Seat 2B By Joe Brancatelli
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Delta Says It's 'Better,' So Settle for Less
January 14, 2016 --
Does being a "better" airline allow you to offer a less competitive frequent flyer program?
Delta Air Lines (NYSE: DAL) thinks so. It insists that it is "better" than its competitors and has responded with a new series of devaluations to its SkyMiles plan.
The latest cuts to the program that many business travelers already derisively call SkyPesos? An increase to the minimum number of miles you need to claim prime international business class awards and a clear signal that Delta is phasing out complimentary first class upgrades for even its most frequent and elite customers.
Delta's radical calculation — we're better so you'll accept less — puts it at odds with two prevailing beliefs in the travel industry: That business travelers are more loyal to their loyalty plans than the airlines or hotel sponsoring them and that being "better" also means offering a "better" frequency plan.
Before we continue, however, perhaps some definitions are in order.
What is a "better" airline? As a business traveler, I personally think "better" is a combination of six factors:
I believe most frequent flyers feel the same way. The only difference is how we rank the importance of those six factors. Our metaphoric mileage can and does vary as we constantly juggle those components when choosing a carrier.
My judgment of Delta? It's better than its domestic competitors by some measures, worse by others, and lags the world's best airlines when you judge the quality of its in-flight product. The bottom line for me? Delta's frequency program is so repugnant that it outweighs Delta's strengths and magnifies its weaknesses.
Delta, of course, begs to differ. As Delta management repeatedly mentions and highlighted again during an investor presentation last month, the Atlanta-based carrier is lapping domestic competition on key operational metrics. It is at or near the top in on-time efficiency, runs a higher percentage of its schedule than most other carriers, doesn't lose many checked bags and has sharply reduced its instances of denied boarding.
At the most elemental level, Delta works. If you book a Delta flight, you can assume that the flight will run, the seat you booked will be there, the plane will operate on-time and your baggage will arrive with you. Delta is objectively correct when it claims that it is more reliable than its nearest competitors, American Airlines and United Airlines, which it recently surpassed to become the nation's second-largest carrier.
But Delta also suffers markedly in other areas.
Its fares aren't better than competitors. If you plan properly, others will give you a better deal, especially on long-haul, premium-class international flights. Delta last week launched another domestic price increase — even while boasting about record profits and the billions of dollars it is saving thanks to lower energy costs. Delta has also led traditional carriers into an ugly bait-and-switch that promises low fares but actually requires you to buy once-bundled basics as "optional" extras.
As to the quality of its in-flight product, ask lifetime Delta elite flyer Will Allen about his experience booking Delta's Comfort+ section for a Hong Kong flight. He eventually rebooked (at a slightly higher price) on Cathay Pacific and was so impressed that he promises not to return to Delta.
Delta's "best" in-flight product, the Delta One business-class cabin, is cramped, featuring shorter, narrower beds than its finest global competitors. JetBlue's Mint is noticeably better for a premium transcontinental ride and often sells at a lower price, too. Delta's shorter-haul domestic first class and coach products aren't demonstrably better than its competitors, either. One point in Delta's favor: Thanks to a canny deal that brought a fleet of full-sized Boeing 717s into the Delta system at virtually no cost, Delta is eliminating uncomfortable 50-seat regional jets faster than its competitors.
Which brings us back to SkyMiles and, once again, a definition of "better" is in order. Most U.S. carriers have switched to a revenue-based model. Like Delta, they built massive devaluations into the conversion. So no major airline plan is as rewarding as it was a few years ago.
Even by the reduced standards of "better," however, Delta is diluting the value and transparency of its frequency plan with alarming speed. Last year it eliminated award charts entirely, meaning that you never know the hard-dollar value of the SkyMiles that you have earned. Nor do you know how much an award costs. Delta literally creates the price when you request a reward. For all we know, Delta is charging different rates to different travelers for the same award. It's all secret and you're not permitted to know in advance what Delta will give you for the miles you've already accumulated.
Delta recently raised the unpublished lowest price for business class awards to Asia, South America, Africa and the South Pacific. You still don't know how much you'll pay until you try to book, but it's guaranteed that you'll pay thousands of miles more than you did just a few weeks ago.
The biggest SkyMiles devaluation is yet to come as Delta strives to effectively eliminate complimentary first class upgrades, the most prized perk of frequent flyers. Delta isn't positioning it that way, of course, because Delta specializes in obfuscating SkyMiles changes. But we know the perk is disappearing because Delta is publicly crowing about its ability to sell first class seats rather than give them to elite SkyMiles customers, the same elites who've been promised complimentary upgrades as a benefit for being loyal to Delta.
In 2013, according to Delta's numbers, only 45 percent of flyers sitting in a first class seat paid for it or paid to upgrade into it. In 2015, however, Delta estimates that number grew to 57 percent. By 2018, Delta management hopes that at least 70 percent of its first class inventory will be sold outright or acquired by a paid upgrade. That leaves literally hundreds of thousands of elite, high-value Delta flyers competing for crumbs — or, even better for Delta, deciding to pay up to first to ensure they get the perk that Delta promises them for free. Glen Hauenstein, Delta's chief revenue officer and de facto boss of SkyMiles, proudly boasts that the paid upgrade level has soared to 54 percent from 13 percent during the last three years.
Delta is convinced that its most loyal flyers will be okay with this gambit, the higher award prices, the reduced earnings and peek-a-boo award pricing. After all, Delta insists, it is a "better" airline so you shouldn't be so interested in being better rewarded for loyalty.
In other words, pay your $2 — or $200 or $2,000 — and be thankful that Delta deigns to serve you at all.
- On-time performance.
- Operational reliability.
- Schedules that meet my needs.
- Reasonable fares.
- A frequency program that rewards my loyalty and spending.
- A superior in-flight product.
This column is Copyright © 2016 American City Business Journals. All rights reserved. Reprinted with permission. JoeSentMe.com is Copyright © 2016 by Joe Brancatelli. All rights reserved.