Delta laid out a plan for SkyMiles several years ago. And all they’re doing now is executing on it.
When Delta rolled out the revenue-based earning part of their big overhaul of SkyMiles, I wrote that they had planned to go to revenue-based redemption too but backed off of that late in the game.
Let’s peak behind the curtain of what they were planning.
Delta’s focus groups towards the end of their process scared them out of revenue-based redemptions. Business travelers wanted to get value for their points instead of having a fixed amount of points buying a specific dollar value of ticket. Delta was worried an important customer segment would defect if they went all the way revenue on the mileage burning side of the equation.
Delta wasn’t planning to do a transparent fixed-value per point. Instead they were going to offer a redemption chart sort of like US Bank’s FlexPerks program. There would be a table where a certain number of points would be required to claim tickets in a range of dollar values. 25,000 miles might buy any ticket up to $375, for instance.
Here’s the FlexPerks flight award chart:
Delta’s awards were going to look something like that (although, I believe, less valuable).
Along the way they had technology challenges with this, and it took longer than expected to put together, but at the end of the day it was customers saying they wanted the possibility of shooting he moon on an award – getting outsized value — that the fixed revenue-based redemption model eliminates but that’s a big motivator in consumer loyalty to a currency.
I’ve often derided the model as ‘being like a punch card’. For every X spent, you get Y. It upends the most successful marketing innovation in history which is, itself, wildly profitable on a standalone basis. This is a billion dollar business – which isn’t actually in ‘trouble’ in any conventional understanding of the term — that’s being turned on its head.
This isn’t S&H Green Stamps and it isn’t your neighborhood sandwich shop punch card. It’s a reward for your loyalty. The time spent with an airline becomes your reward, “you give us your business travel, you give us your paid leisure travel, and you become like a good friend that we will take care of down the road in the best way we can – with that free trip to Hawaii, with a business class trip to Europe for your anniversary.”
Frequent flyer programs changed what are essentially a commodity to be sold at the lowest price – an airline seat between any two cities – and turned them into a differentiated product with brand identity and customer loyalty.
The funny thing is I had heard Delta executives talk up the model in precisely the same way — that it had ‘the simplicity and fairness of a sandwich shop punch card.’
Delta didn’t make the full revenue-based redemption move right away.
- They rolled out revenue-based earning, and didn’t share what redemption would look like at all. They were shell shocked by the reaction to the notion that they were hiding the ball on those changes. So they relented and quickly finished up the chart for travel to/from the US (only).
- Then shortly after those new award charts went into effect, they were removed from the website.
And they started moving to the very model they had planned. They declared the end of the 25,000 mile award. In order to get there,
- A majority of routes started requiring 3 week advance purchase to get the lowest award prices.
- The cheapest routes got lower mileage prices.
- They ramped up their use of ‘journey control’ to make sure award availability would more closely match price.
The elimination of award charts let them get closer to their original plan of tying award prices to fares without actually saying so.
In the end they’re doing what they set out to do – moving not to a revenue-based fixed value per point, but instead to tiered award pricing based on the value of an equivalent paid ticket.
They just aren’t being honest in their communication and saying so, because they are afraid that transparency would cost them customers who became loyal out of the question for real value. What would happen if they told those customers there was no more real value to be had?