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Puckinflight

An all things aviation blog

Tag Archives: Skymiles

So it is starting to become old news that Delta is adding a minimum spend requirement to the SkyMiles elite tiers for 2015. I am a bargain basement mileage runner looking to get status at the lowest possible cost. In short I am the person Delta is looking to eliminate from its elite rolls. CNN Money to did a cogent review of the change, http://finance.fortune.cnn.com/2013/01/23/delta-frequent-flyer/.

CNN’s argument is this, let’s say I am going from Phoenix to Orlando, before the change since I have status of Delta, I would take them at equal or pay a slight premium to fly Delta. Now that I will not have status, I will only take Delta if they are at best equal with other carriers. So here is the question that needs to be asked, does this change make me wan to spend money on Delta? Easy answer is no. Does it make any flyer want to spend money on Delta? I don’t think so, the people who will be elite under this scheme will be the business flyers and they don’t care since it is not their money.

What CNN fails to consider though is this. People generally see frequent flyer programs as equal. If you look on surface, Delta, American, US, and United all have very similar programs. All offer trips for 25K miles, all offer credit cards, all allow rewards with partners. What people do not see is the fact that all the programs are different. Critically here is the value of a SkyMile. A SkyMile is worth less compared to an AA, US, or United mile. It is worth less because their miles are generally difficult redeem at the 25k level, and there are few partners to redeem on. Without elite status the SkyMiles program is of little benefit reward wise. However, the average elite traveler will not notice this, well until they find themselves earning at a lower level.

Delta is trying to polarize their program. Delta wants to attract the high revenue flyers even if they are high cost. Delta doesn’t care if they are spending 10 cents a mile on a flyer if they are getting 30 cents mile from that flyer. Also Delta wants as many people as possible in the SkyMiles program. The person who doesn’t travel and just has the credit card to redeem for the occasional trip to Orlando. This flyer represents very little cost to Delta and the revenue from the credit card and the occasional ticket that is redeemed or sold outweighs that low cost. Delta thinks by implementing this program they will eliminate the high cost low revenue flyer that I represent. The question remains what revenue will replace the albeit limited revenue I generate.

CNN’s review is a cogent review of the new program and why it will fail. That being said, I think it will succeed the push to a revenue based model is to strong.

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Yahoo.com is reporting that Delta has confirmed the revenue requirement for their 2014 SkyMiles program.

http://finance.yahoo.com/news/delta-updates-skymiles-medallion-program-140000338.html

This is disappointing, mostly because I travel on el-cheap fares, but it is not unexpected. I suspect if this sticks, UA and AA will join them. That being said, the changes only apply to US and US Territory members. So those wishing to avoid this need only to have a non-US address.

http://www.delta.com/content/www/en_US/skymiles/about-skymiles/news-and-updates.html

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John Nicholson of the Huffington Post publishing an article today proclaiming America’s need for a five star airline. http://www.huffingtonpost.com/john-nicholson/america-needs-a-five-star-airline_b_1823666.html In this article he proclaims need for better loyalty programs and better on-board service. He states that compared to international carriers US Airlines provider generally inferior service and an inferior product. He writes from the position of being one of Delta Airlines “Diamond” members. Diamond is the top tier of Delta’s loyalty program. His argument is that US carriers should strive to become more like the foreign carriers like Singapore Air, and that the regulatory system in place, is a detriment to US commercial aviation.

He is both right and wrong.

Loyalty programs are interesting. The US airlines have the most generous frequent flyer programs. Let’s compare John’s program of choice, Delta Skymiles. With Skymiles John gets complementary upgrades on domestic flights, discounts or no fees at all, upgrade certificates, lounge access, bonus miles. Compared to Lufthansa Delta’s program is beyond generous. Lufthansa’s Miles and More program doesn’t provide complementary upgrades, limited bonus miles, and limited upgrade opportunities. But it is not the miles on the ground that concern me, it is the benefits in the skies. Even if Lufthansa gave out complementary upgrades it would be upgrades to a coach seat with slightly better food. The plush seats that John likes so much do not exist on most short haul flights.

John’s point though is well taken. Ask any frequent flyer, who would they fly long haul, an American carrier or a non-American carrier and you would get non-American carrier every time. Why is that? Well service and seats tend to be better on non-American carriers. However, there is no incentive for American carriers to provide better long haul service. Most US Airlines are in agreements with European carriers to share all revenue on long haul flights. This means that while Delta and Air France charge the same amount and split the revenue, the lower cost structure of Delta’s service means they make more money. Oddly, the most innovative US carrier in premium cabins has been US Airways, and they are not in a revenue sharing agreement with anyone.

John’s next point is that loyalty programs have been devalued. No shock there. US Airlines see loyalty programs as a revenue center, not a cost center. Airlines make huge amounts of money by selling miles to banks, credit cards, hotels, and shopping partners. The problem is the same with countries, the more miles issued the less each mile is worth. Airlines have countered this problem by reducing the amount of available seats and increasing the cost of awards. As John knows he would be very lucky to find domestic reward sets for 25,000 miles. Now, most seats on Delta go for 40,000 miles. This is basic inflationary pressure. Non-US airlines tend to limit the amount of miles issued through non-airline partners and through bonus miles as part of elite service.

So what can US Airlines do? Well, like John said US Airlines need to rededicate themselves to service. It is ok for airlines to provide peanuts or sell meals if the service is good. It is beyond me in the age of increasing dissatisfaction with airlines; the airlines can use service as a way to differentiate themselves. However, the service personnel are fighting any change that would require them do work. American started to provide PJ’s to their long haul first class passengers. The union that represents American’s flight attendants fought the change saying it would impact security. I have been on flights with downright atrocious service. Maybe the glamor is out of air transportation, maybe it is not. US airlines need to make these changes in order to be successful, it is just a question of will they.

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