He sees Delta as [c]aving to the protests of its stingiest customers and believes that the changes will “accelerat[e] Delta’s path toward bankruptcy.”
I usually start by giving an airline, or any company, the benefit of the doubt – concluding that they know a lot more about their business than I do as a simple armchair observer. Certainly they have more data at their disposal and knowledge of their specific circumstances. It’s hard to do that in the case of a company on the verge of bankruptcy with losses in the 10 figures.
But I could have made that same negative assumption about Delta before the announced changes so the simple argument that Delta is losing lots of money says little about their specific strategy.
And if there’s one part that they’re likely approaching wisely, it must be their frequent flyer program. That’s not confidence in their leadership, but in the outside judgment of American Express which recently pre-paid over half a billion dollars for frequent flyer miles.
There are several changes wrapped up in Delta’s 2005 elite program. One change is reducing the number of qualifying miles necessary for Platinum status from 100,000 to 75,000. This aligns the Skymiles program with partners Northwest and Continental. On the one hand this likely means more Platinums and greater competition for upgrades. On the other hand the alignment may be necessary if reciprocal upgrades (and hence additional value for the program) are to follow. Otherwise Continental 75,000 mile flyers would trump Delta 90,000 mile flyers on Delta aircraft. And travelers would have an incentive to participate in the OnePass or Worldperks programs over Skymiles — a disaster considering the value of the Skymiles program (as evidenced by American Express’ cash infusion).
Another change is to award full qualifying miles to the least expensive fares, as they used to and most US carriers continue to do. While Widzer believes this rewards less profitable customers as much as more profitable customers, the fact that other airlines didn’t universally follow suit put Delta at a competitive disadvantage.
Marginal passengers matter when marginal costs are low (as they are in air travel) and Delta likely believed they were losing passengers.
Furthermore, Widzer mistakenly believes there are profitable high-paying passengers and unprofitable low-paying passengers, and that these are different people.
The reality of business travel is that those passengers are often one and the same, especially as low fares are increasingly available at the last minute, not to mention that business travelers also travel on their own dime for leisure. So the person buying business class to Paris may also buy advance purchase coach to Rome, and that passenger was disadvantaged by the old Delta system.
Entirely separately, the Delta “MQM” system was complicated. Customers can’t be expected to adjust their behavior to fit a reward system if they can’t follow the system or understand its logic easily. And complicated systems breed not only resentment but customer service costs.
Finally, I predict that as Delta lowers the threshold required for Platinum and awards full qualifying mileage to low fares, the ranks of Platinums will swell — and Delta will react by offering an unpublished ‘higher level’ to their program specifically designed to cater to high revenue customers, much like United has done with the United Global Services (aka UGS) program. At United those customers are given priority over top-level elites and their upgrades clear earlier. You can’t earn the status based on mileage flown. Instead it is ‘by invitation only’ and United offers it to customers it deems highly profitable, either from their own flying or the travel they book or the large corporate contracts they sign. Delta will likely follow suit.
Delta’s move is a rational one, and in my estimation the changes aren’t done. However, the changes certainly will not spell the death knell for the airline. That is in the hands of Delta’s labor contracts.
Shame on Joel Widzer for chastising Delta for making possible precisely what he purports to tell readers of his book — how to travel in style inexpensively. Performative contradictions are simply poor form.