Delta’s Investor Day was held this morning, and a key theme of airline President Glen Hauenstein’s presentation was getting passengers to pay more for their seats.
There were three ways he outlined that Delta is and plans to drive more revenue from passengers out of each seat that they fly – reducing upgrades, stripping down their Comfort+ and business class products to get customers to pay extra for the services than they’re used to, and using AI to figure out the most each passenger is willing to pay at the time they search for fares.
Many will see a lack of details in the presentation as disappointing but there’s actually a lot that’s radical here, especially when considered together as a package.
- Delta despises upgrades Delta has been able to nearly eliminate complimentary first class upgrades. Before 2010, only 10% of domestic first class seats were paid. But even less than that was people buying domestic first class since many of those seats were connecting to international business class. Now there are only “12 points going to upgrades.”
He described the front cabin before 2010 as the “biggest loss leader” of the airline because they were available as upgrades:
We didn’t sell them, we gave them away. And we gave them away based on a frequent flyer that was based on [flying] and not spend.
Most miles earned even then (as now) were earned from Delta’s credit card, not from flying. To Hauenstein, selling miles to American Express is profitable, but redeeming those miles for value is unprofitable.
He later calls the loyalty program “a manifestation of our brand” and you should understand that as distinguished from something that provides value. People stick with SkyMiles because they think Delta is better, not because SkyMiles is better. (Narrator: for earning and redemption, it is far worse.)
- Greater product ‘segmentation’ is coming. They already have basic economy, but want to bundle more services that they sell coach flyers. They don’t have a ‘basic’ premium economy or business class today, that aims to get more money from customers for the product that exists at a single price today (and that is structured to give less to those willing only to pay the same).
He says that they are “experimenting with this, not announcing anything today” but his idea is that “people with different needs, good product, better product, best product, could we invent subcategories of each product..?”
In 2025, try additional segmenting of main cabin, we really already have it with basic and main but do we have a best in that category? Comfort+ there’s no good, better, best there… over the next couple of years you’ll see us attempting and testing what consumers want in their bundles.
He wants customers to think, “I know if I pay more I get more.” Speaking about business class, he wants those paying more to feel like they’re getting more, rather than giving ‘leftover inventory’ to late buyers who spend more. This amounts to continuing the journey to ‘make it more value-based’ as we move forward.
- Charge each passenger the most they will pay. He sees AI as changing the way that pricing works. Today, Israeli company Fetcherr is currently pricing 1% of Delta inventory as a test.
Currently, “pricing sets price points, revenue management controls access to inventory of those price points.” However he sees this changing (emphasis mine):
Over time we think that is going to get melded together and it’s really just offer management. We will have a price available on that airplane at that time that’s available to you the individual…what we have today with AI is a super analyst, an analyst working 24/7 a day, trying to simulate..real-time what should the price points be? ..We’re letting the machine go ahead and price in a very controlled environment. It’s going to be a multi-year, multi-step process.
Hauenstein also asks, “Is there a better card than [Amex] Reserve?” Unstated is, now that Delta is devaluing lounge access through their premium card, they’ve created space to offer something even more expensive that gives back what their Reserve cardmembers used to have. We only thought that lounge access limits were about reducing lounge crowding, rather than about driving a price increase from customers spending the most and most loyal to the airline.
Delta has been talking about basic business class and further unbundling like what they’ve done with basic economy (that has no seat assignments included in the fare, board last and get forced to gate check, no miles), since this past summer. They promised more details to come at Investor Day but didn’t offer the promised specifics.
Personalized pricing for tickets has been a white whale for airlines for many years. Ultimately it’s hard not just in terms of technology (knowing what to charge) but because customers can just ‘log out’ and use incognito mode or a VPN to prevent airlines from knowing much about them, and because they also have to compete on most itineraries with other airlines and that caps how much they can charge. But Delta thinks they’ve de-commoditized enough that people will consider only them, which makes it easier to accomplish.
Hear me out: If you don’t like a service or a policy or a product, don’t buy it. In most cases, air travel is a luxury, not a necessity, and there usually are alternatives, competitors, etc. So, good luck to Delta, let it do its thing, and the ‘free market’ will sort this out. If you want ‘First’ then buy it. Loyalty is dead.
Ahhh even more reason to stop chasing status. Delta has now won the game. Conditioned many of their most loyal customers to pay for the benefit (upgrades) they used to get for free. Only a fool would remain loyal now.
It is interesting. The brand image carries a halo that they think will get loyal members to pay more through their channels. They won’t be able to do personalized pricing through OTAs in the same way, at least not for a long time. So, they have to think that they have a loyal consumer that will not price check with an OTA and will not start their search with Google flights. I’m sure the research is going to be interesting, but that seems like a massive hurdle. The risk is: once the consumer becomes aware that they have been taken for a rube by Delta, will the consumer have a knee-jerk negative reaction? Will the NYT think pieces that emerge from this practice tarnish the brand image? Seems like a very, very risky strategy. I bet it doesn’t go anywhere. But for an investor presentation, this makes sense. You have to convince shareholders that a runway for growth exists. There are not many more levers for Delta to pull.
If Delta moves forward with these plans, United and American could follow suit.
This is a great summary.
Unfortunately it continues the trend towards status being irrelevant. This year I definitely moved flights to Delta at marginal incremental cost and spent way too much on the Reserve card (to earn basically nothing compared to what I could have earned on other cards) just to secure Gold which, I fully realize, is maybe 1% more useful than Silver. I had originally hoped to make it back to Platinum (the first status that matters in terms of support and RUCs) but that’s not in the cards.
I think going forward I will focus on WFBF (Want First, Buy First for those not on Flyertalk 😉 ) BUT without any regard to if it’s Delta or anyone else.
Their penny pinching moves make it impossible to be loyal. You won’t get any upgrades and you’ll have to justify paying for the ability to choose seats on a Basic Business fare. You get all status benefits when buying First in combination with just holding the DL Reserve card (you needn’t spend a dime on it), so there goes quite a bit of both my airline spend AND my card spend.
Oh, and now I need to think about if they are trying to completely screw me over using AI pricing?!
They definitely have smart leadership, however I think they think they are smarter than they are.
Explain to me how “Personalized Pricing” is even permitted today? It’s telling me that I they identify you to paying higher premium fares in the past that the fares will rise in your case when searching for a flight compared to, say, Mabel in Iowa looking to visit the grandkids.
Ok making people pay to sit up front, I totally get. I don’t expect a business to give out free stuff. But at least for me the purpose of either buying first out right or paying for a cash upgrade (this is on AA) versus playing the upgrade lottery is a confirmed chosen seat, a meal if within the meal window, a dedicated check in area (which admittedly I rarely use). Not being subject to Spirit Airlines.
Unfortunately I could see AA and UA following suit because this is a monkey see/monkey do management mentality.
So much for DL being the “premium airline.”
I’m waiting for a Black working-class female to sue because the White working-class male sitting next to her paid less. Delta **could** argue, well they bought different tickets at different times, except now they’re on record stating they’re going to charge some people more simply because they think they’ll pay more.
I hate this crap.
Looks like Frlta no longer has “Customers”, just “Marks”
Hate Typos qnd auto correct.
“Frita” started out as Delta in my earlier post.
If Durbin’s bill passes Congress and goes into law, won’t this negatively impact the lucrative credit card business the carriers currently enjoy? It would almost make it worthwhile to see one of the largest revenue streams dry up.
Diamond with Delta Reserve Amex, based in NYC, where we actually have decent competition (unlike, say, Atlanta, where Delta is the only game in town). Selected the $700 statement credit, GUCs, RUCs, and 35K points, for Benefits. Will use my new ‘enhanced’ Companion Certificate for the ‘BOGO’ on a roundtrip fare in North America in First. Will visit any SkyClubs or DeltaOne lounges, if applicable. However, I am no longer expecting ‘complimentary’ Medallion upgrades; if I want ‘First’ or ‘Premium Select’ or ‘Delta One,’ I plan to buy it or redeem SkyMiles. The way I see it: lowered expectations, less disappointment.
Looking ahead, I am not going to do ‘mileage runs’ or any other fanatical stuff (honestly, glad they got rid of the ‘spend $25,000/year for the MQD waiver! $30,000 for extra MQMs!’) just to get a ‘bag tag’ and a slightly faster ‘call-back’ time with customer service. So, if status happens, great; if not, that’s alright, too. It was fun while it lasted. Again, I’ll use what I have, but I am not going out of my way for any company anymore. I’ll take a nonstop with a competitor over a connection in Detroit, Atlanta, Boston, or Minneapolis, please. Nice to be a ‘free agent’ again.
@ Gary — Delta will finally overreach. Their product, which is to get you from A to B on time, is no better than Spirit Airlines. They will see soon enough. The guy from AA was right all along, just ahead of his time.
Delta is selling-out its cabins because on many planes there aren’t enough seats. Delta is adding seats to Delta One and domestic first. Right now, there are often zero alternative flight options when someone goes wrong because first or business is sold-out.
There has to be a happy medium between encouraging and recognizing spend and recognizing and rewarding loyalty.
The idea that a customer who flies 150,000 miles or 125 segments a year all within the USA and always, because of corporate policy, books an economy ticket is somehow less valuable than the guy who four times internationally on $5,500 Delta One tickets is absurd.
Delta seems incredibly detached from the vast majority of Americans who don’t fly Los Angeles or San Francisco to New York. There are a lot more people flying vanilla routes; like Detroit to Dallas.
It’s interesting to watch an industry commoditze itself. Delta is moving forward with the assumption their customers lack agency or other choices. Additionally, pricing technology can be used on both sides of the transaction. Considering the horrible redemption costs at Delta I’ve been attaching my LATAM program to all my Delta travel. United must be licking their chops.
Delta was garbage in the past and continues the trend. Thankfully I no longer travel for business. When I do travel it’s overseas. There are far better airlines than the American domestics ..
No thanks delta I already gave at the office.
@FNT Delta Diamond
I am one of those ‘absurd’ guys who fly ‘four times internationally on $5,500 Delta One tickets’ and also fly ‘Los Angeles or San Francisco to New York,’ but you would never find me on Detroit to Dallas, so I think someone else may be taking ‘your’ upgrades. Vanilla indeed.
First, it is a slick slide deck. Well done, McKinsey or Bain.
What Delta is saying is you should always search and book anonymously for the best possible fare (regardless of class) and then add your SkyPesos number after the booking process is complete via a 3rd party web site.
Hauenstein is bragging that your status gives you zero chance of a complimentary upgrade (~10%) while AI will make sure you pay more for your seat every time (well more than a first time Delta flyer).
The credit card(s) are merely an extension of the overvalued brand, meaning $1M in CC spend earns AMEX/Delta about $50K and you earn 100K SkyPesos, not even sufficient for a fraction of one way trip in Delta One (JFK-GRU) which costs 400K each way using SkyPesos or $7K in cash (round trip) for January 2025 travel.
In other words, Delta wins and you lose, big time. Every time.
I have zero interest in flying an airline with these policies.
The other airlines may follow suit or they may take this opportunity to steal market share from Delta. Time will tell.
Darn… Delta is banking on the idea that their customers will follow them even if they turn into a cult. Soon, you’ll only be allowed SkyClub access if you “donate” all of your possessions to Delta. Diamond Medallion only if you induct your first born into the Delta pilot school right after birth!
What a great example of taking the customer for granted. “Our product is so superior that we can do whatever we want without losing customers”. Delta is the Apple of airlines.