Delta talks publicly about its expectation of generating nearly $7 billion from American Express this year, and that it has a goal to stretch this to $10 billion. And because of this, it’s commonly believed to be the best at extracting revenue from its SkyMiles program. Yet SkyMiles is the least rewarding of the major frequent flyer programs. Its miles are indisputably worth less than competitor currencies. What’s going on here?
- Delta markets itself as shrewder than the competition, but they aren’t really. American AAdvantage is actually competitive with SkyMiles in revenue generation and United is better than Delta at extracting ancillary revenue.
- Right before the pandemic Delta and American Express entered into a new deal, running through 2029, that pays the airline more than ever before. American has been operating under a prior then-record deal. Future AAdvantage performance may have greater upside.
- Delta owns their flying markets more than competitors. United has strong positions in the best markets for credit cards, but not undisputed positions. Delta is generally the preferred brand in New York and is strong in Southern California, while they ‘own’ Atlanta, Detroit, Minneapolis, Salt Lake City… and really the whole of the Upper Midwest. That’s been the result of shrewd decisions running the airline in the past, which has created a brand halo and a lock on facilities. But the airline itself doesn’t perform as well as it used to (the performance gap has narrowed).
A couple of weeks ago IdeaWorks released its 2023 yearbook of ancillary revenue and contains a lot of interesting data.
Frequent flyer programs are a huge driver of profit to U.S. airlines. Delta earned roughly $2.2 billion on SkyMiles out of $2.9 billion in total profit in 2022. At times AAdvantage has accounted for more than the total profit of American. The three largest U.S. airlines borrowed $6.5 to $10 billion apiece backed by their loyalty programs during the pandemic. While disclosures about frequent flyer programs are less extensive than you’d expect, given their significance to each airline, there are some things we can say.
American AAdvantage is believed to have earned more revenue than SkyMiles in 2022. And they’ve previously reported higher margins on that revenue, though this is likely a function of accounting (how the revenue is attributed) rather than actually being a more profitable program as such.
Delta and United earn more ancillary revenue than American does, though – things like bag and seat fees in addition to loyalty program revenue. American is behind the curve merchandising upsells to its customers though it has been working to improve here (much to the chagrin of frequent flyer elites seeking better seats and upgrades).
It’s underappreciated just how good United is at merchandising. United is nearly an ultra low cost carrier in terms of generating non-ticket revenue per passenger. Obviously more of United’s revenue comes from MileagePlus than Spirit’s from Free Spirit. But they charge for more seats and charge more for those seats than competitors, and they sell more bundles and packages of upsells than other airlines. People pay it!
Since airfares are compared and sold on the basis of headline fares, passengers often don’t realize that they may be getting less value from a United ticket (leaving aside the actual slimline seats on United are generally less comfortable and that their internet barely works on domestic flights).
A decade ago executives across the airline industry looked to Delta as the smartest people in the room. They copied Delta’s moves assuming that if Delta did it, it must be smart. That was true even where their businesses were different and it wouldn’t work out as well for them as Delta. Delta has been able to consistently devalue SkyMiles without the same effect on co-brand spend that other airlines have seen.
Delta’s halo has lost its luster. They no longer have the extreme operational competence they had before the pandemic. They no longer have the better inflight product that they had (though their internet is better than United’s and their employees marginally friendlier). They frequently don’t process upgrades at the gate and their catering can be worse than American’s.
Loyalty programs have generally coped Delta, but haven’t gotten quite as far yet, though they’ve gotten closer than sometimes acknowledged.
Delta is not so far ahead in its loyalty program revenue extraction than competitors, though. Airlines without the same market position as Delta wouldn’t do well to copy Delta. And Delta’s position is eroding. We saw the backlash to recently-announced SkyMiles changes that took Delta executives by surprise – they don’t realize how far they’ve fallen.
Other airlines would be wise to look at that, realize there’s a limit to Delta’s revenue extraction, and also that following their own path and not Delta’s gives them an opportunity to leave Delta and SkyMiles in the dust.
Excellent analysis and fascinating data which I hadn’t seen before. Thanks Gary.
UNITED has a much larger % of extra legroom economy seats to sell than Delta or American
I think the current AA program is pretty good for those seeking elite benefits. I almost never think about the actual miles earned anymore since the future value is so undependable. If they would fix the lifetime benefits issue (I.e. Million Miler) the program would be pretty solid.
Paging Tim Dunn!
Wow.
Another anecdotal opinion piece from View Inside the Rear Lav that is actually contrary to public data. Surprise, surprise.
Gary,
you do realize that AAL DAL and UAL are ALL publicly traded companies and disclose their loyalty and credit card revenue contributions in their public financial statements? How about you get back w/ us after you review and post that data, not some voodoo calculation that is not supported by public data?
United a ULCC? you really do need page clicks.
Do you realize that the DOT tracks all of the transportation related ancillary metrics and publishes them? Do you also realize that UAL’s larger international network means they have higher baggage charges per passenger?
Of course you won’t bother to find or post any of that data because it, wait, wait, is contrary to your opinions which are based on cherrypicked data.
Feel free to also get back w us when you have data that shows, not suggests but confirms, that Delta’s Skymiles and Amex revenue declined as a result of their elite and SC changes.
Since the Pandemic, I’ve commented that DL has been falling. While they might have a Halo effect, with the exception of ATL, most of their hubs are in stagnant or shrinking cities. DTW, NYC and LA population declines; BOS, SEA, MSP flat to little growth and SLC too small to care. Also many of DL “hub” are less then 200 flights during peak a far cry from UA and AA. DL isn’t the bright light on the hill they once were, passengers are finding out other airlines can treat you just as good and reliably with lesser fares and in some cases better partner airlines. DL IMO is on pare with both AA and UA now, not better then and each now have strengths and weakness, no true leader anymore.
@ Gary — Another expected TLDR comment from Mr. Dumb!
“(Delta) frequently don’t process upgrades at the gate and their catering can be worse than American’s.”
Is upgrading at the gate considered to be a good or a bad thing?
@Greg: Indeed. And unless I’m SDCing to a full flight, I rarely have an issue getting a non-middle one. Even with SDCing to full I can at least get a middle.
I don’t know that I’d put a lot of stock in the complaining about Delta’s changes. They were bad for a lot of people – but the people most “hurt” by Delta’s changes are also the least profitable customers. Delta wants to make sure the guy putting hundreds of thousands of dollars on his Delta Reserve gets that one F seat Delta didn’t sell, they don’t want him in the same tier as the guy who goes to the lounge 30 times a year and charges not a penny to his Reserve card.
Delta’s changes make that 2nd guy upset, but the first guy happy. And like all the airlines, Delta is barely making any money flying people around, so if the guy who isn’t making Amex buy Skypesos stops flying Delta, and stops eating Delta’s food and drinking Delta’s booze, does Delta care?
They do not.
Time will tell if Delta’s recent self inflicted wounds cratering their SkyMiles and SkyClub programs will have lasting repercussions. 15 SkyClub visits a year for a $650 card makes the Reserve Card pretty worthless for us Road Warriors.
Ed Bastion said they wanted to “rip off the bandaid” with the changes. That’s his once loyal customers you hear yelping with pain and running for the exits.
I care! I really do care!
What a surprise. A rant from Tim Dunn about facts where he doesn’t post any whatsoever to contradict Gary’s theory (which… again, Gary even says “could” in his title).
Calm down, Timmy, and go back to your Passport Prune juice.
Are you capable of reading the slightest thing about Delta without losing your mind and quickly jumping to the keyboard?
If you are collecting miles for a premium redemption , sky miles are worthless . Can’t understand why anyone would collect them .
Gary, whatever your smoking, can I have some? AA is not npw or ever going to leave Delta in the dust. Your posts and blogs used to be meaningful now they’re nonsence and clickbait.
Max
I didn’t write the article. Gary did. He never bothered to provide valid data which is publicly available including for the revenue contribution from loyalty programs. It is not a secret.
But let’s face it that you argue against data that you don’t like including profitability by region
And the first comment to Gary’s anecdotal report about Delta leaving empty seats was to debunk the notion by a real Delta elite that actually flies which is the opposite of Gary
I thought you had a real job so don’t have time to play on the internet during the day
I am pretty skeptical of the accounting for all of these programs being truly apples to apples. I think you can compare a single carrier overtime but I think each makes a ton of assumptions on the value of a mile or how they look at ancillary services to try to craft whatever narrative they want to tell the street. At the end of the day you need to look at the bottom line of each carrier. You saw this with Air Canada when they spun off their loyalty program. These things are not truly standalone businesses.
All airlines completely suck. The idiots who actually feed these scumbags easy profits with co branded credit cards are ball less sheep. Why would anyone EVER do that is a financial moron.
His entire article is full of bits of data. You obviously don’t like how he’s using the data but that doesn’t mean he didn’t provide valid data. Frankly, even Gary doesn’t try to make a dogmatic statement that he’s right about the directionality of SkyPesos. He simply provides quite a bit of data then posits a potential outcome based on some trends. Which, frankly, you could learn from the idea of providing actual data then providing a hypothesis instead of trying to make everything such delta dogma.
Again, it’s pretty noticeable that Gary provided data in his article and you, who claims to know all about the data (though prove over and over that you have no idea what most of it means), have still provided none.
And I do have a day job. That’s why I don’t spend the entire day trolling internet blogs desperately seeking to defend daddy delta.
Thanks for remembering. It’s always touching when you remember small things about me.
Go back to your prune juice.
@ Tim — When are you going to acknowledge that most profitable does not equal best in the airline industry? We are talking about government-subsidized public transportation after all. Maybe having the highest profits should be a good reason for the federal government to stop bailing them out every few years. Next time they need a bailout, they should use those profits instead of begging for more public money.
Gene,
Being “the best” is objective – unless it is subjective.
I have said all along that loyalty programs exist to make the company money. you and gary and others are the fools that think that they exist for any other purpose, including to provide the best benefits for members.
Delta has succeeded better than any other airline in the world in monetizing its loyalty and credit card relationships. The fact that people are still signing up and revenue continues to grow says they do have a formula that many find works. The fact that you are left out is immaterial to Delta’s success.
Notice how Tim Dunn knows he has no more comebacks. He makes baseless attacks against the data because the data proves he is wrong.
@TDunn: “Do you also realize that UAL’s larger international network means they have higher baggage charges per passenger?”
Wouldn’t that reduce bag revenue since international flights include a checked bag or two?
@ Tim — No, what Delta has excelled at is ripping off tax payers and mileage holders.
Ok, here’s some data: SkyMiles is the most fuel efficient program because it provides the least passenger seat miles per peso.
Delta’s nonrev pilots never do mushrooms in the cockpit, saving unscheduled stops.
Delta elites can stay in the lounge till the last second (or at least in the line to the lounge), because they know their upgrades won’t clear.
Their passengers in fortress hubs are the best trained to take it and like it.
They are the most effective at bullying their home state government for bene’s , extracting cash from the feds, keeping out foreign competition and sourcing their aircraft from foreign manufacturers.
As a result they are able to charge a premium price for a premium product
Christopher,
nowhere near all international fares include multiple free bags and it is harder to not check bags on a longhaul international flights than on domestic, or at least a higher percentage of longhaul international passengers do check a bag.
Derek,
I think it is everyone else that can’t be bothered to post what is in the financial statements that has nothing more to say. I know exactly what those documents say. and the notion that AAL gets more from its loyalty program is simply a myth.
Gene,
ALL of the airlines received money relative to the size of their workforce to keep employees engaged. You obviously have no clue what the purpose of that aid was – but it wasn’t to give you free upgrades.
And it isn’t to add more premium cabin seats so DL can turn around and give them away as part of its loyalty program – whether Gary understands it or not.
Tim – “View Inside the Rear Lav” — is this really what you’ve become? The guy who trolls airline blogs and resorts to insults that the kids wouldn’t even use at Lilburn Elementary School? I’ve told you before that you could be influential if you stuck to what you are good at — focus on operational/fleet analysis, stay away from financial analysis, and definitely stay away from legal commentary — and were more balanced in your approach. Resorting to six-year-old insults at your age is just sad. Absolutely sad.
According to Tim Dunn’s many, many posts here and elsewhere, he obviously believes Delta is not only the world’s only PERFECT airline, but it’s totally above even the slightest criticism. He also gives the impression that all other airlines deserve to be liquidated. That’s the only logical rationale for his statements and defensiveness.
Tim – what you fail to understand and your loyalty musings fail to account for is that loyalty is a long tailed animal, and changes to a loyalty program (for better or worse) will take several quarters and sometimes years to reflect on the P&L. Many have abandoned DL and will increasingly continue to do so as long as the program provides meaningfully less value than others. You wont see these impact today, but in Q4 2024 you will. Mark my words. In the meantime, you should not knock others lack of understanding of the data while you are yourself out of your element in understanding the nuances of loyalty economics.
sitting on the toilet in that Rear Lav now.
no, Ghost, Delta isn’t perfect but they do operate the world’s most profitable airline loyalty program and that is easily confirmable by actual published data.
I get sick and tired of blog writers that somehow can’t grasp that loyalty programs DO NOT EXIST to maximize passenger benefits but rather for the benefit of the company.
Delta clearly is more than aware of what impact their changes have made and is not about to kill the golden goose. The fact that some people think they know better than a company that handles far more revenue in a year than those people would handle in a lifetime is beyond breathtaking.
And Jim,
View from Inside the Rear Lav” is far less about Delta and far more about the incessant extrapolation of anecdotes whether it be bad passenger behavior or poor airline service. No other airline blog comes close to the bottom feeding as this one.
If it is fair to make a career out of criticizing companies for their policies which clearly work then it is fair to insult people that are incapable of acknowledging that they neither know what they are talking about or are capable of admitting they are wrong.
Again, I know of no other blog author that is as resistant to apologizing as Gary.
@ Tim — I don’t get free upgrades. I’m not sure where you got that idea, but I either use confirmed, earned upgrades or pay for F/J. I don’t fly economy.
Good Lawd! So manymiddle aged men name calling here.
AA CLEARLY led the pack here in Loyalty (for once) with Loyalty Points and the others are no copying them for once. Now AA needs to fix its Lifetime Status, add additional LP’s for Buy Ups, AND start to hold its “Preferred Partners” accountable. I’ve had flowers canceled on me the day of a funeral TWICE this year with the companies they referred me to using eShopping and Simply Miles. Ridiculous.
Also, Tim Dunn is a False Prophet #Deltageddon!!!
“ View from Inside the Rear Lav” is far less about Delta and far more about the incessant extrapolation of anecdotes whether it be bad passenger behavior or poor airline service. No other airline blog comes close to the bottom feeding as this one.”
Amusing commentary from a guy that builds his self esteem off commenting here more than anywhere
I guess that makes you the amoeba that feeds off the bottom feeders.
Quit living in the shadows of better writers, Timmy
It’s tragic
Love this American Airlines fan fiction blog
@Tim Dunn: United includes at least one free bag on every “international” fare that you’re referring to when you say United has more international fares. (They don’t have free bags on CPU-eligible routes, but they don’t fly more of those than other airlines, and they don’t have them on some international basic economy fares.)
United makes more money on bag fees because they don’t include a carry-on in their basic economy fares and AA and DL do – which is exactly what Gary is talking about when he says UA gets closer to a LCC.
Lesson lto earned from the data
(1) if you want to have low customer satisfaction and huge losses, invest in loyalty programs, including rewarding unprofitable tickets.
(2) If you want to have high customer satisfaction and huge profits, invest in product (IFE, more staff, staff trained and managed to be nice, etc.) and skimp on loyalty programs.
Chrstopher
If the threshold for falling into the ULCC category is whether they include a carry-on for every fare, then UA would be in a ULCC. But given that there are no ULCCs that can fly 16 hour flights and the same plane also has Polaris, UA simply is more willing to provide a full array of products and services in the same metal tube. AA and DL aren’t willing to deal w/ the customer service aspects of having different carry-on regulations boarding through the same door. But then, I cringe at the idea of business class fares without a free seat assignment – which a number of airlines are now doing – so where we all draw the line differs.
jaks,
your statement is actually BACKWARDS of how Delta has succeeded.
They have invested THE MOST in onboard services, have the highest customer service scores and operational reliability, AND have invested in loyalty programs.
You and others still don’t get that the measure of success of a loyalty program is how much freebies you get in return.
The reality is that loyalty programs were designed to help airlines (AA specifically) beat off lower fare competitors. They have worked beautifully to give the legacies a big advantage. There was huge investment in those programs.
There is a continuum on which high quality airlines with sprawling route systems no longer need to “buy” customers via hyper generous awards. People flock to them. That is where Delta is right now. They carry far more premium passengers – defined by passengers willing to pay more for their onboard services – than American or United.
Nobody disagrees that American is the most “low fare” of the big 3 with a much smaller route system, less onboard amenities – even the basics like PDBs aren’t consistently provide while UA has a sprawling international route system but is the weakest of the big 4 domestically. And UA just said that it has to add more basic economy seats in order to fill up all of the seats on the hundreds of new domestic aircraft they are buying in order to upgauge and replace regional jets. In other words, they are not expecting to be able to increase their yield but rather to carry more low fare traffic – which is why Scott Kirby has such a hard-on for the ULCCs. He needs to eliminate them in order for United Next to succeed. In that sense, UA WILL become the biggest ULCC in the US.
Delta has the most balanced right system. They are generating domestic revenues as high as or higher than any other airline and reducing the amount of low fares they carry. DL doesn’t fly to SIN and every place that is within 17 hours of a nonstop flight from the US but they make far more money even on their passenger operations – and then they have been smart enough to add on lots of loyalty program and maintenance services revenue while reducing costs with their refinery (note that DL’s fuel savings now is about the same via the refinery as WN gets through hedging?).
You get what some people do not w/ your comment. Loyalty programs are simply a tool in a business plan. Carriers that HAVE INVESTED in loyalty programs transition to providing better service in other areas AS THEY build the loyalty and premium customer base that loyalty programs were intended to do.
Some people will never grasp that concept and will simply attack people who can think even if it goes against their “chosen instrument” while I would hope Gary’s thought leadership – which is significant in some areas – would start moving to an understanding of that principle. Delta has simply succeeded at building a better airline and doesn’t have to buy loyalty because they are getting the premium revenue w/ lower incentives.
@ Tim — I don’t care if Delta ever makes a dime. My measure of a loyalty program’s success is my return on my dollar. People EARN these benefits. I am not sure why you keep saying they are “free”. The are nowhere close to free. Never have been; never will be.