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Delta Airlines Revamp of their Loyalty Program The Winners and Losers

For most travelers originating from Denver International Airport, Delta Airlines revamp of their mileage award program will not affect most of those fliers as Delta has a limited presence in the Denver market. However the program revisions are being watched by the remaining legacy airlines, American and United the later with a major hub presence in Denver.

Of note, earlier this year, United revised its Mileage Plus program, the largest of the loyalty programs to add a qualification measure known as Premier Qualifying Dollars which are awarded for flights booked directly with United or ticketed on United. Of note, I recently booked a vacation package via United Vacations and while I was awarded mileage I was NOT provided with Premier Qualifying Dollars as the ticket, while flying on United was technically provided as a bulk ticket through a third party, The Mark Travel Corporation which operates United Vacations and thus lost out on $900 of Premier Qualifying Dollars.

Concerning Delta, the Skymiles program will have immediate winners and losers. The program will now award miles based not on distance but on fare paid, a true game-changer for the legacy carriers (yet such a program has been in use with JetBlue and Southwest, two airlines with a limited International presence). The Delta program, taking effect on January 1, 2015 will award from 5-11 miles per dollar spent on airfare depending in ticket type, Skymiles Medallion Program level and if the Delta Skymiles branded credit card is used for the purchase of the ticket.

As most travelers in the United States know airfares increase the closer to date of travel. Those travelers booking the highest priced close-in travel dates are generally business oriented as most leisure travelers book in advance and thus secure the lower airfares.

The Winners: Business travelers will be the inherent winners; paying the highest fares and booking the higher class of service will in turn provide the highest mileage awards. Yet some leisure travelers will benefit as well.

For example for flights of 500-1,000 miles that are ticketed in the $300-$400 range fliers may actually benefit when compared to the present program. Assuming a fare of $300 for the flight of 1,000 miles would have awarded the standard 1,000 miles; the new program providing a minimum 5 miles per dollar spent will provide 1,500 miles.

For those fliers who use Delta Shuttle between New York, Boston and Washington, flights of less than 500 miles may do very well as the miles per dollar spent exceeds the actual distance. Also those using Delta’s Hartsfield-Jackson Atlanta hub traveling to destinations in the southeast i.e. short-haul will also benefit.

The Losers: Are those who fly longer haul or international an booking lower priced fares. Concerning domestic longer-haul and competitive routes (an example, Atlanta to San Francisco), the loss of traditional miles will be exacerbated for those who book in advance and secure for example a $500 round-trip. At the 5 miles per dollar spent, the award would be 2,500 miles for the round-trip versus the existing program which would aware in excess of 8,500 miles, the actual flight miles. For international flights, the loss is even greater as miles per dollar spent are on the base airfare before taxes and fees. Coupled with the actual flight miles, those customers flying on advanced discounted airfares will received limited miles; in many examples, 50% less than provided in the existing program.

The outcome of the program and if the other legacy airlines follow suit will be watched closely. If Delta is successful i.e. attracting additional business fliers willing to pay higher fares and reap additional award miles, the legacy airlines will most likely follow.

However if there is a backlash by business fliers who in turn leave Delta and use the other legacy carriers for their travel, there is a chance the program will not be emulated.

In many respects while Delta is on the whipping post at present, the United program has its detractors as well concerning the Premier Qualifying Dollars requirement which uses base-fare cost towards the award and the requirement to ticket on United which questions the value of the larger Star Alliance program an the partner airline programs for both rewards and code-share.

Most interesting for the Denver market will be how United reacts as it is a hub in Denver and dominates our resort markets in the mountains, offers the largest mileage award program, dominates the Star Alliance partnership and has a popular branded credit cards. As United continues to increase long-haul flights originating from Denver i.e. nonstop to Tokyo, loyal fliers will be watching.

While the airlines may be challenged in the press and on blogs for continuing to tighten restriction on mileage programs; passengers are partially to blame as we have been programmed to search out the lowest available airfare and in turn try to redeem miles collected via discounted tickets. Coupled with an expanding worldwide post-recession economy and increase in travelers coupled with static seat growth; the reality is airfares will increase and award miles and opportunities to use them will decrease.

The challenge for the airlines will be to assure their most loyal clients that the changes in their programs will provide increased award ticket availability and upgrade options.

There are winners few have mentioned and those winners may be Southwest, JetBlue and Frontier. If fares are close to equal and mileage is somewhat of a disincentive there may be a move from the legacy carriers to smaller carriers; many which are adding international destinations and code-shares with non United States based carriers.

The legacy airlines may wish to look at the larger picture i.e. retaining loyal long-term clients including both business and leisure travelers. In addition if fares are oriented towards equilibrium between legacy and non-legacy airlines, there may actually be a return to a service orientation as competition for the flier’s dollar versus just selling a seat which is truly a perishable commodity. If unfilled, can never capture its value again.

With the number of legacy airlines reduced to three from the original eight which included Continental, now part of United, Northwest now part of Delta, US Airways now part of American and the original global airlines TWA, part of American and Pan Am which dissolved in 1991, competition will be scarce. In addition, the challenges to start a new airline in this era is truly cost-prohibitive. It is unlikely we will ever see entities post deregulation from the low fares of People's Express to the 2x2 seating of Midwest Express which included the serving of warm chocolate chip cookies. While some industry players desire Virgin to expand their presence and discuss the possibility of a foreign discounter i.e. Ryan coming our way, the odds are far from favorable.

Thus in the coming months and years brace for higher fares and additional challenges in obtaining and spending those loyalty miles. Yet of note, when inflation is factored in, airfares continue to be historically less cost then before deregulation. Yet as one peer who was a flight attendant back in the heyday of travel suggested:

"Bring back regulated airfares so we can watch the Caesar Salad being tossed in the wide and expansive aisle served on porcelain dishes and with actual silverware".

Of note and full disclosure, I am a member of United Mileage Plus for over 25 years with a Mileage Plus number beginning with five zeros.

Happy Travels

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