Henry Harteveldt is one of the smartest people I know. I cited his work in a regulatory comment I filed with the Department of Transportation a couple of months ago.
So I take it seriously when he calls me out on one of my posts.
Yesterday Delta made a big splash announcement about the rebranding of their cabins.
But as with the introduction of Sky Priority four years ago, they roll up a bunch of existing benefits and call is something exciting and new and generate a whole bunch of buzz (largely from outlets who don’t know there’s nothing new or better involved).
To be sure, it’s common to roll up several non-new things to make whatever is being announced sound like ‘news’. American’s announcement about lie flat transatlantic Boeing 757s and extra legroom seats on US Airways domestic narrowbodies was made to sound really big by billing it as $2 billion in investments — including all of the investments that were already being made, some of which are even in service already.
My point about Delta’s announcement was (and is) simply that:
- It’s sizzle, little change of substance. New seat covers are the biggest change. This was a much-hyped announcement, and there’s simply not much to it.
- The changes aren’t even unambiguously good for consumers. Delta’s Gold elites, who used to be able to confirm extra legroom economy seats at time of booking, will only be able to get the seats if still available 72 hours prior to departure.
- Delta will no longer be offering their 50,000 mile flyers, then, something that both United and American offer to their 50,000 mile flyers.
Of course, since United appears to manage by doing what Delta does, it’s entirely possible that United could quickly follow suit with this change!
I actually have no opinion on whether an airline ought to allow 50,000 mile flyers to confirm extra legroom economy seats for free at time of booking… whether the right customer segment to offer this to is 200,000 mile flyers or 25,000 mile flyers even. There’s data each program has that can inform a judgment on this that I do not have access to.
But the Delta announcement struck me as offering far less than it seemed to imply, and that to me is worth noting. It also seemed worth consumers understanding the change. Airlines will offer value propositions, and consumers will opt for those that work best for them. I love that Spirit Airlines exists, they offer their product and their value proposition, I don’t find it the most compelling one in the market for me.
I rarely feel badly for an airline, since whatever the proposition they offering is one they’ve chosen to put on offer. So I cannot subscribe to Henry’s take:
The programs themselves are profitable. Airlines are now, but they haven’t been over much of the past 15 years. It’s perfectly appropriate to determine a profit-maximizing bundle of offerings. I will say when I think that bundle is worth less than before, especially when it’s suggested that the bundle is worth more.
I’ll also say when a bundle seems incoherent, or perverse. That’s not the case here. It is the case with how US Airways treats its current ‘choice’ seating in economy.
- There’s no extra legroom.
- All elite members are charged.
US Airways 100,000 mile flyers get complimentary upgrades to first class. But if they want one of the choice economy seats that don’t even have more legroom, they have to pay. That’s odd.
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Not an unusual practice though. I just booked a flight with Etihad and was charged AED 60 each way for an exit row even as a Gold member. KLM has also charged elite members for preferred seats since the last few years.
Gary, maybe Mr. Harteveldt is book smart. Street smart, not so much. Why? Because he obviously doesn’t shop.
By his “logic”, as a frequent buyer of groceries at Kroger, I shouldn’t be rewarded with a discount on my fuel purchase.
Does Mr. Harteveldt want me to continue with the number of companies that have loyalty programs?
Corporate welfare? Go back to sleep!
I understand Hank’s analogy but I think it’s a bit flawed. In this case, it’s more like looking at a variety of products (say sunscreen) and making a consumer decision. If one of those brands offers me “33% more free!” then that 12 oz bottle has more value than an otherwise identical 9oz bottle would.
To take this further, sometimes brands will repackage their product as something new, now offering less, and hoping that in the switch you don’t notice (the saline I use for my contact lenses seems to do this every 18 months or so – now, new and improved formula! 2 oz less than before and a dollar more! – and then they phase out the “old brand.” I have no idea if the new formula is noticeably different or not.) This is annoying because you know they’re hoping you won’t notice as they attempt to increase their own profits with clever marketing. It’s changing the perception of the brand without changing the quality of what’s being offered. And that’s deceptive and does not promote trust or goodwill in me from a consumer perspective.
The problem with airlines is that you have limited choices and for some of your value propositions you kind of have to go all in with your decision because the benefits are tier based. So for them to change those once you’re already committed is frustrating. And as a consumer, the value I’ll get from an airline is determined before I buy the seat, not after. I don’t think its whining or corporate welfare at all.
In my case, I’m lowly United Silver which doesn’t get me much. But what it does get me and what I value most is extra legroom on frequent international long hauls in coach. Last spring I flew Newark to Hong Kong (a 16 hour flight) and you better believe I chose the airline where I would most likely get extra legroom. Thankfully even as a silver I have almost 100% success with economy plus seating being available the day of but as I’m finally crossing to gold this year I’d be annoyed if United does the same.
My point is that for elite travelers, the upgrades and other benefits are part of the whole value proposition, not a bonus.
Oops! Meant Henry, not Hank. Mental lapse. 🙂
I’d echo the other posters that E+ on longhaul flights makes a big difference. Would I pay for seat otherwise? Maybe- but United “buys” my business by giving me the E+ seating. Without it, I would fly a lot fewer flights on United, and many more on Eva, SQ, Cathay and other preferred airlines…
I think the wackier idea is the one of free upgrades to business class. That truly is a differentiated product that most airlines try and charge a premium price for, often a multiple of the economy fare. If you are trying to sell a premium product, why would you ever give it away for free? Or the reverse- if you are getting something for free, why would you ever pay for it? Gary, when was the last time you paid for a business class seat?!
As an American EXP, I’m still shocked that I’m not able to pick any Coach seat on US Airways for free. Now that I’ve met EQM to re-qualify I have no incentive to fly US Airways regional flights over United, Delta, etc.
Henry is suffering an intellectual meltdown.
I haven’t noticed any welfare programs that are profitable and unless Delta is filing fraudulent audited financials, SkyMiles is profitable.
I spend about $15k per year on Delta and net miles worth pretty much an off-peak economy RT from Beijing to L.A. If it weren’t for the miles and minor status perks, I’d be on crummy China Southern paying with my no annual fee Minsheng Bank Delta MasterCard. You want loyalty … repeat business? Get off your fat ass and provide a superior in-flight product or highly competitive pricing. Delta does neither. Instead they have SkyMiles. Take them away and THEN you’ll see welfare — a lot of unemployed Delta employees in line for food stamps.
So I guess CVS should stop sending me 20-25% off coupons monthly and stop direct marketing me with coupons on the items I buy regularly? There’s a reason I buy the majority of my sundries there, because they incentivize me with discounts.
Your friend seems utterly clueless about how businesses operate.
Henry Harteveldt is one of the foremost aviation consultants in the nation so when he talks, most of the airlines listen. Of course, this doesn’t mean he is right but his track record has been pretty good. One does wonder about his view that loyalty programs are corporate welfare as these loyalty programs have been, over the medium term, the most profitable operations airlines have.
If you could get a response from Mr. Harteveldt about why he thinks loyalty programs are corporate welfare (and presumably should be cut for the benefit of the corporations stockholders) it would make for an interesting read.
@Dave he explains in a followup tweet https://twitter.com/hharteveldt/status/542005513106382848
And as I say, he is a very sharp guy. We disagree strongly on the claim he’s made, at least as-presented. But he certainly shouldn’t be dismissed.
Gary, you’ve been taken for a ride by this “consultant” who really wants you to believe what he says. Let’s see if calling him out on his utilization of #CorporateWellfare opens his eyes to his own actions.
But I doubt it….
Check out @hharteveldt’s Tweet: https://twitter.com/hharteveldt/status/540395531650867200?s=09
I think this was lost in cyberspace after posting.
Gary, you’ve been taken for a ride by this “consultant” who really wants you to believe what he says. Let’s see if calling him out on his utilization of #CorporateWellfare opens his eyes to his own actions.
But I doubt it….
Check out @hharteveldt’s Tweet: https://twitter.com/hharteveldt/status/540395531650867200?s=09
What @Dr. John says in his first post — either this dude doesn’t shop or he only shops at the lowest end stores like Dollar General, Walmart etc. Regular customers in good neighborhoods get all kinds of freebies and bonuses, whether it’s the free loaf of bread/head of lettuce and the wine tasting at the grocer’s or the invites to cocktail parties at the local jeweler’s to the free martini or dessert at a fine restaurant. It is not corporate welfare, it just makes good sense to encourage high end customers with disposable income to dispose it with your business rather than another. If he really is “sharp,” it makes it even more sad that he’s creating a fake debate presumably as clickbait…
@Gary, I think the comparison between Delta’s new “Comfort +” and standard “extra legroom economy” on UA and AA is unfair, so saying that Delta GM’s get less than their counterparts at AA and UA isn’t entirely true.
What Delta is at least purporting to do is create a new premium economy cabin with unlimited free booze, free snacks and to NYC, and dedicated overhead space — in addition to extra legroom. So when you say “Delta will no longer be offering their 50,000 mile flyers something American and United offer their 50,000 mile flyers,” that’s simply not accurate.
Anyway, as I understand it, if legroom is really the issue GM’s can still reserve exit rows at booking, no?
Scoff all you want, but I don’t think you can make a straight-line comparison and thereby
(I don’t know what happened to that last sentence, but it’s unnecessary. Point being, I think the only thing you can compare Comfort+ to is Main Cabin Select on VX, and nothing on the legacies.)
I don’t know HH but he doesn’t seem to have a clue on “corporate welfare”. CW is the political process by which large companies pay lobbyists to extract government concessions that benefit them at expense of taxpayers. Even by analogy it would be difficult if not impossible to find an example of a large company (or elite FF) extracting a “concession” or benefit from an airline.
Airlines will do whatever maximizes their profits. For UA this means roughly 20+ years of E+ seating which has incentivized frequent flyers of all price ranges to buy economy tix (and non-elites to buy up). For AA this meant MRTC, then elimination of MRTC) and once again adding back some MRTC. Even DL jumped on the wagon.
If airlines can sell E+ and MRTC then they do not need to give it away to attract flyers. With many flights departing at 100% of capacity it makes sense to try to sell seats. However this could very well cause some elites to bolt if they can get the better seat for free on a competitor. Most of us want 100% guarantee at time of booking not roll the dice 3 days ahead when plane is already packed.
Airlines can obviously do the calculation on how many people will buy up to E+ just as they do with F. And balance that against revenue lost from the full fare lower level elites who will now book another airline.
I might add that this DL change is a mixed bag for elites. If you are Gold it sucks, but if you are Plat or Diamond and tend to book flights 1-2 weeks before travel, you may be better off because you will be able to find E+ seats that haven’t been given away. Once again, a change that benefits the higher-priced tickets at the expense of those who book advance purchase cheapo tix. Beginning to see the pattern?
His follow-up tweet still misses the mark. Customers are not getting these things for free. Nominally, they are. But in my case, I opted to fly Delta on some trips and at some prices that were not the best in the marketplace. So Delta does earn extra revenue from my loyalty. In return, I anticipate receiving certain benefits that are not priced, but are none the less earned.
This is what seems to be ignored by Harteveldt and by DL management. These freebies are not tossed at pax the first time they board, they are received as part of a value exchange that often takes months of flying and thousands in spending to earn. Yes, earn.
IMHO, run a business with the goal that a customer makes you a profit. Since it’s both harder and cost more to secure new customers then retain your current ones, it’s wise to go the extra mile for your more desirable customers. There’s nothing wrong with enticements, except those bargain hunters who want something for nothing should be thanked for their business and steered to your competitor(s).
By the way, isn’t it taught in the basic Econ class that when a buyer faces a price hike or perceive a product is not worth the cost, the consumer usually opts for the cheaper item or an alternate.