Brian Sumers covers Delta President Glen Hauenstein’s remarks about SkyMiles at the Morgan Stanley Laguna conference in his excellent newsletter, in light of the Department of Transportation making information demands of Delta, American, United and Southwest over their frequent flyer programs and credit card deals.
Oddly Hauenstein expressed surprise about the demand, which is odd since I reported this was coming back in December.
“We kind of got this letter and we thought, ‘What? — this is a surprise,’” he said, clarifying that the government had not contacted Delta beforehand. “But these are giveaway programs and they’re very popular.”
…”These are the most popular loyalty programs of any industry and people are joining at record numbers,” Hauenstein said. “Nobody paid anything to get this benefit.”
He views SkyMiles as a ‘giveaway program’ rather than something his customers invest in and can expect a return from. So it’s no surprise that Delta can charge more than 4 times as many miles for the same Delta seat that their partners will charge to their own customers. The Vice President running SkyMiles even admits they’re not trying to compete over offering value to customers.
Delta has had the most successful credit card partnership, but not by a lot. Pre-pandemic American Airlines generated more card spend than Delta did. But that’s flipped, and Delta’s 2019 credit card terms were more lucrative also.
However Delta’s revenue growth has lagged expectations, although Delta won’t tell you this.
- When they signed their 10-year American Express extension in 2019, their 2023 goal was $7 billion and 2029 goal was $10 billion in revenue.
- They hit $6.8 billion for 2023.
- But the 2019 goal was set before 20% in pandemic inflation
- So the ‘real’ 2023 goal was $8.4 billion, which they missed by nearly 20%
- And they are now ‘excited by’ all of the people they’re signing up for SkyMiles in exchange for free internet who have not yet gotten their co-brand credit card but there’s little reason to believe they will convert at the same rate as other SkyMiles members.
- The programs are voluntary.
- Yet they are not free. Customers have to choose which one to participate in, so there’s an opportunity cost – the value foregone from other programs. And the programs are designed to get people to spend more.
- The issue for regulation is whether the programs deliver on their promises. Customers are promised that if they engage in certain activity first, then later down the line they’ll receive benefits. It’s an intertemporal promise. So the question is whether airlines are delivering on their end.
I’m not often inclined towards government regulation as likely to make things better, but frequent flyer programs are one of the cases where it seems like greater Department of Transportation oversight is a second-best policy that we’re stuck with pursuing.
Unlike in other industries, consumers can’t sue airline frequent flyer programs for anything except violating their own stated terms and conditions, and those terms have been written to say airlines can do anything they wish.
- The Airline Deregulation Act pre-empty state regulation of airline pricing.
- The Supreme Court has held that frequent flyer programs are rebates on ticket price, so state regulation is pre-empted.
And also that common law contract claims like duty of good faith and fair dealing are state-level regulation.
Without the courts as a avenue of redress, we’re left with the Department of Transportation, and the agency’s own Inspector General says that the agency has improperly ignored consumer complaints about frequency programs.
The motives behind the latest effort of DOT to look at loyalty programs, which would surprise me if they amounted to much, are far from pure. It’s a confluence of middle class pocket book politics before the election, and of Senator Dick Durbin’s attempt to delegitimize frequent flyer programs because their value is an argument against his effort to cap credit card interchange (which would be quite bad).
However, since the law blocked any other avenue of consumer redress for fraud – programs inducing consumer spend and then not delivering on their promises – DOT does need to step up into the role. Although I’d far prefer that the Supreme Court revisit Northwest v. Ginsberg and related decisions.
Delta may be Greedy, but they offer Premium Greed.
Before Tim begins his daily diatribe, it’s obvious that Ed has been drinking the SkyMiles Kool-Aid for years once the DOT issues their final report…
Always amazed at how many businesses can get a flat $0.02 cents per dollar cash rebate on just about any decent purchasing card, but insist on chasing devalued SkyMiles worth less an $0.01 cent per dollar when booking direct…
they just need to get a new CEO who actually cares about the customer experience and I guess treats employees better. The ‘old’ Delta is long gone under Richard Anderson who tried to deliver to the shareholders, customer and employees. I mean they fly 40 year old 757 across ATL to LAS and LAX and even overseas. WAs on a flight and the trey table fell off literally. 2 of the 3 bathrooms didnt work. That’s a premium airline? And the new skymiles program with that Premium Amex Reserve card is the real joke – on us. So expensive for the card, you cant get into the Skyclub but only a certain amount per year and even when I spend $150,000 on it yearly, it doesnt get me to Platinum. I just dont understand what the CEO is doing. (not to mention all the incidents they’ve had with the thousands stranded all over the country, a tire incident when someone died and last week a A350 hit a Delta regional jet. What am I missing here?
Why is capping interchange fees so bad? Instead of cycling X% (25%?) of the USD 25T economy through Visa/MC/Amex who make a huge spread, why is it bad to cap these “natural monopolies” at a few basis points or whatever Dick Durbin is proposing? (Other than that it will kill of a whole industry of bloggers, influencers, and point pimps?)
Live in Atl! Enough said. I do fill like when they destroyed there Airline loyalty? It may be time for enough is enough again
@Gary: Seriously, how hard is it to proofread your stuff? You have some pretty egregious errors in this one. “Pre-empty” state regulation?
A key reason I stick with United vs. Delta despite my origination usually being MSP has been the comparative lack of value in the SkyMiles program, both in the SkyPesos themselves as well as the demand for certain spend to access key benefits when non-airline cards delivery much better value. United now seems to be trying to chase Delta in the lack of miles value, but at least I can still get status on my flight spend and get into the lounge whenever I fly without having to sacrifice the comparative piles of value available on other cards.
@rj123456 – yes it will kill the blog and pump industry but also basically eliminate most of the credit card benefits. Without the 2-3% fee there is no money for points/miles, Amex/Chase/Citi lounges, insurance etc. basically we are back to when I earned the bulk of my points and miles in the 80s and 90s where you only got them if you flew or stayed in a hotel.
Frankly I have my lifetime elite status w AA, DL and UA plus lifetime hotel elite w Marriott and Hilton so I could care less but expect lots of whining if all the “benefits” suddenly go away.
If you don’t believe me look at what happened to any benefits associated with debit cards when those fees were capped
All of the US airline loyalty programs – and nearly all worldwide- are based on the same principles.
A passenger receives some sort of rebate for future travel or other services for which there is no fixed price in the future.
Scott Kirby, UA’s CEO also commented on the same letter that UA received and accurately noted – as I have said – that government intrusion into airline loyalty programs will result in them becoming less generous than they are. Billions of miles will suddenly become useless.
It’s not surprising that one of the requirements the DOT asked of AS in granting merger approval was to essentially lock AS into not devaluing the problem – which will have significantly financial negative impact for AS offset.
if loyalty programs become less generous then the credit card programs associated with them become less valuable – and the financially weakest airlines will be harmed the most and that list of airlines will start with American.
Be careful what you wish for.
PSA: No company doing business on a national level has more contempt for their customers than Delta Airlines.
No amount of PR “spin” or “surveys that don’t match to reality” or “proclamations from Ed” can change the simple facts:
1) Delta invented and lead the “race to the bottom”
2) Delta strands and under-serves more passengers per outage than any other airline
3) Delta’s hellbent on shrinking any last value out of SkyPesos they can
4) Oddly, this “defense” of the incredible shrinking air mile credit has long-since been litigated. It’s a real program, with real value and airlines attempting the “Bastian Defense” have had their backsides handed to them.
Hey all be kind to delta and have a bit of gratitude will ya?
Where else can you get an antique Boeing freshly painted for only 500k in miles each way?
Duct tape holds the wings and doors on nicely
@ Gary — Wow, this jerk has outdone himself. Nobody paid anything to get this benefit? Does that include those who BOUGHT SkyMiles on Delta’s wesbite? I mean it is SO obvious that EVERYONE who participates pays something to do so, but this is the most obvious example.
@ Tim — Keep defending the crooks.
The most similar thing might be how issuers gamed gift cards years ago … and happily booked a lot of breakage as profit.
Hauenstein is wrong, mileage programs are not giveaway programs. They are a calculated exchange. Several airlines were happy to use their mileage programs as collateral for government loans a few years ago, creating a camel’s nose in the tent situation. A sizeable percentage of the total accumulated miles or points or whatever they are called are related to sales of such to other businesses so they can be used as perks for those businesses. Yet the sponsors of mileage programs claim the right to devalue the awards at their discretion. What would have happened if devaluation hit hard during the time the programs were used as collateral? The government has every right to regulate such programs. The SEC should also regulate since such programs can alter the value of the companies that have them.
Tim
Delta miles are already valueless. I would guess that even your mother’s basement has more valuable items than can be bought with Delta miles.
@Tim, sometimes you have something useful to add, but this time (among many) you are just coming off as a buffoon.
Any admin initiative that appears less than 6 months before an election can be safely ignored as political pandering and posturing, and you can be confident that nothing will come of it.
He’s right, the miles and benefits are free. You don’t have to join, you can forgo them. I fail to see any statute giving the DOT such regulatory power over what are essentially free marketing programs.
thank you, Mantis.
and it doesn’t even matter whether DL is the worst of the bunch; the construct of US airline loyalty programs is the same.
And DL alone did not get “the letter” and UA’s CEO also commented on their take.
It is clear that, even if the DOT was allowed to impose its type of regulations on airline loyalty programs, the airlines would find ways to devalue the programs. Anyone that thinks otherwise lives in a world of unicorns and pixie sticks.
And the DOT got promises from AS about mileage devaluation as part of the Hawaiian merger agreement but there is far from any certainty that AS will comply with what the DOT wants even if it isn’t spelled out in specifics.
and, as hard as it is for some to grasp, DL and UA are in the best position in the industry to have to deal w/ reduced contributions to the bottom line from their loyalty programs IF THE DOT IS EVEN REMOTELY SUCCESSFUL.
DL and UA will gain more in business from carriers like AA that simply will not survive if significant changes are made to the financials of their loyalty program
@mantis they are not “free”. They keep high spenders within their grasp. Between corporate travel and personal travel my spend is roughly 60-70K a year. 99% of which goes to AA and their partners even if it means sometimes paying more or taking a less structured route. Less loyalty means people really voting with their wallets and time. The blow back in places like NYC or LA would be massive. DL with their sky rocket pricing and 1990s 757s would be at a clear disadvantage. Their schedules would need to be the product again which is what AA has been arguing for years is their strong suit. So these miles and programs come at added cost and or time for people who look at the perks as what will keep them loyal. Remember it costs 80-90% more to acquire a customer than to keep them. You will start to see lower margins which means lower investments. This will help push the race to the bottom quicker.
No it is required to join any airline loyalty program. Quite frankly, it is the douchebag bloggers who gave forced airlines to reduce awards. The bloggers want something for nothing and then some. They post loopholes and tricks that violate your contract of carriage and when somebody stops it, they whine. Here’s an idea. There are fat more important things in life than your stupid skymiles. This is the definition of spoiled rich guy problem because you couldn’t get an upgrade or free trip to the sky lounge. Amazing how these same people would scream about entitled kids. Yet most of these losers don’t pay their airfare, the points are given to them TAX free by employers paying for the flight
@ Sean — You are partially correct — bloggers did contribute to the destructuon of airline progams and customers are whiny and entitled. However, customers are continuously lied to by people like Hauenstein and have every right to be angry.
@PM
“they are not “free”. They keep high spenders within their grasp.”
Non sequitur.
@mantis a loyalty program keeps high spenders spending hence their existence. And the fact individuals will spend more or travel out of their way sacrificing time is payment. Those programs keep the spenders involved. I know it hurts when you have failing logic on par with Tim Dunn.
Doesn’t delta sell skymiles? Would that make it an asset, and not a benefit or freebie
Ever since Delta revamped SM program, I find its relatively worthless. I have the Delta AE Platinum card and the only value I find is that I can book Exit Row seats when i book my travel which is usually at least six months in advance. On a long flight i find that an amazing benefit. All other benefits are lame. I cannot frequent the Sky lounges any longer ever when in the past i could pay 50 dollars. Not worth the huge annual fee. The companion pass is for the most part useless because its not good for international travel. So there you have it.. I will be downgrading to Gold once my terms expires so i can enjoy the one free checked bag. The planes used for International flights are outdated and need to be upgraded.
@PM
Says the guy that can’t piece a logical argument together. Your argument is a classic case of does not follow. Whether a benefit program is “free” has nothing to do with incentives it creates for customers, and their voluntary choices. It still costs nothing to join, is voluntary, and benefits require no additional spend. So go find another way to claim victimhood status.
Using airline credit cards for milage is a suckers game. Much more lucrative to use a cash back card. I am back to getting milage the old fashioned way by flying.
A lot of my acquaintances who used to prefer flying Delta in business class TATL have since ditched Delta and switched to non-US airlines. In the past several days alone, several people have told me that they prefer the KLM TATL product and service over what Delta provided them on the way over to Amsterdam. Even in terms of frequent flyer programs, a lot of people based at major transatlantic gateway airports or within reasonable driving distance to such would be better off using Air France/KLM’s Flying Blue program instead of Delta SkyMiles.
It used to be that I found the European frequent flyer programs to be a lousy version of frequent flyer programs for travelers like me, and yet nowadays — even with the possibility of high fuel surcharges on award tickets — I really have no use to credit flights to major US airline programs unless it is adding to AlaskaAir MileagePlan balances.
Mantis is the kind of bigoted partisan hack who would be in support of DOT taking on the so-called frequent flyer programs and would be singing a different tune with praise (instead of condemnation) if this review of airline-owned loyalty programs would have come under the Admin of his mentally-damaged and damaged goods Lord Tr*mp.
@RampUp007
Yep. They recognize those “miles” as a real asset-liability on the balance sheet.
They regularly trade in “those miles”, valued in US$, with their partners and counter-parties.
And, naturally, they will happily SELL you those “miles”– and thus further impute a value on them.
DL has said some crazy stuff over the years, but this may be the craziest.
Diarrhea Delta’s SkyPesos program is corrupt and rotten to the core. I’m a diamond Miler but not by choice–because Diarrhea Delta has a monopoly in my hometown–the fetid cesspool of Atlanta. Yes, monopolies are unjust but the DOJ allows Diarrhea Delta to maintain it. As a result, if I want to fly a better airline–anybody but Diarrhea Delta–I have to drive to another airport a hundred or more miles away.
Mercifully, I don’t have a credit card and don’t need one so Diarrhea Delta will never make a dime off of me voluntarily.
Their crap lounges are infested with COVID, bacteria, and young children.
Their filthy planes are piloted by idiots who have never managed a smooth landing in their careers.
They surly FAs feign sincerity while going commando so all passengers must suffer their stench.
@Arthur Kite Just curious. You fly Delta a lot, but you don’t have a credit card. How do you book?
@ Arthur — Why would you need to drive to another airport hundreds of miles away fromATL in order to fly another airline? United flies nonstop from ATL to IAD, IAH, EWR, ORD, SFO, and DEN. American flies nonstop from ATL to CLT, ORD, DFW, LAX, MIA, PHL and PHX. Alaska flies nonstop from ATL to SEA, PDX and SAN. Frontier flies nonstop from ATL to 41 destiations. Southwest flies nonstop from ATL to 44 destiations. Spirit flies nonstop from ATL to 17 destinations. In addition, LH, VS, AF, KE, AC, QR, AM, XP, BA, CM, ET, SK, KL, LA, TK, SY, B6, and WS provide service to ATL. There are many choices from ATL, and I encourgae you to use them. You can certainly avoid Delta and use ATL as your home hub.
Furthermore, if you hate Atlanta so much, MOVE!
@Dave W: With a debit card.
@Gene: The routes for the few United, Southwest, and American flights out of ATL are invariablyt neither routes that I fly or are offered at times that I can’t fly. I primarily fly to New York City, Washington, DC, Seattle, and Boston.
I would love to move from Atlanta but family and business ties dictate keeping a home there. I stay in NYC as much as I can.
Diarrhea Delta ruins Hartsfield-LaToya Jackson Atlanta International and Domestic Abuse Airport with their monopoly. Just look at how far you have to walk to the gates of other airlines.