its goals of rearranging the market place as UA thinks it will do – while also growing into longtime UA strength markets like AKL and GVA as well regrowing in Germany
Gary,
Delta filed its 10K annual report for 2022 with the SEC and it notes on page 44 that the refinery generated a profit for Delta of $777 million and reduced Delta’s fuel cost by 23 cents/gallon for the year -which is equivalent to a 6.5% reduction in Delta’s fuel bill which was over $12 billion.
The refinery generated $5 billion in revenue, nearly double what the loyalty program generated.
Delta’s ancillary businesses which include Tech Ops generated $850 million and misc. revenue was the same amount and includes Sky Club access for certain Amex cardholders as well as codeshare revenues.
My friend flew delta last week to Cape Town. She bought her ticket far in advance but I was curious in the days leading up to her departure how many miles they wanted. 395k one way in economy on the day before departure. And she said the flight attendant told her there were 112 empty seats on the ATL -CPT flight. She said she walked around coach and several people had full rows to themselves. I would never use this airline.
Jason,
a couple perspectives that might be useful.
1. The goal of an airline is not necessarily to fill up every seat but to maximize revenue which could be done by not filling every seat, esp. if it requires deep discounting or opening up seats to frequent flyer redemption tickets.
2. Delta has flown between JNB and ATL for years but CPT is a new market nonstop from the US. DL was the only US airline flying to S. Africa for a decade or more and then United jumped in about the time that S. African Airways went bankrupt and stopped flying to the US. UA added JNB and then also CPT and now has more than half of the maximum 24 flights/week that US carriers can operate. There could well be overcapacity into CPT right now.
3. DL’s flights from both JNB and CPT to the US are the longest flights any carrier operates from both of those airports to the US and both frequently are in the air for over 16 hours (plus taxi time on both ends); that flight length pushes the limits of any commercial aircraft unless they are configured with less than a standard passenger load. JNB airport is at 6000 ft which makes DL’s flight from JNB one of the most operationally challenging in the world given the flight length. DL used the 777LR which is the “highest performance” long-range commercial aircraft and even it had to take payload restrictions or stop for fuel northbound which is the longer leg due to winds. They now use the A350 which is a great plane but it does not have the performance for extreme conditions that the 777LR had. Airbus has upgraded the performance of its newest A350s but a relatively few number of DL’s A350s are the latest versions.
DL is now operating some JNB flights on a triangle basis – ATL-JNB-CPT-ATL to help compensate for the performance issues out of JNB which are most acute in the summer from S. Africa – which they are in right now.
It is fairly well known that DL’s flights from S. Africa to the US are payload restricted, limiting the number of passengers they can carry – and likely they carry no freight northbound. Even the CPT flights reportedly have weight restrictions according to what some DL employees post on other aviation sites. UA’s flights from S. Africa to EWR also sometimes have payload restrictions but apparently not as much; EWR is shorter.
Thus, if there is a capacity imbalance between northbound and southbound flights due to performance restrictions, they likely are not selling southbound flights (which are less restricted if at all) full which further limits the demand northbound.
For a lot of reasons, DL’s JNB flights are not really reflective of how full flights are relative to frequent flyer availability
And finally, it is a surprise to no one esp. that reads this site that DL has some of the highest mileage redemption rates. And yet customers keep signing up for Skymiles and DL has the highest credit card revenue contributions in the world. Their formula clearly works or they would change.
And it is also possible – and likely – that DL is much more restrictive on international awards than they are for domestic awards
Just as some grocery stores have loyalty cards and others in the same market do not and there are people that flock to both kinds of stores, there are different reasons for people to patronize different companies in the same industry. Still, if getting the biggest “rebate” for your travel via loyalty program awards, esp. on international flights, DL is probably not the carrier for you. There are clearly plenty of people for whom DL works well for any number of other reasons. The beauty of the free market is that DL is not the only way to get much of anywhere and you have a choice.
Tim Dunn-
That’s all fine and good. I’ve worked for several airlines domestically and internationally in various areas of network planning and revenue management. I know what they’re doing as I’ve done it myself in a professional capaciy.
Doesnt mean that I cant think that the SkyMiles program offers piss poor value for what I’m looking for, and that as a paying customer there are other programs out there where I can find significantly more value. I live in market where Delta isnt very strong and I”m happy to have to not rely on them. If I were in Atlanta or Detroit I wouldnt be as happy.
Jason,
presumably you had pass benefits and so you won’t see any airline functions the way the regular public does.
That said, as I noted above, if you are looking for an airline that gives the best “rebate” via a loyalty program, Delta is probably not the right airline for you.
Still, given that Delta gets the most revenue from its loyalty program and has the highest total revenue of any US airline – and in the world -they are not likely to change their formula
Tim Dunn-
Not sure what the pass travel benefits I had have to do with the analysis I conducted in my roles in network planning and revenue management? Weird non sequitur. That’s nice that people in captive markets are duped into thinking delta offers good value. I’m not one if them and won’t be.
Jason,
when you get something for free, you never are able to see the product or service the same way everyone else does.
I’m not saying your perspective is different from from that of some true always paying customers but your perspective has to be viewed based on your own perspective inside the industry which gives you perks that the rest of the world would love to have.
And that reality doesn’t change my statement that Delta is not likely at all to change its strategies because they have and will continue to be the most financial successful among global airlines in the world.
Delta’s short term blip at NOT being financially at the top of the global airline industry was due to costs, not revenue and it is always why United won’t and can’t overtake Delta as the financially best performing global airline.
And the US airline industry has been domestically deregulated for more than 4 decades. If other airlines haven’t figured out how to maximize their profits and open and close hubs and acquire airlines that have fortress hubs, then the problem is theirs – not an indictment on Delta. And, btw, WN’s top markets are more concentrated than DL’s. If an airline that is half the age of the big 3 figured out before it started how to succeed in an industry that was still regulated and copy DL’s strategies, then AA and UA should have been able to figure it out. And AA’s recent focus on CLT and DFW and building them into megahubs plus DCA while reducing their size in ORD and PHL says they get it. It is still UA that touts its hubs as being in the largest metros even though UA has the lowest market share and least pricing control in those metros. If you’ve been in revenue management or any kind of network or finance function at an airline, you should know the value of that
Tim Dunn-
Dont tell me how I see things or dont see things. You have no idea who I am or what my perspective is. How dare you be so presumptuous? And, yes, I’ve worked in RM and network planning – I’m very aware of the various challenges the airlines have and the plusses and minuses of their route networks.
Delta can do whatever they want. That’s fine. And I’m not arguing that they havent made some good decisions through the years. Good for them. But that has nothing to do with my choice to fly them or not. 395K points one way in economy to South africa? Some people may like the deals they get domestically to fly to Florida on them and that’s fine,but I’m happy paying for those flights in cash and saving my miles for things that are pricier. And other programs just offer better value. That’s great that Delta is doing well financially. Good for them. I wont be contributing to it.
Not sure why you’re going so in detail about 40 years of deregulation etc etc and your analysis of Delta’s success. Nothing to do with my dissatisfaction with them and choice not to fly them. I dont disagree with some of your analysis, but not sure why it’s relevant to my choice of an airline or judgment of whether to fly one versus the other.
I didn’t dictate how you perceive anything. I repeatedly suggested that your perception might not be the same as people that have paid for their tickets for a lifetime
I also told you why S. Africa is not a good example of how good or bad a value DL’s loyalty redemptions are.
And I specifically said that you might well be better off with an airline besides Delta if your expectation is to get the most back via a loyalty program. It has been no surprise for a long time that it is not Delta’s goal to be competitive on FF award redemptions esp. in the international market. There are plenty of people that do fly them and pay a premium to the industry to do so.
It’s really ok just to walk away if that is what you have decided is in your best interests.
Tim Dunn,
The statement that Delta’s refinery saved the airline 23 cents per gallon is an indication that the refinery is not nearly as profitable as it would be as a standalone operation. This is the usual problem with a conglomerate, and how to rationally price internal transactions via transfer pricing. Similar issues occur with Tech Ops. If Tech Ops isn’t charging the airline the same rates as it charges other airlines, it distorts the value of Tech Ops as a potential independent business. There may be a strategic purpose in Tech Ops to support airline operations more quickly than a third-party would do, but there is no strategic value to owning a refinery. That refinery would be producing jet fuel whether Delta owned it or not. The subsidy the refinery is providing also makes the airline part of Delta look rosier than it actually is. The one advantage Delta has is the ability to move profits and tax liabilities between states by adjusting where Delta is making it’s profits.
One may remember when UAL (United Airlines parent company) became Allegis and became all things to travel, in hopes that United Airline’s cyclical nature would be counteracted by owning Hertz, Westin, and Hilton International. One presumes that putting together a number of travel-related properties wouldn’t do a great job to smooth volatile airline revenues when cyclical travel increased and decreased, and Allegis didn’t last long as a name. While Delta’s refinery might seem counter-cyclical, fuel prices generally drop when the economy has issues, so there is less demand for both refined oil products and travel.
Still, Delta owns the refinery, and doesn’t appear to want to sell it. It may become an albatross if green energy transition reduces the demand for non-jet fuel refined oil products, but that doesn’t seem to be a near-term threat. But, for the moment, it’s making the entire company look better. Whether refining margins will continue to be high enough to give a 23 cent per gallon discount in the northeast US market is a question for future years. Last year was unusual with the imposition of sanctions on Russian oil which contributed to higher refined fuel margins.