As everyone has heard this week, Delta announced a move to a revenue based loyalty program starting next year. Instead of earning miles based on how far you fly, you will now earn miles based on the amount of money you spend. Gary Leff has a good article which explains all of the changes.
As a person who loves to earn miles and travel for free, this is a very bad thing. If I am looking at the changes from an investor’s perspective, then this is a brilliant move in my opinion. While some may say that people will stop flying Delta because of it, I don’t think that will happen.
There are really two types of people in this world. A very small percentage like me who track every point and work within the rules to maximize everything and those who simply don’t care to take the time. People who are already flying Delta are used to a crappy loyalty program. They are used to finding that it is nearly impossible to use their points. If they are still flying Delta at this point then they are unlikely to go elsewhere.
I often talk to normal people about miles and points. The first thing they always say is that they can never find a way to use them. While sometimes that belief is just ignorance, often times they are right. I just spent 10 days going back and forth with American Airlines because their system kept screwing up my flight back from India. It took an incredible amount of time and effort to finally get it fixed. A normal person probably would have given up.
Delta’s management has focused on creating a quality product over the past few years. I have found that Delta’s flight attendants are the friendliest of the large U.S. based airlines and their service is the best. This focus on quality is most certainly reflected in their record profits. Delta’s management has a responsibility to maximize profit for their shareholders. They will be expected to grow their revenue and cut costs. Hence the changes to Skymiles.
There is no doubt that changing the way that they issue miles will save Delta money. Loyalty programs are very profitable for airlines and altering the earning and redemption side of things is more than likely to be a cash cow. Perhaps this will backfire and cause Delta to hemorrhage business, but I don’t think so. Most consumers are only as loyal as the cheapest fare anyway and geographic location plays as much a part in which airline you use as anything else.
While it is almost a certainty that the entire industry will move in this revenue based direction, competition is a good thing. I think of the cell phone space. While AT&T & Verizon continue to dominate with market share and thus often have consumer unfriendly policies such as data caps, smaller carriers like Sprint & TMobile have maintained unlimited data and much friendlier policies. In other words, they have carved a market out for themselves without implementing the changes that the larger providers have.
We may see this in the airline space as well. United or more likely American may keep things as is for the most part to market themselves as the consumer friendly airline. There is no guarantee that Delta’s move will spur everyone to go in the same direction. At least, I don’t think everyone will move to a revenue based model in such an extreme way.
The other way to look at this as well is in points earning. Frequent Miler pointed out this week that it is still easier to earn Delta Skymiles with credit cards then to actually fly on the airline. This is actually the case with most airlines today. Credit card earning will continue much the same way and Delta has pretty decent cards which allow you to gain miles towards elite status. All is not lost on that side of things.
In the end, Delta sucks. They suck because they don’t make it easy for me to get free flights like United and American do. They suck because they have devalued their award chart twice this year with a third change likely coming as well.
They don’t suck though when it comes to their stock price and profits. With the stock having gone up from about $14 a year ago to $33 today, I would say that Delta management has a pretty good idea about what they are doing and that sucks for those of us who like to play the miles and points game.
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