Delta Shares How They See Their Shift to a Revenue-Based Program One Year In

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.


Delta SkyClub San Francisco

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.)

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. Delta like all airlines is making a ton of money because oil prices are low and their fees have become exorbitant. If and when oil prices rise or if we enter another recession we’ll see how successful they will be. When I see mainline carriers trying to compete with airlines like Spirit I don’t consider that successful in the long term. The main line carriers are losing their most loyal customers because the rewards for loyalty are no longer there. It’s becoming about the best deal not about the miles. I rack up my miles using credit cards not flying on any particular airline. Before I used to be very loyal which airline I booked but not anymore.

  2. @Gary, Why does Kirby predict that the revenue based mileage program will lead to increased revenue? Is it because he believes business travelers will tend to choose higher priced tickets given that will earn more miles?

  3. Gary, love your analysis re: the sleight of hand. I also think it’s funny that you used a picture of Miss Zachary from the 2015 Freddie Awards, where Delta won…absolutely nothing.

    I’m also so fascinated by the industry obsession with Delta. Granted, I mainly fly oneworld carriers, the few times I’ve flown DL have been absolutely abysmal (exactly the same as AA, in my experience…except for the incremental benefits I might get as an AA EP). So I’m not sure what there is to gush about Delta. From a passenger perspective, it’s the pits. At JFK, T2/3 (whatever one is left) is absolutely disgusting, and T4 is like HKG without the train. And I *guess* their LGA terminal is the best among the terminals…but that’s not saying much.

  4. @ Any word on when during the “second half” AA is moving to revenue-based earning? Hopefully sometime after July 4, since I just booked a trip that will earn ~36,800 RDM under the current rules for <$900 for travel July 1-4.

  5. @John clearly his bet on basic economy fares is getting people to buy up, but there’s not really an expansion on how the frequent flyer program changes would be revenue positive

  6. Wait for the next cycle when oil prices rebound and economy suffers again. Delta will come back begging for customers. Charge $1,200 for a round trip from MSO-OMA is insane!!!!

  7. Like most folks, I’m no fan of Skymiles. But, that said, could there be some TRUTH to Zachary’s assertion that the program has improved since they went revenue-based? It doesn’t seem like an outlandish assertion, especially since they started at such a low satisfaction level. Realistically, in recent years, few people were earning “free travel” from actually buying airline tickets. I’d guess 95%+ of customers couldn’t fly enough to earn meaningful free travel — especially given the paucity of DL’s “low” award availability. Now, maybe some high rollers can. More importantly, if DL has doubled “low” award availability, everyone with miles EARNED THROUGH CREDIT CARDS now has a much better shot at redeeming those miles at plausible reward levels.

    Do you disagree?

  8. There’s that old fable about a man riding a donkey holding a long stick dangling a carrot in front of the donkey . I’ve been that donkey for a lot of years since it was Northwest and now Delta . Since I fly from PDX Delta flies the only available non stop to Narita then a hop to BKK . In the beginning a round trip was 60k miles ( if available ) then 80k and then 100k miles . I despaired of ever catching up to Delta’s award inflation . Then through Gary’s blog and others I learned about sign up bonuses with credit cards . I was recently able to reserve one way seats for late November for only 80,000 skymiles . All of the other days close to that were much more expensive .
    Not too far in the future I will have used all available bonuses for Amex Delta cards . Then we’ll be flying with some other airline .
    Delta doesn’t give a rat about their customers , they’ve made that plain . They just need to change their tickets to say rabble and be done with it .
    So I will work the system until it plays out , then I will spend my money elsewhere .

  9. It’s possible that the new system is better for people who don’t play games. They just buy high fares and fly without regard to the FF program. Which also means that the program has no effect on their spending. It’s an odd sort of incentive program when you penalize the people who would respond to the incentive and reward the people who would not.

  10. In other words, it’s just a kickback program. That’s fine as long as the payer is the earner. Whenever the payer is a different party, though, there are major agency problems and conflicts of interest, which the airlines are happy to create. Now employers have to police their employees, who earn based on “their” spend.

  11. like most people here, I detest “Sky Pesos”. It is not worth the emotional stress, that causes when looking for an award seat. Often times, i see them requiring 400k miles for a one segment itineraries.
    I have used sky pesos on AF going to MRU (Mauritius), one the best vacation destinations in the world, 120k roundtrip in J/C cabin (Business) from North America. However it took me hours and hours and days of scanning the system and calling their very unpredictable agents and hanging up and calling again and again and searching for hours as availability is impossible to find. I have also despaired of ever catching up to Delta’s award devaluation on other routes.
    I do not understand the obsession or the statement in regards to how Delta is better than other US legacy carriers. The times I have flown Delta has been abysmal. The old grouchy MSP F/A’s on a recent trip MSP-AMS altered the service, no drinks first. We waited over an hour after take off to get our meals with drinks, they are as lazy as UA and AA. Then for the pre arrival service they only offered water or juice? I asked for a cup of tea and never got it as the 300 pounder F/A said that it was in the back galley.
    The only reason I am holding on to my skymiles is to use the US to Morocco award which is considered part of their Europe at 60k Roundtrip but I do not understand why the taxes are so high at almost $500 USD.
    Also, I hate the customer service or lack of at DL. I had an ward ticket on VS which I ended up being routed last minute through CDG, that meant less in taxes. However I was charged the much higher LHR taxes and I have written Delta millions of times and no response. I am not sure why I am not able to dispute this with AMEX. I was told that the taxes on an award tickets can not be disputed. But I know for fact that I did not fly through London and Delta owes me at least over $150 dollars per ticket, x 2, $300 dollars that hey will never refund me.
    Also, their partner Alitalia is even worse than Delta Their Flight Attendants are as rude as Delta and have no idea what customer service should be. So, that leaves a somewhat acceptable AF, and they are full of the French arrogant attitude. On a recent flight a broken IFE system and nothing from the crew! They would not move me to another seat because the only other available seat was in Business.
    I had an oversell, situation in MRU with AF in C cabin. I was not compensated at all. I have written to DL but no luck. Where should I write to AF to see if they can compensate me for the involuntary denied boarding that caused me loss of two bags in Athens and missing my non- refundable connection on A3 to JMK?
    Also, AZ lost my luggage last year going to CMN. The special meals were not boarded and broken seats in Y cabin. I wrote to Alitalia and no response. How can I take an airline to small claims or what should I do to get part of my miles refunded?
    The only program is worth having is Mileage plus, as long as you do not fly on the UA metal and fly on one of the star alliance carriers such as TK if you desire an acceptable service.
    Dealing with UA Flight Attendants and agents is as bad as DL and AA. Just avoid all US carriers at all cost. I personally love Turkish, Etihad, Qatar (it is Ghatar not Kaatar as most people pronounce it)..
    I hate the fact that AA makes the reservation to through a ticketing queue and they keep bouncing it back for so many different reasons and not ticket it and everything has to start all over again. I just ticketed a 9 segment itinerary with UA miles, one way and the ticket was issued on the spot on the phone! I did not have to deal with the nasty DL types or AA types. At least the UA agents in the Philippines are polite! I literally heard the AA agents dogs bark, she put me on hold and then released the call….
    The trashiest Flight Attendants on Universe are on UA, DL, AA and AZ (Alitalia)…

  12. Is there a long-term future for rewards points credit cards with occasional devaluations to award charts? How will card companies combat this to make it worth while to have one for travelers, or will cashback be the better option for traveling?

  13. Gary, let’s say Alaska goes revenue based and frequent fliers like me who want full mileage because we’ve grown up on that are forced to revenue based. Do you think there could be a bidding war for number of miles per dollar spent? I notice already JetBlue offers an extra mile per dollar over the others if you book on their site. Will you be tracking and publishing a breakdown of each airline’s earning rate for miles per dollar spent? My fondest hope is if this happens in say 2 years that there will be a bidding war to try to woo back customers outraged that their mileage earns have dried up to insulting amounts.

  14. I thought delta is going to base award tickets off of demand. That system works fine for JetBlue and Southwest.

  15. It is not a surprise that redemptions have increased 14% when you have 2x more low level award seats, one-ways and some price reductions. Really the surge should be higher.

    As for lack of attrition, that stems mainly from the dearth of alternatives at fortress hubs and among competitor offerings. However, I would expect DL has lost market share on routes where it competes with VX and WN, which offer better products and arguably better FF programs.

    Also to soon to tell if DL program “enhancements” will drive more business to international carriers. Who is going to accept Skymiles when they can fly SQ and get real miles?

  16. I find these comments very interesting. The company that I worked for 15 years and now my husbands company has Delta as their preferred airline travel partner. These are both very large global companies who use the American Express corporate travel agency. This is one big reason so many business people fly Delta. My husband will always fly Delta when he can, due to the excellent customer service that he receives from them. He is a road warrior and is almost always upgraded. He has even received hand written Thank you notes from the crew for his loyalty to Delta. The one comment about business travelers not caring about points, is true. They want the Elite status, but do not care about their points. The last thing my husband wants to do is get on another airplane on his vacations. I now use his points to travel on vacations with friends and family, since I don’t travel for business. It is all about the bottom line. Delta is catering to business travelers and it seems to be working for them.

  17. Nita,

    I switched about 80% of my business travel to Delta two years ago ($80-100k/year, heavy international) and have experienced similar treatment to your husband. I have become a big fan of Delta’s reliability and service (for a legacy US carrier) recently.

    Where we part ways is your comment that business travelers do not care about points. The reason I switched from primarily AA was because the introduction of revenue-based accrual roughly tripled my annual point accumulation. I am fanatical about points because I love to travel internationally on vacation with my wife and kids and the points enable the entire family to travel in business class, making a long weekend in Italy or a spring break in Brazil a very pleasant experience. Occasionally, my family will meet me somewhere after I have completed my business and we will spend time together enjoying a different part of the world. Were we to pay cash instead of points or SWUs for the business-class travel (even Z fares) our personal fares would cost us another $30-40k/year.

    Also I have given away business class honeymoon trips to family and friends, and this has been very popular.

    So maybe your husband doesn’t care about points, but we do!

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