One Simple Insight Why Award Charts Matter, and Even Delta Doesn’t Go Revenue-Based

It’s interesting that as airlines try to re-align their programs to ‘better reward high value customers’ (read: devalue the program for lower revenue customers, and at best remaining neutral for high spenders) they introduce mileage-earning from flight activity based on ticket price but have not yet introduced revenue-based redemptions.

Delta has hidden their award charts but still, more or less, prices awards on the basis of award charts. United maintains award charts. American is expected to as well.

You’d Expect Revenue-Based Earning to Pair With Revenue-Based Redemptions

On the one hand, revenue-based earning leads to a logical conclusion of revenue-based redemption. As ticket prices rise through inflation, more points are earned and the number of points required for redemption rises in tandem. With fixed award charts, inflation means more miles earned — and a need to regularly devalue either earning or redemption prices to offset.

Hotel Program Lessons for Revenue-Based Programs

Hotel programs are similarly revenue-based: points earned from in-hotel spend are calculated as a basis of that spend. While redemptions in the major programs are chart-based (each hotel assigned to a fixed-price category). As a result hotel programs each year shift hotels to different categories based on their actual or projected room rates. And they introduce new higher categories (Hyatt went from 4 to 7 categories, Starwood from 5 to 7, durin gthe time I’ve been following them).

And hotel programs find themselves needing to constantly run promotions in order to keep up, and drive consumer behavior. Their revenue-based earning model alone doesn’t do it.

But Airlines are Gun-shy About Revenue-Based Redemption for a Reason

When Delta was plotting out the course of SkyMiles they planned to introduce revenue-based redemptions. You weren’t going to get a fixed-value per mile (for instance, a SkyMile worth a penny). Instead they were going to borrow liberally from programs like US Bank FlexPerks: ticket prices within bands would have set mileage values. 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:

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.

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.’

But consumers told Delta in focus groups that they wanted the opportunity to get value out of their miles. They’d rather have that than fixed certainty. Delta execs generally deride this idea, don’t understand it, and think consumers are being irrational. They aren’t. Because consumers can use their limited miles when they get good value for miles, and use cash to buy tickets when they don’t. They don’t need to take whatever mileage price is given. And if a loyalty program doesn’t offer the opportunity for superior value, it isn’t a motivator.

Delta Tries to Do It Through the Back Door, Will Others?

Delta was gun shy about revenue-based redemptions because they thought it would turn off their members. It was a step too far.

But instead of committing to keep the value of their award charts, they started moving to the very model they had planned only through the back door. They declared the end of the 25,000 mile award. In order to get there,

The elimination of award charts let them get closer to their original plan of tying award prices to fares without actually saying so.

It’s just a constant stream of new ways to limit actually getting superior value from miles. Delta is the leader in the space. United has developed a reputation for managing by doing what Delta does. Of all the airlines in the world, American’s top executives most admire Delta.

But even Delta has – and hides – its award charts. Let’s hope that other programs are more respectful of their members as they come to understand the importance of giving members at least a shot at value.

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. Most of Southwest’s customers seem to love revenue-based redemption. It’s a perfect match for people don’t want to invest time and effort in learning how to maximize the value of their loyalty program points. That’s everyone I know outside FlyerTalk and other deal discussion sites.

    The world is structured for regular folks, not for the likes of us. The only thing stopping revenue-based redemption is that it’s more expensive for the company to offer.

  2. I don’t think Southwest is analogous, since they have a fairly narrow value band compared to Delta/AA/UA. No premium cabin, no long haul routes, etc. If there were crown jewel redemptions on Southwest that frequent flyers could never earn enough miles to get, people wouldn’t be as happy with the program.

  3. @stvr – I was wondering the same thing. I think this is the insight: Gary believes Delta is the smartest airline and they still use (hidden) award charts, therefore there must be a good reason for it!

    I know, a bit of a letdown.

  4. @nsx

    And how do you figure that most of Southwest’s customers love their model? Seems to me that prior to Rapid Rewards 2.0, WN was handing out a free ticket anywhere in the system for every four tickets purchased online. People loved them their Rapid Rewards back then, and that includes me. I thought WN got a lot of hate switching to 2.0. Keep in mind that the old system was a fixed value, too — one ticket purchased was worth 1/4 of a free ticket.

    These days I fly WN when schedule and price dictate, and collect my “punch card” when I do. But that punch card doesn’t incentivize me to spend more on them or use them more than I already would. Gary would argue, and he’s right, that WN is throwing money away by giving me a free ticket.

  5. @Dan:
    Southwest’s customers love the new program relative to other airlines’ severely capacity-controlled awards, not relative to Southwest’s original unsustainably generous program in which 4 round trips earned an unrestricted round trip ticket.

  6. I have to agree that the punchcard system is pretty useless. If I think of something as easy as the hotels.com rewards, it has never encouraged me to use their website. I shop for hotels on price alone, and if it’s the same price at the hotel chain’s website I always book there instead, despite the hotels.com punchcard.

    Now the Starbucks punchcard is helpful because I can buy 12 coffees at $2 and then redeem for a $6 sandwich.

  7. Why is anyone still blogging about Delta? Southwest is great. Occasionally they offer “Wanna Get Away” fares for take-your-breath-away prices. Ant those prices are also offered in points. Your Southwest points GO A LONG WAY.

    I have no idea how the Southwest rewards model looks to first-class folks, but to me, I thank Southwest for letting me earn so many free flights. Two years, NINE free 1-way flights.

    Don’t be picky, just be an average citizen, and you’ll get many free flights.

  8. I stopped flying Southwest when they went to revenue based redemptions. I saw better value on other carriers. I suppose if I always used my reward flights domestically they would be ok. I haven’t flown Delta in awhile and have stopped trying to earn non flight miles with them. I have orphaned miles with UA and have only one flight on UA this year. Compared to 35 flights in AA they mus be doing something right and now they are set to ruin it and make me float back toward UA and maybe even Southwest.

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