I spent a few minutes listening to Delta SkyMiles Karen Zachary this morning recapping the program’s first year having moved to revenue-based earning for flights.
She pitches it as a resounding success, and of course Delta is successful overall relative to its peers. Delta had been successful relative to its peers prior to the change. And they had long viewed the SkyMiles program as the weak spot at the airline internally, or so Delta executives had told me.
Her overarching claim is that the program now awards high spenders more but also provides more value for everyone.
Karen Zachary Welcoming Attendees to the 2015 Freddie Awards in Atlanta
She points to some data points:
- A 14% increase in redemptions year-over-year in the first quarter, up to 2.2 million tickets.
- A 10% reduction in the average award price.
- Twice the award availability at low levels
- 10 award sales offered during the past year
- Increased miles earned by Medallion elite members by 10%
Now, the major US airlines took the opportunity to devalue their programs at roughly the same time as becoming more revenue-based. Delta doesn’t really reward high spenders more than before, just more than they reward low spenders now.
Zachary acknowledged, “We were always a little stingy on our low award availability” in the program before. She notes that three fourths of the program’s air redemptions are for US domestic coach travel. And she thinks they’re doing better in that space than before for members.
Now some of this seems like more than a little sleight of hand with statistics.
- Of course average redemption prices are going to go down with the introduction of one-way awards, followed by member awareness and acceptance. It’s shocking the average redemption is only 10% less expensive than before.
- And of course Medallion elites are going to earn more miles through a revenue-based program once the airline lopped off the lower spend portion of their elite ranks by making elite status revenue-based as well.
These are tautologies. We don’t hear about total earning for flying through the program across all members. And we don’t hear about the multiple times that award prices have gone up since the launch of Delta’s revenue-based earning.
Now, it’s true that Delta’s miles never expire (except when you do). Zachary describes this as “a key selling point for the program.” She reports that they’ve experienced fast growth in new program signups and in adoption of their co-brand card.
She says they thought they would lose long haul flyers with the change to revenue-based, since they were no longer going to be as generous rewarding miles for flying long distances. But that didn’t happen. Customers aren’t defecting from Delta even though Delta is less rewarding.
In the future Delta will offer miles for more things, and offer more redemptions. Millennials are important to them and that means more immediacy and more understanding of customers as individuals. (As a side note there are too many consultants out there selling too much insight about what they think millennials are going to want and how it’s different from actually offering strong value.)
She thinks the reason you join a program “is you want something free in the future, like Starbucks” and she described their punch card model. Interestingly it’s not about aspiration, superior value, just a “buy 10 get 1.”
Which ties to her reference to spending miles for champagne in their club — something that offers exceptionally poor value to the consumer, not only because you’re getting only one cent per mile towards the purchase price that’s based off of the inflated pricing you face in the lounge. You aren’t really getting a penny a mile on Dom Perignon when it’s priced at $250 not $125.
Interestingly, she was asked about Scott Kirby’s excitement about moving American AAdvantage to revenue-based earning and how he seems to suggest on the airline’s earnings calls that there will be revenue growth associated with this change.
Karen reports that she does not attribute an uptick in revenue to revenue-based changes to the SkyMiles program.
Delta’s Passenger Revenue Per Available Seat Mile (PRASM) exceeds the industry average. But it’s not clear that SkyMiles “is tied to that” although “it could be a piece of that.” Certainly she “can’t say it’s a large part of it.” (There are plenty of reasons to fly Delta over other airlines, but SkyMiles isn’t one of those reasons.)