There’s a Lot of Speculation About Delta Moving to 1 Cent Per Mile Value. Don’t Believe It.

Yesterday MJ On Travel captured what many are speculating, including in the comments to my post about Delta removing award charts from its website.

I’m pretty sure I know what the Delta award chart of the future is going to look like.

The thing is, I don’t even care. I don’t think Delta hates me or doesn’t respect me. They’re an airline, not my wife. I just think they’ve moved on.

The idea many people expect is for Delta to go revenue-based on the redemption side, with one point earned equal to one cent in airfare like the Capital Ones of the world.

Some are even ok with the idea.

I do not see the problem with DL moving to a 1 Point = $0.01. With the revenue-based point earnings, it becomes like a variable-rate rebate program.

By variable-rate rebate program, I mean that you earn points based on 2 factors; how much you spend, and your elite tier. Redemptions are at a fixed rate of 1 Point = $0.01. So if for a given flight you have a 1% rebate if you are a basic member and an 11% rebate if you are a DM.

With current earning rates it would actually represent 5% – 11% back on spend depending on elite status.

I disagree. I do not see Delta implementing fixed value, fixing points as worth 1 cent each.

Revenue-based fixed value redemptions are common with low cost and limited service, limited route-network airlines like Southwest and JetBlue.

Take the Southwest program, even they don’t have a single fixed value for their points. Points are more valuable when redeemed for less expensive tickets, and less valuable for more expensive tickets.

This model works reasonably fine for domestic travel. But international travel starts to be beyond reach.

And airlines offering premium products overseas price those products way out of reach. A $5000 ticket becomes 500,000 miles (instead of the current 125,000 roundtrip to Europe, for instance). A 4x increase in the price of an award is almost unthinkable, even for Delta.

Partner awards are tougher to do revenue-based, and Delta has plenty of partners. Traditionally a limited number of seats are offered and only at the lowest mileage level. However I passed on some speculation last summer that Delta was working on a solution:

…they’ve apparently been renegotiating their contracts with partners – at least with joint business venture partners Air France and KLM – to give them access to any seat with points.

Delta would pay their partners a percentage of the lowest price for a ticket to their partners in exchange for any available seat, and the idea was they’d price the award accordingly. (For instance, I imagine a $2500 ticket might cost Delta $2000 and cost members 200,000 miles or likely materially more).

Still, I don’t expect fixed value per point. I understand some of the original technical challenges that delayed rollout of the revenue-based program were on pricing.

One cent a mile is relatively easy. Variable pricing, sometimes (often) lower than one cent per mile but that could be slightly more — dynamic pricing of awards without fixed value is harder. But I also think it’s more likely, because there’s been some interest at Delta for this in the past, and it’s consistent with a desire to simply tell members that the price is whatever they’re presented with rather than a simple statement like from JetBlue or Southwest about what a mile is worth and when.

Either way though there’s a lot of talk about Delta turning its frequent flyer program in to Southwest’s and JetBlue. JetBlue never even really wanted a program but started TrueBlue because they needed something. And Southwest points couldn’t be used for dream trips. And it’s plausible enough to many that the essences of both are what Delta is shooting for.


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 InsideFlyer.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 »

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Comments

  1. I can’t see any of the “big 3” doing something so short-sighted. Pretty much the only reason I earn — and more importantly, generate credit card spend that translates to — points is for “aspirational” awards.

    I’ll pay cash to fly domestic or economy. I could never pay for Lufthansa First, but it’s worth every point, even with last year’s devaluation.

  2. You allude to this but don’t state it – the reason DL can’t go totally revenue-based is that there is no reasonable way to price (in money terms, let alone scaling it on some variable price per mile) a lot of the award tickets. What fare do you use? What availability do you check in building/validating the fare? What point of sale do you use? What if no DL published fare even exists? Not improbable, given some of the partners you are able to connect! If no valid fare exists do you use the YY? Those sure are expensive, often much more than the 4x examples shown! The infrastructure alone for doing the pricing is complex, let alone the policy decisions around how the system works.

  3. JetBlue never even really wanted a program but started TrueBlue because they needed something.

    I believe the same is true of Southwest, and probably several other airlines after AA and UA started the ball rolling.

  4. I could care less about Delta but I love how Gary hates Southwest so much he can’t but dismiss THE LARGEST US DOMESTIC CARRIER as “limited service, limited route-network.” Because nothing says “limited network” like “the airlines that carried more people inside the United States.” I mean, overall domestic and international Southwest is the #4 carrier, carrying approximately 3% fewer passengers than United.

    Anyway I wouldn’t be so fast to dismiss Southwest’s FF plan. Who cares about Jet Blue – they carry 20% of the traffic that Southwest does and actually have a limited route network. But to dismiss Southwest as irrelevant (or low cost!) is both crazy and misinformed.

  5. The key differentiator is that Southwest is a single class nearly exclusively domestic airline, a fundamentally different offering miles-wise from an international carrier which sends out either empty business class seats or business seats filled with employees.

  6. Southwest’s customer satisfaction is far higher than Delta’s. They’re doing a lot of things better than Delta.

  7. Southwest is very successful for the specific customer base. I am sure that Southwest customers are very happy to redeem Rapid Rewards for a domestic A to B trip.
    I agree with Gary that “Southwest points couldn’t be used for dream trips” in a sense that Southwest has very few international flights and does not even fly to Hawaii. But different customers could have different dreams: from visiting an uncle in Nashville to a trip to Kota Kinabalu. And different customer bases do need different FF programs. It would be a mistake for DL to convert their FF program to Rapid Rewards unless they also turn themselves into Southwest.
    As for customer satisfaction, look at many major US cities and you will find a Hampton Inn within to 10 hotels. This does not mean that JW Marriott should be run the same way as Hampton Inn. The reason in the customer satisfaction is different customer base.

  8. O RLY? I mean obviously Southwest is a domestic single-class carrier without business or first. But it is neither “limited route” nor “low cost.” Southwest’s average prices are no less expensive than the legacy carriers. And if your definition “limited route” means “services all major metro areas in the US” I guess they are guilty.

    I mean I guess this entire blog is predicated upon the notion that the only thing FF miles are good for are first class travel. I am sure this is true if the only thing you’re doing is maximizing your ROI. But when you’ve got a family of 5 and need to travel in the US, or just need to get somewhere on short notice in the US, I assure you Southwest works fine. I am not suggesting their FF program is ideal but it serves a 100% legitimate purpose and is not something I’d simply dismiss as below your high level of class and suitable only for untouchables.

    I understand living in New York you’re particularly jaded. Flying OAK-LAX on Southwest is a very different experience. I learned that insanely rich venture capitalists will sometimes fly southwest to save money. There is probably no JFK equivalent.

  9. If redemptions go revenue based it will defeat one of the main goals of FF programs, to fill seats that would go empty anyway. If I only get 1c per mile or whatever the value is, I will just use my miles to buy my ticket home at Christmas or some other peak time.

  10. Bode…chill dude. I know some like to hate on Southwest but that was not the case in this post. Gary was merely pointing out the differences in business models and how this would affect a possible conversion to a revenue based program.

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