Delta SkyMiles Going Fully Revenue Based

Early last year Delta announced that they would be introducing a revenue based frequent flyer program as of this year.

The good news is that it wasn’t totally a revenue based program. Instead of awarding miles based on revenue, they instead just added a revenue requirement. That basically means you’d have to spend a certain amount to achieve status. That threshold was an average of ten cents per mile, meaning you’d need to spend $2,500 for Silver Medallion and $12,500 for Diamond Medallion, for example.

The good news was that the revenue requirement was waived if you had a foreign address on file on your SkyMiles account, or spent $25,000 on one of their co-branded American Express Cards. United quickly followed suit and added a similar revenue requirement, except there was no way to waive the revenue requirement through credit card spend for achieving their top tier Premier 1K status.

Delta just announced a massive change to the SkyMiles program, one which actually changes the industry in my opinion. They’re finally going the way of JetBlue, Southwest, Virgin America, etc., by actually awarding miles based on ticket cost as of next year.

While we don’t have all the details yet, The Wall Street Journal has some information at least:

Under Delta’s new rules, scheduled to be announced on Wednesday, passengers with no elite status in SkyMiles will receive five miles for each dollar spent on tickets, excluding government taxes and fees. Those in the highest elite level will receive 11 miles per dollar spent. For fliers redeeming their miles, Delta will continue to award tickets by pricing them in miles, not in actual cash fares, offering different levels of availability as it does today.

This is horrible. Lets put this into perspective for a second. With Delta’s revenue requirement that’s in place right now they’re basically requiring you to spend an average of ten cents per mile.

So as a non-elite member you’ll apparently be earning five miles per dollar, which is 20 cents per mile. That cuts earnings rates in half.

As a Diamond Medallion you earn a 125% mileage bonus, meaning at an average of ten cents per flown mile you’re earning 22.5 miles per dollar spent, compared to the new maximum of 11 miles per dollar spent. Again, earnings rates are almost being cut in half. On top of that I bet that taxes and fees don’t count towards ticket cost for the purposes of awarding mileage, so it’s even worse than that.

We should hopefully have more information tomorrow, but unless you consistently book full fare first class tickets you’re going to lose here.

The worst part is the justification by Jeff Robertson, the VP of Delta SkyMiles:

Mr. Robertson said hundreds of customers in focus groups over the past three years indicated that the highest elite fliers felt under-rewarded. Customers also made it clear they wanted it to be easier to redeem miles and to have more lower-mileage award tickets available, he said. Delta has been rapped in recent years for having stingy awards ticket availability at the lowest mileage levels. He said the new program will improve award availability at the lowest levels.

Ah, yes, better award availability by issuing fewer miles to people actually flying!

And the irony here is that it will likely just continue to be easier to earn miles through means other than flying. Punish frequent flyers while increase the earnings opportunities for those accruing miles through other means.

Apparently there will also be some other changes to the program, like the introduction of five award tiers, one-way awards, and the ability to redeem a combination of miles and cash for tickets:

Delta plans to introduce a system with up to five tiers of redemption choices so customers will have a wider variety of options, including one-way reward tickets and the ability to redeem tickets using both miles and cash, Mr. Robertson said. The new redemption levels will be disclosed in the fourth quarter. Delta intends to introduce functions next year that will allow customers to be able to use miles to purchase ancillary products such as seating in the roomier Economy Comfort coach seats.

But go figure they’ll only share those details in the fourth quarter.

My favorite part of all of this, though:

He also said the company plans to improve its website to make shopping and redemption simpler.

So this is what it takes for them to finally fix their award calendar?

I mean, at the end of the day we can only give credit to Delta. They’re outrageously profitable, they treat their employees well, and they do absolutely everything they can to drive away customers… but people keep coming back for more.

Counting down the days till United makes a similar announcement now…

Comments

  1. I have a huge stash of skypesos that I’ve never been able to use. Maybe, just maybe, this will make them a little easier to use. I just hope and pray that this isn’t a sign of things to come on UA, AA, AS, etc…

  2. The Inside Flyer page has a picture that is even worse than you are painting the picture. The 11 miles (might as well start calling them points) per dollar is already the 125% bonus over the 5 for a general member.

  3. When does this take effect? 2015?

    Arguably, since Skymiles aka Skypesos were never worth much to begin with, maybe it doesn’t matter as much, but if(when) UA and AA match, then it’s a huge devaluation – and what will be the impact with overseas airline partner travel?

    I think there are four major flaws with the whole move to revenue-based programs. One is that the closer the pricing moves to a straight discount off the fare, the easier it is going to be for big companies to negotiate fares that claw back the discount and don’t award any miles at all. Yet airlines should be using the miles to incent and reward individual travelers who are putting up with the pain and suffering and time away from home, and who can influence carrier more than the employer would like. Second is that it makes it easier for the IRS to tax. Third is that if airline revenue management and fare policies are doing their job, an early booker and a late booker at higher fares are both valuable to the airline, and the high fares for late bookers come with more flexibility, later commitment, last seat availability, etc. and don’t need to be rewarded with a higher rebate. People paying high fares must go on that flight due to their schedule, they aren’t picking the flight for the points. Final point is that having aspirational awards that aren’t so closely linked to price makes the whole program psychologically addictive, like gambling, even if most never get the big redemption, they feel like they might. The more it feels like a 5% rebate that you can use to buy another ticket to visit the relatives in Peoria, the less valuable it is instead of that first class trip to Paris…

  4. Seems like this is a good thing for segment warriors, and certain bloggers with Delta AMEX affiliate links.

  5. I don’t even fly Delta and I can already see United and American following. United quickly followed Delta with revenue requirements and American has the perfect excuse in the form of their merger to make what I’m sure they’ll call ‘improvements’ to their program.

    I agree that the aspirational nature of mileage accrual is what makes it attractive. Earning 1-2% cashback, or even 5% cashback doesn’t have quite the same appeal as thinking about how you’re slowly getting closer to that dream vacation. Perhaps because earning miles and points is like putting money away; cashback just goes right back into the general pool, to be spent again on gas, groceries, and essentials, while points get put in their own bank, slowly accruing until you have enough to get that round-trip first class ticket you’d never ever pay out of pocket for.

    At the moment, though, we might have some insulation via alliances, and we may see more and more people crediting their miles to other programs within an alliance. This is harder with credit card earning, but it may spread the risk around.

  6. As a not too frequent flyer, wondering if it’s time to get rid of the Platinum SkyMiles card – this year was the first year basically it alone was unable to make me a Delta – and just concentrate credit card spend on another card that rebates 1% of all spending in cash. With some minor amount of status through MQM bonus, etc., used to be worth the $150/year for this card. Now, about all that’s left is the companion ticket, and I didn’t even use that last year anyway.

  7. Where does the 20c / mile calculation come from? Doesn’t it depend on the cost of the ticket? Or are Delta tickets always a fixed price per mile?

  8. @ jon — Yep, absolutely does depend on the fare. Through Delta’s current revenue based program they’re basically requiring you spend an average of ten cents per mile, so I was using that as a baseline.

  9. Horrible news? Au contraire – at least not for those who generate profits for Delta (they get rewarded for their busine$$).

    Travel hackers are not so subtly being invited to go elsewhere – or sit in the back. No more caviar for 20-Somethings who can barely afford a decent pair of shoes…

    Long overdue development.

  10. Can’t to see how your fellow Boarding Area colleague The Delta Apologist will spin this into some wonderful enhancement to the program

  11. So, if I’m understanding correctly…a base ticket price of $500 (not including taxes and fees) will only net me 2500 miles, yet I’m actually traveling over 12,000 miles? Looks like I’ll be ditching my Delta Platinum Amex also.

  12. While this is very bad for customers who earn their miles by actually flying, base on the info quoted from WSJ, it doesn’t affect customers who earn their miles with credit card bonus/spend.

    WSJ piece says : “For fliers redeeming their miles, Delta will continue to award tickets by pricing them in miles”

  13. Ultimately I think this is just paving the way for consumers to demand domestic flights operated by foreign carriers. The industry is shooting themselves in the foot by dismantling the loyalty programs that would stem the attrition posed by such a threat. When there is nothing but quality of service differentiating the options, it’d be hard to choose a US based airline. That’s just conjecture of course.

    But really who cares about any of that. What really matters are the opinions of those who “generate profits for Delta (read: my company pays for all my flights and thus I get to look down at those gaming the game)” yet seem to follow the thoughts and musings of “20-Somethings who can barely afford a decent pair of shoes.” Why are you here again?

  14. Lucky, I think you answered your own question – you asked, “…I bet that taxes and fees don’t count towards ticket cost for the purposes of awarding mileage…”

    In the quote from the WSJ that you have right above that paragraph, it says “…passengers with no elite status in SkyMiles will receive five miles for each dollar spent on tickets, EXCLUDING government taxes and fees.” (emphasis mine).

  15. @Paul:

    Thats the thing though, I’m not sure this change actually does that. Travel hackers these days aren’t doing MRs, they’re manufacturing spending. This change doesn’t seem to weaken the power of CC signups/spends muh

  16. Better award availability? The total number of miles earned from credit cards has to be competitive with that from flying these days…

  17. @Paul

    Show me one award flight that you can book with Skypesos to score some caviar. Better yet, show me one pair of decent shoes that you can purchase with Skypesos. Let’s not throw around the words “Delta” and “rewarded” all willy nilly.

  18. The day that UA. do this is the day many will switch to VX and AS from SFO for US and other airlines international. Mileage program is the main thing of value at UA.

  19. From the WSJ article:
    Delta has been rapped in recent years for having stingy awards ticket availability at the lowest mileage levels. He said the new program will improve award availability at the lowest levels.

    As an example, he said, awards tickets to Europe, now priced at 60,000, 90,000 and 125,000 miles, could be broken into five tiers, including tickets for 75,000 and 105,000 miles.

    Why do I think there will be no improvement at the low levels, just more miles required to get any reward

  20. Luky

    Let me give you my take on this

    The old system
    1 mile flown cost 5c (less than 10 anyway) = got 1 skypeso
    1$ spend = 20 miles = 20 skypesos or even 25 for mileage runners

    The new system
    1 mile flown = 10c
    10 miles flown = 1$ = 5 skypesos
    So 1 mile flown = 0.5 skypesos

    They have CUT earnings by 50% for non elites
    They have kept a 10% premium for DM flyers.
    (also cut 50% from 225%)

    I am sure that different fares will have different miles back
    F class will be more than economy I am sure

  21. One world alliance looks better unless they follow suit. Time to cash in on diamond medallion status. Delta screwed it’s ff program.

  22. I’m pretty sure this ends my Delta status. I was already assuming I wouldn’t hit the mark next year with the introduction of the revenue requirement, but this move likely weeds out a BUNCH of Silver medallions. Looks like I’ll be opening a new award credit card and canceling my Delta AmEx, since it’s not going to help me reach any status.

  23. Am I missing something here?

    As a DL Platinum from BIS miles last year, this seems excellent to me. I used the calculator on their site for some of my upcoming trips, and I’ll be getting LOTS more miles under the new system than the old.

    It also cracks me up when people say they have millions of “skypesos” that they can’t use. Really? I’ll take them. I’ve had no problem finding seats up front on all kinds of flights, at the lowest rate. (Ok, once I couldn’t but Lucky/PointsPros helped me out.)

    Oh – and if this reduces the number of Golds, Plats, and Diamonds – well, that rocks too! More upgrades for me.

  24. I really hope UA does not follow. With *A at least there are plenty of other FF programs out there that one could credit to.

    Vanilla Reloads will be like gold in the FF community 😀

  25. Lucky,
    As a new Atlanta-based flyer that was planning on using my Alaska MVP gold status when flying Delta, do you think this is a good strategy given the battle out in SEA and the impending split between the two companies? Or should I just give in and put all my Skypesos in one basket with Delta?

    Thanks

  26. Amazingly, this will be good news for my husband who often travels on fares bought the day before (think 500-mile routes on $800 fares). Bad news for me, and for the rest of us.

  27. Honesty this won’t affect me, at least not directly – I earn probably 90% of my miles through credit cards. This will make me even less likely to ever purchase a revenue ticket.

  28. Ultimately where this will hurt them is the ‘kettles’ who figured they would get a free ticket once every 2 to 3 years and would spend more $$ to fly DL, now those customers will find it takes 4-6 years and therefore the little loyalty they had is gone.

    I have friends that fly DL cross country, earn 5000 a trip, spend $400 per flight and do it twice a year, so after 2.5 yrs they have free tickets. NOW they earn 2,000 miles a trip, 4,000 per year and it takes them just over 6 years to earn a free ticket… Answer is they will now spend $$ elsewhere, driving away revenue. I don’t see how this is a net win for them?

  29. @Neil – make sure you aren’t including taxes & fees in your calculations. I’m pretty sure that except for short routes and highest fares, this is a loss

    @Becky – your husband will benefit. But it’s a crazy business decision, because he’s already flying DL and has few choices last minutes. There’s really no reason DL needs to give him a bigger reward. DL should use the loyalty program to reward people who do have a choice, and if the revenue management is doing their job a flyer is valuable whenever they book.

  30. Per a comment on http://takingoff.delta.com/post/77895825869/skymiles-2015

    “The way members qualify for Medallion status is not changing. The redeemable miles earned toward Award Travel differ from Medallion Qualification Miles (MQMs) which are used to calculate Medallion status and will continue to be based on distance flown.”

    So it appears that the proposed change is only for earning miles/points, not for status.

  31. I imagine Delta earns something like 80% of their revenue from the top 10% of their customers. This will help those high value customers who spend a ton of money on expensive fares in terms of earning and better upgrades when the elite ranks are thinned out.

  32. I don’t find this surprising or particularly nefarious – Skymiles are awarded on credit cards for revenue spent, and now flying is being brought into line. As Delta points out, this is the standard in many industries such as the hotel industry (or worse – hotels frequently award 500 miles for 15 night stay).

    I think things will shake out as intended over time – people will be loyal based on their overall spending habits, not on their infrequent flying on Delta. Those who are price sensitive will spread their love.

  33. Moreover, really, why SHOULDN’T people who pay $800 for a flight from LGA to YUL get more miles than the person who pays $400 from JFK to LAX?

  34. So if redemption remains on a mileage basis, then a domestic ATL-SFO saver award ticket would remain priced out at 25,000 miles round trip. If I use miles earned in the awarded by revenue model of 5 miles/dollar spent, it will cost me the equivalent of $5,000 to get a “free” saver ticket? Puh-lease. I’d rather fly down to FLL or up to IAD/DCA/NYC and connect to a VX transcon. Far superior product for the price.

  35. As a person who earns most miles through credit card spend, I don’t expect the revenue model to significantly impact the miles I accrue on Delta. And as a person who is seriously into this mileage game, I gave up on Delta long ago. For those of us in the know (which would include all of your loyal readers), the e-mails from Delta announcing all the “improvements” are jokes at best. I would love to be proven wrong, but I have no confidence that there will be any improvement to the Delta plan.

  36. “In 2013, frequent flyers redeemed more than 271 billion miles in the SkyMiles program for more than 11 million Award redemptions”

    Ignoring the “more than” part and taking those numbers as-is, that averages out to 24636 miles per ticket. Given that their “cheapest” award ticket requires round-trip at 25000 miles, how is that even possible??

  37. lucky, that whitewash by the guy in charge of Skymiles is what struck me too. It’s like the Ministry of Propaganda. At least WN had the courtesy to just admit they were going to a revenue based model because the old way was too expensive.

    Your comment about earning through CCs is what I’m waiting to see. Any idea just how AmEx change rewards? In some ways, the Amex card was already better on Delta than having status. I’d love to be a fly on the wall, but I’m sure AmEx will do something to keep all the non-medallion card holders from fleeing.

  38. This is awesome!!! As someone who routinely buy $7000 business class tickets, I will get so many more miles!!!! I am ditching united for delta as soon as this comes in, I don’t care if united gives me global services or not.

  39. @Joseph–I’m actually wondering the same thing about the AmEx Delta card. Unless they do something, the annual fee does not justify the use for me anymore. I’m already looking at other credit cards w/ other travel perks. If I’m not going to have status through Delta, I might as well use the best card that gets me flights and not be bound to a particular carrier.

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