Delta Air Lines has angered its best customers in a way I haven’t seen from an airline in many years. They’re taking away lounge benefits from customers who spend $550 a year on their premium credit card, and they’re demanding substantially more ticket and credit card spend for status – looking only at qualifying spend (and no longer miles flown or flights taken) in determining elite level, and increasing the amount of spend required significantly.
We’re seeing a backlash and cardmembers saying they’re walking away from the airline, though those who are hub captive will likely continue to fly – Atlanta and Salt Lake City passengers won’t defect to another carrier. People are cancelling cards. But even if the changes were a huge mistake, Delta won’t admit it, and they aren’t likely to reverse course – just make tweaks at the margin.
Airlines Reveal Surprisingly Little About Frequent Flyer Program Financials
Airlines disclose surprisingly little about the details of the frequent flyer program portion of their business, considering how material these programs are to an airline’s bottom line. Prior to the pandemic it was common at American Airlines for the carrier to lose money in a given quarter flying planes, and all of their profit to be the result of selling miles to banks. Delta last year earned $2.9 billion, roughly $2.2 billion of which was from SkyMiles.
Delta says that they’re on track to generate almost $7 billion this year from American Express, and that nearly 1% of GDP is spent on its co-brand credit cards. These are very rough figures. While there are outside estimates of the margin that Delta earns on SkyMiles (~ 40%) they don’t break down a lot of detail around the business.
That means they won’t need to admit they’ve made a mistake.
People Are Cancelling SkyMiles Cards And Shifting Spend
Left and right Delta SkyMiles members are reporting on social media that they’re cancelling their co-brand credit cards, and that if they’re even keeping their cards they’ll do so for the benefits but no longer spend on the product.
We don’t know what the order of magnitude effect is here, but we know that:
- Delta’s bet is that its changes will increase card spend.
- That means cardmembers who don’t cancel or shift spend away will need to grow their spend enough to (1) make up for the losses, and (2) grow spend.
- The benefits to status that are supposed to drive spend come only with their most expensive cards, not their mass consumer cards. That means either a huge number of cardmembers need to upgrade, or it’s a smaller portion of their cardmember base that needs to drive the increase and offset losses from the bigger pool of cards.
- It’s only elite customers with premium co-brands that these changes are designed to push more spend from, that’s a subset of a subset.
Delta is demanding more from customers without giving them any more in return, and rewarding them with a currency that it worth less than what customers can earn elsewhere. And their bet is that a small subset of cardmembers will increase their spend so much as to offset those who cancel and the bulk of cardmembers for whom the changes aren’t designed to incent spend.
We Won’t See The Full Negative Effects Of These Changes For Over A Year
While the way Delta elite status is earned goes into effect for 2024, many people have already earned and will use status next year even if they don’t re-earn it next year for 2025.
And changes to the lounge benefit for the expensive co-brand won’t go into effect until 2025. So while some people are proactively making changes now, others may not do so for a year or more.
Meanwhile there’s a growth path for SkyMiles already, signing up new customers just to gain access to free on board wifi, and Delta has said they convert around one in eight program members to their co-brand card. Naturally increases in the portfolio will offset losses, and help disguise damage done to their portfolio from these changes as well.
It won’t be clear in the numbers right away, or even for awhile, what exactly these changes are doing to the airline’s business. And people forget how much recent growth in card spend is simply due to inflation.
Delta Will Declare Victory And Run Promos
There’s no reason Delta will need to admit error, and they’re unlikely to do so even if if it becomes clear to them that they’ve made an error. Delta is going to say that the changes are having their desired effect. Even if card spend were to drop which is unlikely they’ll attribute that to outside forces.
We’ll know, though, that they know they’ve made a mistake once we see promotions or program changes that increase the pool of elite members – it means they’ve cleared out too many – or that encourage card spend.