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.