Delta’s Revenue-Based Points Earning Should Mean Fewer Points From Flying, But More Points Overall

We’re likely to see fewer (base) miles earned by flying at Delta with their new revenue-based points-earning scheme.

But we’re also likely to see more miles earned overall in 2015 than we see in 2014 and than were earned in 2013.

Net net I expect rewarding miles based on ticket price to mean fewer miles earned in total from butt-in-seat flying. With a ‘break-even’ average of 20 cents per mile in ticket price to earn the same number of miles in 2015 as in 2014, and with Delta earning less than 20 cents per seat mile on average, they should be printing fewer miles.

In order to average 20 cents per seat mile across passengers, they’d need ‘passenger revenue per available seat mile’ to be 16 cents at a systemwide 80% load factor for the entire year. In 2012 it was just over 12 cents. They’re not even close.

Now it’s possible that frequent flyers have a higher average spend per mile than those not crediting miles. But there’s no way the new system means more miles, on balance I’d make a strong prediction there will be fewer.

And yet Delta has been almost entirely inactive in the promotion space the past two years. They used to print miles like mad, theirs were perhaps the easiest miles to earn (or at least up their with US Airways). They offered 100% bonuses on transferred miles, 50% and higher bonuses on transferring points in from American Express Membership Rewards, and a variety of activity bonuses.

For the past two years we have seen only reactive bonuses, things where Delta couldn’t be left behind, like big bonuses for premium travel between the US and London. In these cases, Delta was a follower rather than a leader in making a splash with their loyalty program to drive business; even premium business.

Other bonuses have been small ball, the occasional Hilton bonus of a few hundred miles. The only major innovation has been its ‘Crossover Rewards’ partnership with Starwood Preferred Guest.

They basically shut down their major promotion efforts and printing of bonus Skymiles while they retooled their program.

With the launch of their new program in 2015, we can expect them to return to the promotion-and-bonus game. And that will mean more miles.

How will this net out? There will be some reduction in the roughly half of miles earned through flying, and increases in the miles earned through means other than flying.

On balance Delta’s frequent flyer program changes should make it less revenue-based, rather than more, even as flight earning becomes more so. And that could well shift the balance in the program towards non-flyers playing in the Skymiles space (I earn most of my Skymiles >via the Suntrust Delta debit card, for instance).


About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel a topic he has covered since 2002. Co-founder of frequent flyer community Milepoint.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

More articles by Gary Leff »

Pingbacks

Comments

  1. However not everyone even signs up for a frequent flyer program so that would affect the calculation.

  2. @Bobby – not really, it only matters (as I observed in the post) to the extent that frequent flyers and non-members have different revenue per mile. And it would have to be materially better than 30% higher for me to be wrong.

  3. Gary – your point about “With the launch of their new program in 2015, we can expect them to return to the promotion-and-bonus game”…why should they? In the past two years, when they’ve been “inactive” as you’ve said, they’ve come to be the leading/most profitable US carrier. And now there’s even less competition than before (via US/AA merger). So why should they feel the need to ramp up promotions, assuming the economy maintains its neutral-to-positive direction?

  4. WWGD…. What would Gary do? :)

    My Delta dilemma is that I’m on an a paid Trans Atlantic Air France flight later this year and don’t know where I should get my miles credited to. I have zero miles on Air France and Delta. Any suggestions would be greatly appreciated.

  5. I suspect that, as you noted, active frequent flier accounts likely have higher CPM averages. While such customers are more savvy, they’re also more likely to be business travelers, have higher incomes, etc. I wouldn’t be surprised if 20 CPM is the current average for people who pay attention to their accounts.

    It’s anecdotal, but when I think about the people I know who ask me for advice on earning miles, they tend to be people who buy flights less than a month in advance or travel for convenience or business, not people who search in advance for $200 transcons or mileage run opportunities.

  6. I think your lack of promotion statement is not quite 100% accurate. Delta has done some really strong targeted promotions. They have one in NY where you can get platinum status for 2014, skyclub membership and 100,000 Skymiles(http://dmn.delta.com/ace_plrs/Platinum100/). For Seattle I read they have a double MQMs promotion.

    I think the trend is Delta has and will continue to have promotions when it is in their best interests to do so (e.g., promote their fully flat TCON business elite product or gain marketshare in SEA). That seems to make business sense. Whether their future promotions are open to all skymiles members seems unlikely, based on past promotion criteria.

    To make a guess (albeit educated) that they will have more promotions in 2015 (let alone promotions open to all Skymiles members) is just that – a guess.

    I for one am not holding out that Delta will create incentives to fly their airline to earn Skymiles through promotions. They want people to fly their airline over any other – all things being equal. If they lose a prospective passenger over the frequent flyer program, all things being equal, then that person was likely not the kind of passenger Delta was seeking to be a long term customer.

    Delta is about seeking more revenue, as their revamped Skymiles earning program demonstrates. Giving away Skymiles through promotions to individuals not likely to be long term valuable customers seems inconsistent with that revamped program. The markets agree with Delta’s management so far; DAL has been performing incredibly- up to $35ish from $9 over the past two years.

  7. I think they are basically trying to make Skymiles more profitable, if they print less miles themselves can’t they sell more miles without risking inflation?

  8. Mooper is almost always right about skymiles.
    But I am missing something in the CPM calculations, I think

    DL used to reward flyers at 10 – 22% almost in value or more.
    In fact for mileage runners at even 5c cost per MQM, with DM bonuses, it became 2.25 RDM miles / 1 MQM = 2.25miles/ MQM = 5c cost = almost 45% rebate for the good ones (like mooper) assuming 1 c per value of a skymile (or skypeso) per flown mile.

    Now they will reward them at 5% to 11% rebate in value assuming 1 cpm value of a skymile. This will be a 70-90% devaluation in earnings for the flyer.

    looking at RASM calcs, 1 flown mile used to cost 5c for MRers
    That gave a 1 skymile rebate = 1c back = 20% rebate

    Now if one pays 5c per flown mile = you get 5% of 5c = 0.25c cash back (75% devaluation of earn rates)

    For Amex spend rebates, DL used to give 1c rebate (1 skymile)
    Now they will still do so.
    So all they have done is devalued or reduced significantly the “free money” they were giving away for flying as a rebate, while leaving the price for sold miles largely intact via Amex cc spend.

    Makes sense that they want to earn money for the ff program (sell miles at 1c, while assuming 0.5c cost for using it for free flights)
    They are reducing the freebies given away before without thinking.

  9. The FDLTFFD Movement. Friends Don’t Let Their Friends Fly Delta. If we band together and convince everyone we know out of flying delta maybe this will not be a tread in the years to come. I’m not one for milage running but this revenue system really blows.

  10. @Truthiness going through now, been in a couple of hours of meetings, I do publish all non spam so if it’s there it’ll show up momentarily!

  11. @ffi – You’re correct, but you’re using a 5c/MQM assumption. For someone who averages 20c+/MQM, the picture reverses. So for mileage runners, yes, it’s a massive hit. But for a business traveler who regularly pays a $450 RT fare for a 1,500 MQM RT flight (30c/MQM), they wind up far ahead.

    As someone who earns tons of miles (as do you, I think) through the Amex DL Reserve cards, I’m thrilled that the cost of acquisition there is unchanged while it looks like redemption options and availability will improve.

    The impact for me is that I’m less likely to pay for cheap fares on Delta, but I didn’t do a ton of that anyway.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>