Eleven years ago Delta Air Lines prepared to move to a revenue-based frequent flyer program and other airlines took notice.
American Airlines executives used to say that Delta management was who they admired most. The truth is that this was true across the industry. Everyone just assumed Delta was smarter than they were. If Delta did it, it must be the right thing to do.
And executives everywhere don’t lose their jobs following trend. Try something outside the box, and results don’t show, people will take shots at you. You get blamed. Conventional wisdom took root in many places and other programs followed.
- What makes sense for Delta doesn’t make sense for every airline.
- They can’t all devalue their programs like Delta did. Delta says they intentionally offer lower value through their program because they can get away with it. Their brand and reliability and market position in key hubs mean they don’t lose business the way other airline programs do when they devalue.
- Rewarding ‘revenue’ isn’t the same as driving profitability. Distance-based rewards may not have been a great approximation of value (though what you’re really looking for is to shift wallet share) but revenue isn’t either.
- a $400 New York – Tokyo ticket’s value is different than $400 New York – DC
- you’re not interested in spending to incentivize purchases you’re going to get anyway, where a customer is locked in by geography or schedule
The goal is to incentivize shift in business, and to incentivize high margin activity (selling miles is 5x – 10x the margin versus flying passengers, so is selling seat assignments etc.).
- a $400 New York – Tokyo ticket’s value is different than $400 New York – DC
What’s interesting is that airlines are still playing copy cat a decade later. British Airways just did it. And consultants are still selling it.
In a transformative era for the airline industry, the shift from distance-based to revenue/spend-based loyalty programs marks a pivotal change. At Urban Leopard Ventures, we’ve been immersed in this evolution, having worked with three airlines on these projects in the previous year alone.
Why the Shift?
This strategic move is driven by the need to align rewards more closely with customer value and airline profitability. By focusing on revenue rather than just distance, airlines can cultivate more aligned relationships with their most valuable customers, rewarding them for every dollar spent rather than miles flown.
What’s interesting here is that it’s a straw man anyway to contrast revenue with distance because airlines doing distance-based awarding of miles still generally adjust by fare class which is probably a better approximation of value (it doesn’t treat $400 the same on a 300 versus 3,000 mile flight).
Passenger value stems more from propensity to purchase premium products and high margin ancillaries. That’s why it’s such a mistake for airlines that don’t invest in the IT to be able to award extra miles for these purchases.
‘Other airlines are doing it’ is not a smart business reason to make a change, Alaska earns a revenue premium precisely by not following the herd with Mileage Plan.
And never forget that even Delta, which wanted to go to a true revenue-based redemption model backed off of that because it wasn’t what customers wanted and they needed to devalue their miles much more slowly.
Ultimately the idea of a marketing program is to generate incremental revenue that you would not otherwise receive even if couched as ‘rewarding customers’ loyalty executives engage in sloppy thinking if they start to equate that with ‘wanting to reward whomever spends the most’.
They can say they’re not revenue based, but Delta has so devalued its miles that it might as well have.
@ Gary — Here’s come the Premium Airways windbag to ‘splain to us….
@ Gary — Here comes….
Delta didn’t mandate the switch to revenue based mileage earning. Capital and Chase and Citi did. AA is profitable only because they sell miles to the credit cards. Cards give out miles based on spend, obviously. Airlines giving out miles based on distance devalues the currency.
The Urban Leopards Ate My Face writer must be paid by the word.
Urban Leopard Ventures? This smells of The Onion and the Leopards Eating People’s Faces party.
Delta is able to devalue at will and their customers will ask only one question, “Thank you sir, may I have another?”
Why? Because we, I mean Delta, are a premium airline.
Don’t take my word, the data prove it.
We devalue to more places than any other airline. Whoops, I mean Delta devalues….
I devalued Delta right out of my life. Their snotty attitude has no value to me, so i tossed them in the toilet.
Delta – the world’s only PERFECT airline. LOL
Tim must be ill. No comment yet.
Delta perfected the boiling frog syndrome. That’s all. And their loyalists have no clue that they are being gradually “cooked.” The service is arguably a bit better amidst what is a horrid service standard from all the U.S. carriers. But they are not differentiated by much. Certainly not enough to be cooked alive in the process of getting a mediocre product in comparison to a just slightly worse mediocre product..
Delta-
When it takes a bazillion miles to get a non stop flight to a premiere destination, why bother?
I’m Executive Platinum on AA. Two 700 tickets and I earn enough miles for a 1 way to Caribbean
DELTA CAN’T SAY THAT
The problem with loyalty programs like delta is they don’t focus on influencing purchasing decisions. When you inventivice only high spending then there’s no reason for anyone who isn’t a high spender to be loyal. Meanwhile, many of the high spender elites don’t even have a say, their company decides, so the loyalty program isn’t driving revenue. So the loyalty program doesn’t actually do anything.
Stock market performance since the date of the linked article, May 7. 2013:
* Delta: + 176.14%
* United: + 45.17%
* American: 41.31%
J.D. Power 2023 North America Airline Satisfaction Study:
* Delta: 865
* United: 848
* American: 826
Delta really does know what they’re doing; bravo to them for cutting on the frequent flyer program, which obviously was a waste as their results clearly show.
This just goes to show that UA and AA were more messed up and have messed up in copying from Delta in the frequent flyer program game while not having the operational dynamics to make it work.
The airlines have collectively been migrating away from providing a material rebate to customers for flight spend and instead try to keep the more lucrative hamsters on the frequent flyer program hamster wheel by hooking them with elite status benefits that are themselves sort of giving back what the airlines themselves had taken away from most customers and transform into a revenue stream for the airlines.
@Jake – the S&P 500 increased 320% during that same period. Delta has lagged averaged large company performance by a tremendous amount. Their stock has only performed well compared to what have been two very poor performers.
Delta can get away with the BEST frequent Flyer because DAL are geniuses!
I have a portrait of Ed Bastian who I look up to every morning when I wake up.
Delta is a dumpster fire in the center of a pond of unfiltered sewage, and that includes their customer service and FA behavior. They’re the last airline anyone should be copying.
Can someone check on Tim Dunn !!!!??? He hasn’t replied yet Im worried.
Ref “Where’s Timmy?”
The AI Server must be down.
@Tim Dunn~
Man, you are everywhere!
Anyway, Delta is perceived as a ‘premium’ airline since it exists in a fetid swamp of mediocrity where the bar is so low it can be barely seen.