Incoming Delta President Glen Hauenstein, the key architect of the airline’s revenue-based this-and-that over the past decade (hint: Jeff Robertson was always a great cheerleader for the efforts, but not their driver), has declared the end of award tickets as the end goal of miles at Delta.
He told Bloomberg‘s Justin Bachman,
“We want people to be able to use those miles not to fly for free but to control your experience,” says Glen Hauenstein, Delta’s incoming president and architect of the airline’s revenue plans.
This isn’t the first time we’ve heard this from him. But it’s the first time I’ve seen the stark ‘not to fly for free’ claim and the first time I’ve seen it since succession plans at the airline were announced a month ago giving his already weighty words that much more significance.
A key takeaway for me from Delta’s investor day was that they expect to sell buy ups for 70% of their first class cabins, for all intents and purposes eliminating elite upgrades. Whether the policy changes, or the supply or unmonetized first class seats simply approaches zero, if they’re successful that will transform US airline elite programs.
But there was a lot more in the presentation — like Delta’s plan to expand basic economy fares to long haul markets, a continuation of a strategy they’ve been working on for the past year. More markets with stripped down fares offering few services, and more opportunity for upselling.
Reavealingly, when Delta talks about customer experience they don’t even mention the SkyMiles program.
In fact, the entire 56 slide investor day presentation mentions SkyMiles only twice — both times in explanatory footnotes related to revenue (e.g. “SkyMiles used pursuant to advance purchase under AMEX agreement and other” under “Non-GAAP Reconciliations”).
Hauenstein said that day that he wants you to stop thinking about award tickets and start using your miles as (very low value) currency.
“We want our customers to have a lot of miles and use them like currency. Right now, they save them for the one big trip in retirement.” He referenced being able to celebrate (using SkyMiles) by buying a bottle of Dom Pérignon in a SkyClub, or a business traveler who has had a rough week and wanted to upgrade (presumably using SkyMiles).
Delta has indeed started selling premium alcohol in their lounges, and you can pay with points instead of cash. Your miles are worth a penny apiece.
Leaving aside that I hardly consider Stella Artois to be a premium beverage, who in their right mind would put a dollar of unbonused spend on their co-brand credit card?
If you’re an infrequent Delta traveler with a few miles in your account but happen to have a Platinum Card by American Express that gets you into the lounge or an overpriced SkyClub pass it may be booze or magazines. But since SkyMiles don’t expire, save them up for a future free trip — and just hope that Hauenstein still lets you do that.
The thing is, they view awarding so many more miles to high spending customers as a result of revenue-based earning to be the reason to offer these redemptions — never mind that premium award prices have gone up, up, and up with the new revenue-based earn. Cheap premium beer at a penny per SkyMile is something they think they’re doing to service their best customers it seems.
The loyalty program changes give big spenders many more miles than they used to earn—as many as 75,000 per ticket at Delta—while those flying on less-expensive tickets earn fewer miles. That means top-spending customers are likely to see their mileage balances grow faster than they had in the past.
The roots of this plan lie in the airline industry’s goal of greater segmentation of their traveler base: rewarding “high-value customers” with greater perks and amenities while offering less to those who just want the cheapest tickets.
And never mind that they do not want these miles to be like a currency, or at least any reputable one. SkyMiles aren’t currency, this is rhetorical sleight of hand.
- I can use cash to buy anything I want, including tickets on United or American.
- Cash can earn a rate of return when it sits in my account. Granted my portfolio hasn’t done exceptionally well, but it’s done better than SkyMiles. Delta SkyMiles become worth less and less, and they do not compensate by adding zeros onto your balance.
- I can transparently compare the value of a real currency to other currencies. I can even convert currencies, for a small fee.
Delta has a $2 billion credit card deal and they certainly wouldn’t want to jeopardize that. So they must believe that their customers either won’t know or won’t care that they’re getting a 1% rebate on their spending that can only be used with Delta when they could get a 2% cash back card or more value out of the miles from another airline.
SkyMiles planned to peg your miles to be worth around a penny in fixed value redemptions when they moved to a revenue-based program in the first place. They got scared out of it because too many high value members wanted the chance to earn better value from their miles. So their executives at least worried that this was a bad idea.
(HT: 10thumbsup)
The saddest part of this is that UA and AA are sure to eventually follow. It’s shocking to me that UA and AA (typically, as DL has more often than not been the first mover with this type of thing in the industry) have seemingly completely forgotten that a competitive advantage often is best created through a differentiated offering. Simply unfathomable to me. It’s like Parker and UA’s CEO of the month have completely forgotten what they learned in “Strategy 700” in b-school.
@Andrew you may be right. But in fairness to United, it was Smisek directly who wanted revenue-based MileagePlus, and who was responsible for ‘managing by doing what Delta does’. The Munoz regime (though really the overall team at the top hasn’t changed much) could well take a different approach.
Clearly American’s management team most admires Delta overall (I have heard them say so). And Scott Kirby was ready to go revenue-based at US AIrways before the merger. So we’ll see.
I think the American CEO will hear about this so he can make the same changes at American. Seems like they were pretty quick to go to rev based as does Delta.
The USA is an oligarchy thus never-challenged consolidation leads to lack of competition, fortress hubs and protected routes/gates means there is simply no need for a differentiated position.
By the way, Delta can go to hell. I travel out of one of their fortress hubs and I am down 10 DL segments this year compared to last year at this time. The 10 segments have gone to Southwest and American.
Gary, if DL decides to go this way, what is the fastest they can implement this — in your opinion. (As an aside, although I’m generally an Obama supporter, I think his DOJ thoroughly screwed the flying public by allowing all those mergers. @RoloT, oligarchy is right!)
People used to use Delta miles to fly for free??? Amazing! Seriously, their mileage program has always been such crap that I’ve tried several times to find a worthy mileage flight I wanted to take but they are SO expensive that I end up using cash or flying on miles with another airline. Delta miles have always been close to worthless in my book. I agree with the poster who says it’s sad that other airlines are sure to follow their lead since I’ve been able to get a lot of value out of UA and Alaska miles in the past.
@Don in ATL – remember that the Delta-Northwest merger was during the Bush Administration, and the United-Continental merger was when the airlines will doing very badly.
But I’m not sure I understand what you mean in terms of fastest way ?
Thanks, Gary. I’m wondering if the decision is made today, how much lead time do you think Delta will give its customers (i.e. until the new rules are in effect)? Or do you think they will follow recent precedent, and simply change the program overnight, no announcement, no lead time — even though this is a super huge change?
It’s really hard to guess the future of frequent flyer programs. Objectively, I do think that gamers (including me) have been “over-entitled,” and steps are certainly being taken to make such games less lucrative. But as far as whether we’ll move to a world where frequent flyer miles aren’t used for free travel, I’m skeptical. These days, airlines are very good at limiting most award seats to unsold inventory, so it’s not like free travel costs them a ton. And most miles are sold for a couple pennies each, so you can actually make money treating award seats as a low fare bucket.
In Haudenstein’s defense, at least he’s being honest. What I don’t like is dishonest behavior where you claim to offer an award at a certain point level, and actually make no seats available. I’m currently thinking of AA, where there are certain markets where months go by without standard award seats. That’s a worse practice than being stingy-but-honest.
@ 1cpm – why would anyone hold an airline credit card?!
I’m with Max, I have several airline cards(have never gotten Delta after I kept seeing skymiles being called sky pesos) and pay most everything with a card or buy via an airline or rewards shopping portal of some kind, often times double or triple dipping for points and rack up quite a lot of rewards in a year. If the rewards are worthless, why bother? I use one portal mypoints.com but only if aa.com or rapid rewards doesn’t offer miles/ but the mypoints can at least be redeemed for gift cards and I still earn miles on my cc purchases, if I’m not earning miles or am earning miles which are useless, why bother? There are several rebating/points programs like ebates/mypoints/etc out there and many of them offer their own credit cards, several of them offer gift cards for travel. Are these execs at these big companies so focused on the forest that they cannot see the trees? Perhaps they need to pull their heads out of their respective arses and look at the big picture, with the internet there are tons of choices on how to get the most bang for your spending buck!
Interesting discussion. Thank you.
So, for families who repeatedly use award tickets to take family vacations after accruing during a year of hard business travel, what should we do?
This could be the move that drives away the frequent flier unversed in miles arcana. Many people can’t be bothered to learn the details of optimal miles accrual, but EVERYONE likes a free flight.
I guess he wants the freeloaders off his planes. I can understand no more free upgrades for elites who think they’re entitled to everything but I’m not sure people shouldn’t be allowed to use miles they’ve earned for free trips. We’ll see how it goes at DL under his leadership.
The guy is out of reality and his competitors will use his stupidity- that’s for sure..
What a Dream Killer this person is. There are so many Delta loyal flyers that just save those miles for dream trips. Once they learn the plan they will be very bitter and they won’t learn it soon enough to keep Delta away from the idea.
I got out of the Delta program with no expectation of returning, so the only concern I have is if others copycat.
I’m kind of with @iahphx in that it’s hard to imagine it ever getting to where Skymiles (or any FFP) exists yet there isn’t some way to redeem for “free trips”. What sort of marketing would there be for co-branded credit cards?… We’d go from “Earn 30,000 miles after purchases – enough for a free roundtrip” to “Earn 30,000 miles after purchases – enough to control your travel experience [or buy some Delta amenities/drinks/maybe upgrades]” Most consumers easily get, and are drawn by, “enough for a free flight!!”
But who knows, stranger things have happened.
“Earn enough miles to avoid the purgatory of standard economy travel.” Yeah, that will earn my loyalty.
I’m not saying they actually take awards away, but if they make awards more costly perhaps they shift folks away from them. I do reference in the post the $2 billion coming in from Amex, and indeed I love “Earn 30,000 miles after purchases – enough for a bottle of Dom Perignon in the club!” (err, they probably can’t advertise alcohol, perhaps Bud Shuster can get that changed)
If the airlines would put out a decent product they might ditch the ff programs. As it stands, they have created loyalty programs that people like and use and now the airline execs are showing typical corporate greed.
I’m a native Californian who currently lives in Atlanta; Delta is the only airline that I can get direct flights out of Hartsfield on to go home. I’ve been flying Southwest (which I’m less than fond of) because of their frequent miles program, as well as the free bag check and ease of using Chase Ultimate Rewards. Looks like I’ll be on Southwest for a long time to come if United and American jump on the Delta bandwagon (of course they are going to) and cut out “free flights”.
Delta has a $2 billion credit card deal and they certainly wouldn’t want to jeopardize that. So they must believe that their customers either won’t know or won’t care that they’re getting a 1% rebate on their spending that can only be used with Delta when they could get a 2% cash back card or more value out of the miles from another airline.
Well, maybe if the WSJ, NYT. and other legit news sources start pointing this out, it might not happen soon. I must admit though, I would exchange DL miles for Mc Donalds at a 1 to 2 ratio.
I think the end of loyalty programs as a big value to those who know how to get premium international seats is inevitable .
The programs are hugely profitable and still searching for the intersection where price and value are maximized.
I guess I will just have to wait for another bank to accept deposits by credit card.
If its true,as I was told while on a banking committee financial institutions only pay .25% for purchase transactions as a merchant fee, we need to open a bank..
It seems a lot of the people using miles to fly first and business now, people who dont give other revenue to the airline are in a dream World if they think they are going to be able to do this for much longer. I am already buying first class domestic when its not much more expensive, and i would pay for business class if all my flights could originate in Colombo or Cairo.
I guess my point is a lot of people act like they are entitled to huge benefits for small prices.
Delta can’t be trusted. Don’t give them any revenue tickets/$$.
BOYCOTT DELTA AIRLINES.
I truly believe that Richard Anderson is leaving Delta just before it collapses. I know and have met his replacement – and Glenn is a complete ass, viewing customers as somewhat of a inconvenience for his business. I see the glory days for US airlines as being over and applaud the day Emirates, Oman and other carriers are allowed to land in ATL. Those airlines have impeccable service, state of the art aircraft and affordable fares. I’ve been a proponent of Delta for over 45 years – but in will be glad to see them falter!
@MzAtl (to clarify, Glenn isn’t Anderson’s replacement, he’s the replacement for Anderson’s replacement)
@MzAtl….Glenn isn’t Richard’s replacement, Ed is. CEO and President are two different titles (CEO of course being the higher).
No one ever went broke by underestimating the intelligence of the American consumer. Today, I was at T.J.Maxx and saw an add for their house-brand credit card. The big reward hook was “$10 for every $200 you spend.” That’s right. .5% back. And you have to spend it at T.J.Maxx. Consumers aren’t rational maximizers, and that seems to be what Delta is counting on.
I want to know how happy Amex is with all of these delta changes. I don’t think they are going to be happy losing my $85000 credit card spend or my almost $700 in fees. I’ll just go to a cash back card and collect cash to use on the cheapest flight I can find. I’m a million miler who reaches platinum every year without doing manufactured spending or mileage runs that have helped drive this program to revenue based deal. Delta is screwing up and I’m going to laugh at them when they try to walk my business back. My frequent flyer number starts 02 which means I’ve been loyal a long, long time. Now I just feel stupid for having joined.
I continue to use my Platinum American Express for travel purposes, instead of carrying an airlines American Express Card.
My Platinum American Express allows me to visit Delta Crown Rooms at no additional costs. In addition, my Platinum American allows additional benefits when I purchase my airline tickets using thar card, no baggage fees, reimbursement for other fee’s associated with that particular trip, if I were to change my flights, I would reimbursed up to a certain limit. I found it much easier to use without many of the restrictions of an airlines American Express Card.
that fee would be
I’ve been happy with my Platinum American Express Card. When I use my card to purchase airline tickets, I get miles credit and additional benefits that I found were not available with an airline sponsored American Express. In addition, it allows me to visit Delta Crown Rooms at no additional fee and covers incidentals that might occur while on that trip. There is a preset dollar amount that will cover flight changes, checking luggage etc.
None of the airline American Express Cards offered as much in benefits.
I quickly cancelled my airline American Express Card, I felt trapped in their fee’s thar weren’t consistent.
I agree with Rob, as I’ve had exactly the same disappointing experience with my Sky Miles. I have accrued over 300K miles for the simple reason that I have either been unable to use them when I wanted to, or the mileage and fees charged where so steep that it made more sense to buy a ticket from another airline. Guess what Delta — I’ve stopped accruing, and now take my business elsewhere.
F..k!!! Delta. Period!!!
And Delta seems to think people are willing to pay full price for their “up-front” experience? BULL. They may have somewhat better customer service than most airlines, but the food is inedible and the seats on Delta One remind me of the old angled biz class seats on American. Honestly it’s not much better than coach. And the lounges are sad sad sad. Dehydrated carrot sticks and stale breadstick mixes anyone? I agree with others, they are about to implode.
@Gary – do you have any sense or have seen any data out there on what the most common Skymiles redemptions are? (i.e. short/medium haul trips that get you less than 1c value per mile, or that dream trip in biz that could get you ~3c+ in value/mile). My guess is that if Delta goes the route of fixing 1c/mile to their FFP, high priced premium cabin redemptions will suffer a lot more than cheaper short/med haul econ. To the extent that most or a large part of people are actually redeeming for the low value award, it could be a mitigating factor. So has Delta disclosed or have you seen any data out there that suggest people are redeeming for one more than the other?
Hi Gary,
We purchased award tickets on Delta to europe- a two segment trip going LAX through Atlanta. We used miles to get economy fares, economy plus on the transcontinental segments. I assumed I could upgrade the domestic segment to economy plus at a later date for either our remaining miles or a little cash. I just spent an hour on the phone with Delta, and apparently you can no longer “switch cabin classes”, as they call it. Everyone says its a new system that has lots of kinks and one of them is this. It was really ridiculous to hear all the reasons why we couldn’t pay to upgrade. They make it so difficult. Even to transfer our own miles into one account, its necessary to pay hundreds of dollars, nevermind buying miles which is more expensive. my question is: WHAT IS WRONG WITH DELTA?? They said the system officially goes into effect May 15? And after that they hope some of the kinks will be worked out… Have any advise or know any workarounds for this one? Many thanks! Stephanie
I’ve been a Diamond on Delta since they started the program. These recent moves (over the past year or so) prove Deltas demand for our loyalty and their complete lack of loyalty to us. I switched to AA using their status challenge. All will likely follow suite w Delta but at least I won’t be disappointed anymore by the airlines I spent 40 years flying.
Hopefully United will bring back a little Continental. I’ll make that switch but not holding my breath now that they all basically on big airline.
What we forget is that it is not about the customer, its all about the airline bottom line. I won’t be surprised when I see a slot to drop 25 cents into before I can open the toilet door.
This comes as no surprise to me…. the cruise industry has been following this model for years and the research has shown that it deeply enhances brand loyalty. The hotel industry started moving in this direction a few years ago…. this is the future of loyalty programs. The days of FF miles being a sort of cross-brand bitcoin are coming to an end, sadly. The upside of this is that the airlines will now have to focus on enhancing the customer experience, for the HVC (high value customers) and the LVC alike. One will certainly look different than the other but may this result in direct accountability and empowerment of crews to make theming experience great.