DELTA THINKS WE'RE ALL RUBES
By Joe Brancatelli
February 27, 2014 --Delta Air Lines rolled out massive changes to its frequent-flier program on Wednesday and there is one depressing conclusion: Delta thinks business travelers are gullible rubes who are so obsessed with earning miles that they pay no attention to what those miles are worth or what they can buy with them.
How else can you explain the fact that Delta told us all about how you will earn SkyMiles next year, but literally nothing about what the awards are and how they will be priced? And I'm not embellishing the facts for dramatic effect. The announcement was all and exclusively about one side of the frequent-flier equation.
So if you want to know about how you can earn SkyMiles beginning in 2015, I can tell you a lot about what Delta said. But what those miles can buy? Not a clue. Delta said only that they'll get around to telling us about the 2015 award prices "later in 2014."
In other words, says Delta, keep flying us because we want your fare dollars and your loyalty, but you'll have to trust us about how we'll reward your business.
The problem with that? Delta has repeatedly devalued the SkyMiles plan and each subsequent announcement infuriates even their most loyal fliers. It's not for nothing that Gary Leff, a well-known blogger who specializes in points and miles, called it SkyPesos and the derisive moniker has stuck.
Stevan Grosvald, a legendary airline executive who has been involved in frequent-travel programs since they began in the early 1980s, was one of many I spoke to who couldn't understand Delta's one-sided announcement.
"They should have released both sides of the equation," he says. "I don't like the phrase, 'Trust me, you'll like this.' Besides, you don't take the most powerful marketing program you have and talk about it in bits and pieces."
"Delta shouldn't assume loyalty is blind," adds Henry Harteveldt, a former airline executive who tracks the industry for Hudson Crossing. "That's especially true since Delta has made a series of [SkyMiles] announcements lately that has benefited Delta, not its customers."
Or there's this from a long-time frequency program executive who I trust implicitly: "In my wildest dreams, I couldn't imagine releasing a half-baked announcement like this. It's insulting to customers."
Perhaps worst of all, Delta's one-sided announcement is less than what it seems. That becomes obvious the more you peck around the earnings details that were released.
As you can see by its breathless boilerplate, Delta finally implemented something that's been in the works for years: a switch from a miles-based plan to a frequency program based on revenue and the fare dollars you spend. That is the standard for hotel frequent guest plans and a model recently adopted by Southwest Airlines. JetBlue Airways and Virgin America, but not United or American airlines.
Effective January 1, 2015, Delta fliers will earn SkyMiles based on the dollars they spend for a Delta flight, not the number of miles flown. Average travelers will earn five SkyMiles for each dollar spent. That rises as high as 11 miles per dollar for SkyMiles Diamond elites, who earn that elevated status by flying at least 125,000 miles a year on Delta.
The purpose of switching to a revenue-based earnings formula is to reward an airline's biggest spenders, not travelers who use low-cost tickets to rack up miles. Rewarding your financially valuable customers is standard in other businesses, of course, but frequent-flier programs have been saddled with a "mileage-based" strategy since they began in 1980, when, in fairness, there was a rough equivalency between the number of miles you flew and the money you spent.
The concept of "most financially valuable" traveler is a bit slippery, but Delta executives have implied that 4 percent of their customers are responsible for as much as 25 percent of revenue. Those fliersóDelta refers to them internally as HVCs, meaning high-value customersóare a fraction of the 90-plus million members of SkyMiles.
"The new model for earning miles will increase rewards for those who spend more, as well as differentiate SkyMiles for our premium travelers," says Jeff Robertson, vice president in charge of SkyMiles.
But there's where Delta's announcement diverges from the reality of the earnings possibilities in the 2015 program. On 20 routes I checked with the aid of a calculator Delta posted on the web, Delta's most frequent customers won't do as well in 2015 as they do now.
Consider New York to Los Angeles, the nation's busiest, most prestigious and most consistently profitable route. A general Delta customer will need to spend at least $1,000 in the 2015 model to earn the same number of miles as you can currently accrue. A Silver Elite customer, who flies at least 25,000 miles a year with Delta, will need to spend just $800. But then it gets weird: Higher Delta elites will have to spend more--and even more than a general flier with no loyalty to Delta. Gold Elites (50,000 miles) will have to spend $1,250 on a New York-Los Angeles flight in 2015 to earn the same number of miles as they're doing in 2014. Platinum Elites (75,000 miles) will have to spend $1,100 and the Diamonds Elites will have to spend $1,150.
Or try New York-London, the most crucial international route and one Delta is so desperate to dominate that it bought a 49 percent interest in Virgin Atlantic last year. To match what they earn now in Skymiles for a New York-London flight, general travelers next year will have to spend $1,450. Silver Elites will need to spend only $1,250, but the higher elites must pay much more: $1,750 for Gold fliers, $1,550 for Platinum Elite and $1,450 for Diamonds.
There are other quirks, too. Delta's partners in the SkyTeam Alliance and even Virgin Atlantic won't play in the revenue part of the earnings scheme. Unless you're flying them on a ticket written with Delta's 006 identifier code, you'll only get credit based on mileage flown.
Still, this snappy analysis remains stubbornly one-sided. Without knowing what Delta intends to charge for awards, it's impossible to know how SkyMiles will look and act in 2015.
But we can guess and, based on Delta's poor track record in providing SkyMiles award seats at competitive prices, the other side of the equation looks dreadful. Delta has told us that there will be five award levels in 2015, up from the current three, and that fuels speculation that the most coveted awardsólong-haul, international business-class ticketsówill skyrocket in price.
"The house always wins," says Harteveldt, the industry insider turned analyst. "There's no reason to believe awards will become cheaper next year."
When all is said and done, though, what rankles most about Delta's news is the announcement itself. What does it say about an airline's opinion of us if it believes it can get away with talking only about half the story?
"It proves what I always thought about the airlines. They don't respect us," Justin Elfson, a 120,000-mile-a-year business traveler told me by email after Delta's announcement. "I would not treat my customers this way. Why do airlines think they can run their business this way?"
ABOUT JOE BRANCATELLI Joe Brancatelli is a publication consultant, which means that he helps media companies start, fix and reposition newspapers, magazines and Web sites. He's also the former executive editor of Frequent Flyer and has been a consultant to or columnist for more business-travel and leisure-travel publishing operations than he can remember. He started his career as a business journalist and created JoeSentMe in the dark days after 9/11 while he was stranded in a hotel room in San Francisco. He lives on the Hudson River in the tourist town of Cold Spring.
THE FINE PRINT This column is Copyright © 2014 American City Business Journals. All rights reserved. Reprinted with permission. JoeSentMe.com is Copyright © 2014 by Joe Brancatelli. All rights reserved.