Delta Doesn’t Want You To Use Your Miles For “Free” Travel

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As much as I rag on Delta SkyMiles, there’s no denying that Delta is an extremely well run airline. It also seems rather apparent that Delta isn’t worried if they lose some customers through various changes to their SkyMiles program. That’s probably why they were the first US legacy airline to introduce a revenue requirement for status, begin awarding miles based on revenue rather than distance flown, and also to eliminate award charts altogether.

As much as I don’t like those policies, I really can’t blame Delta for many of these changes. The airline is really well run, and they think that’s enough to get people to fly with them. The customers choosing Delta for their frequent flyer program aren’t customers they typically want to have anyway.

Which brings us to an interesting Bloomberg article published today, entitled Airlines Really Don’t Want to Upgrade People for Free. It has some pretty fascinating quotes from Delta’s incoming president:

“We want people to be able to use those miles not to fly for free but to control your experience,” says Glen Hauenstein, Delta’s incoming president and architect of the airline’s revenue plans. To do this, Delta plans to adjust the pricing of seats at the front of the plane so more are sold. While Delta currently sells just 57 percent of its first- and business-class cabins, the company said in December that it will boost the figure to 70 percent by 2018.

“Historically, the domestic first-class cabin was a loss-leader,” Delta’s Hauenstein said. Most of the industry’s premium seats went unsold on domestic flights and were assigned at the gate, “and there was no real compensation to the airline.” He said the traditional airline upgrade system amounts to “winning a prize” and leaves many customers displeased.

“We were really making nobody happy except the person who won the lottery at the gate,” Hauenstein said. He said the changes have improved customer satisfaction scores among the top tiers of elite SkyMiles members.

Delta-One-London - 3
Delta doesn’t want you to redeem your miles for “free” seats

I don’t blame airlines for reducing upgrades

The above perspective largely makes sense, and I think that’s true both for customers and the airlines.

Several years back airlines would consistently charge exorbitant fares for first class, where it might be 10x more expensive than economy. They weren’t offering any sort of value there, given that almost no one would find that worthwhile. So what ended up happening was that only a very small percentage of first class seats were sold, and then the rest were filled with upgraders. That’s not a smart system.

I see a lot of merit to airlines charging more reasonable premiums for first class. If we’re being fair about the value proposition of first class, it should cost maybe 2-3x as much as economy, on average.

And largely I’m finding that Delta’s pricing is spot on. For example, take the below Tampa to Atlanta fare. It’s $71 for basic economy, and then the premiums above that seem very reasonable:

  • For an extra $15 you can select a seat in advance and receive full Medallion benefits
  • For an extra $25 you can upgrade to Comfort+ and get more legroom and free drinks & snacks
  • For an extra $45 you can outright buy first class, and receive a larger seat

Delta-Pricing

My point is that I don’t have a problem with airlines outright trying to sell products at prices which are reasonable. That’s smart on their part, and in many cases it even makes sense to outright pay for first class as an elite member, when the premium is minor. Hell, it can even be good for consumers, because it makes status that much less valuable, when you can buy what you want outright.

What does that have to do with “free” travel?

What I have a harder time following is the logic when it comes to preventing people from redeeming miles towards “free” travel. The way I see it, that’s a completely different subject than how domestic upgrades work.

Sure, I think there’s value in being able to redeem SkyMiles for all kinds of things. Delta is even letting you redeem SkyMiles for premium drinks in SkyClubs, so they’re clearly trying to set the miles up as a currency worth a penny each.

Delta-SkyClub-San-Francisco - 8
Delta SkyClub San Francisco

More options are a good thing, since a vast majority of people are redeeming miles in a sub-optimal way. And that’s a good thing, because it lets those of us “in the know” redeem miles more efficiently.

But the danger is if Delta is going to start viewing miles as a discount program rather than a rewards program towards free travel (or a number of other things). Airlines make huge amounts of money off their credit card arrangements, and consumers aren’t stupid.

If Delta wants to have a co-branded American Express Card and the only way to redeem those miles is for one cent each towards the cost of travel on Delta, consumers won’t stick around. There are much more rewarding cards, like the Citi® Double Cash CardCapital One® Venture® Rewards Credit Card, and Barclaycard Arrival Plus™ World Elite MasterCard®.

Having a non-fixed mileage currency keeps them aspirational, and adds an element of mystery which will keep people intrigued. If airlines sell everything at fair(er) prices and miles are fixed value, the incentive to be loyal will go way down, regardless of how high revenue or profitable of a customer you are.

Bottom line

There are no surprises here, as Delta isn’t secretive about wanting to move SkyMiles towards a discount currency worth a penny per mile. Personally I view that as dangerous, both in terms of feeling rewarded as a SkyMiles member, and also in terms of Delta’s co-branded credit card business.

Many credit cards are successful largely because you can’t put an exact value on a points currency, so the points feel aspirational. If SkyMiles are going to be worth a penny each, Delta is going to have to do better with their credit card offerings, and should count on losing a lot of (still) loyal customers.

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Comments

  1. Sounds like it’s gonna happen. Just a matter of when, and who follows. Hope it goes full circle and that some airlines will differentiate themselves by rewarding loyal customers.

  2. Hi Ben-with the state of air travel today I dont think Delta really cares about its credit card or frequent fliers. Neither add much to bottom line and you are right about FirstClass as I am flying to DFW within 6mos and a normal ticket is about $220-260 and 1st bought off their site is $700. That is not bad for 3-31/2hr flt and Delta has great service. So unless somethinbg changes like oil sky rocketing or a crash in the economy. I read your column to be educated about which air carier to fly etc. You do a great job so thanks

  3. I think the person who wrote the article doesn’t quite understand the difference between mileage upgrades and complimentary upgrades. The whole article is about better pricing to sell more first class and reduce complementary upgrades. The few anecdotes about using miles don’t really fit.

    It is true though that more paid first class means less award first class. That is a zero sum game.

  4. I’ve honestly questioned the purpose of loyalty for a while now, and this article sums up why! It’s very tough to want to remain loyal unless there’s some obvious reason (for instance, my family in Detroit is super-loyal to Delta because there’s no point in trying to fly a non-Skyteam airline out of there–I’ve tried!). As an LAX-based traveler, it’s much easier for me to just find the best deal.

    It’s also why I’ve switched to using cashback and Ultimate Rewards portals exclusively for online shopping. I don’t need 20 skymiles/$ because they’re basically going to get me a drink at a SkyClub at this point. They aren’t worth the effort. The only currency for which I could justify making an exception is Alaska miles, but I’d still rather get the cash back and use that to buy the flight outright (or, in certain circumstances, buy the miles).

  5. Bloomberg piece is edited weirdly — while it does mention “free” (i.e. award) travel, it mostly touches upon the upgrade process and reduction of upgrades. I guess we have to infer for ourselves that less unsold seats will mean less award space.

    @ Lucky — do you know how well cards from other airlines that offer fixed-value redemption -like Southwest – are doing?

  6. Delta really likes playing games with their Medallion program. I have just booked an international flight for myself and my wife. I am Platinum and my wife is just a general Skymiles member. I am normally entitled to a free upgrade to Comfort 1 seating and my wife would normally pay for hers….no problem. Except Delta have now changed the rules. If we are on the same itinerary then both of us get charged for our “upgraded” seats. Unfortunately the Delta option to South Africa is the best out there, so I canceled my trip and booked 2 separate itineraries – paid for my wife’s Comfort 1 upgrade and got mine free.
    The moral of the story is – Delta just lost $400 for a seat upgrade and gained a very irate customer/platinum medallion member. So much for Delta’s good business sense. All they did was shot themselves in the foot.

  7. The thing I find interesting is that, by unbundling the “complimentary” part of the upgrade and pushing you to pay for it, it’s also unbundling a decision on 25-30 round trips per year. Not just the class choice, but also the carrier choice and even the choice to generate a trip in the first place.

    For the last 20 years, across probably five different airlines, part of the proposition is that you are rewarded for purchasing a big enough bundle over a calendar year. I know that I have to buy 6-8 leisure trips across the year to make the bundle work, and I understand what is a “good deal” for me.

    The way Delta is going, every single trip is unbundled. If their accounting and receipt systems are geared towards business travelers – showing that 71/86/110/155 on the receipt, or even better letting me pay $71 with one credit card and the $29 upcharge to W on another one…. now I have to decide how much my “upgrade” budget is for the year but I can parse it out on a trip by trip basis and not on the annual bundle.

    The person this affects the most in my opinion is the mid-tier domestic flier. The 50k flier usually isn’t going to clear upgrades on any meaningful flights on DL/UA, and is going to have to pay on AA for any flight over 500 miles at a minimum of $80/flight. Under DL’s system the mid-tier may as well just fly 35k but spend more per flight.

  8. It seems that the silver lining here is that if airlines stop filling empty first or business class seats with miles redemptions, the only other way to do that is to start discounting the price. So if opportunities to book with miles goes away, it seems like new opportunities to scoop up deals on first and business class seats should emerge.

  9. Just reinforces my decision to never fly Delta. As an AA EXP I appreciate the upgrades and being able to select MCE if I don’t clear an upgrade. Rewarding those who are loyal to your business is smart. Delta is only going to push away paying customers doing this.

    We’re slowly devolving into where the airlines will literally want to charge add-on fees for every aspect of flying I see it in our future, just how far out is the question.

  10. I think you give Delta too much credit for being really well run airline. They screw up plenty of times. It’s just that Delta – relative to our other slim options – does better. I think a healthy dose of international competition is due here in the US. I say we allow international carriers to make one domestic stop in the US. Let’s say Lufthansa flies DEN -IAD -FRA. Or Emirates flies SFO – ATL-Dubai or Air France flies LAX – DFW – CDG. I bet people in the uUS would jump at the chance to fly the domestic portion of these routes.

    While Congress will never allow this, why is this not a good idea?

  11. I would rather have a system where I can purchase FC/BC seats for a reasonable price. The days when only the highest of elites got the free upgrades stunk because I am not one of those flyers so I never even had an entry into the “lottery”. The SkyRubles are another story. I don’t fly DL often as I prefer AA but having a system in which award flights are based on a completely random and constantly changing award chart annoys me. I have some SkyRubles and will probably never get to use them since every time I look to book a flight with them the rate is different.

  12. I don’t understand your math. The prices are:

    Basic: 71
    Main Cabin: 86
    Comfort+ 110
    First: 155

    You say the premiums are 15, 25, and 45. But the differences are actually 15, 39, and 84.. One of us is doing the math wrong…

  13. Lottery? Uh, the upgrade system is far from being a lottery in the classic sense. That’s a pretty shallow spin on things.

    I do use the revenue First quite a bit on American now when it is close in price to the regular coach. My only pet peeve is that the regular coach is usually easier to change with less fees than the “discounted” Firs

  14. Glen is a master when it comes to running an airline and he learned from the best: Gordon B and crew at CAL. What he says makes sense until oil spikes to $150 and we have too much capacity in the U.S. He’ll get the CEO position at some point in time.

  15. @mr free market-
    Nice idea – but why would any of those foreign carriers even WANT to do that? All that would do is lose them money? Just because they could hypothetically do that perhaps, they’d have to want to do that as well, and I cant see a good reason they’d want to dilute their long haul flying with a low fare intra-us segment. Not going to happen.

  16. I agree with Tom and Ivan as to finding this confusing. The actual Delta quotes are clearly only targeted at reducing complimentary (or however they do it, I fly American, so I only know 500-mile stickers) upgrades at check-in or at the gate. That has nothing to do with redeeming miles for flights, or even upgrades because then you are still “spending” something. He just doesn’t want to be handing them out just because someone has status.

  17. All of this makes me happy. I would rather just pay a reasonable price for first class and avoid the stress of waiting for an upgrade.

  18. We saved Delta miles for a couple of years (some accrued on Air France for full mileage credit, as well as AmEx) hoping to use them for free international business travel. With flexibility, we booked 2 roundtrip tkts from SFO/HND in August for 160,000 each. We had wanted to go earlier, but the award calendar changed wildly from one day to the next and when I called I was told it was not expected to be accurate, just a suggestion! I will stick to United and partners for future trips, since they allow one way booking (one way on Delta is the same amt of miles as round trip!) and multiple stops/open jaw tkts which are much more flexible.

  19. All that works for me. If I could see American doing that and the next 6 months I might re look at my decision to leave American for Delta after eight years as an EP.

  20. Ff programs were meant to engender loyalty. I think the lack of competition allows the delta to get away with gutting the Ff program. Allow more competition and all the airlines start flyers asses once again to increase loyalty. Give it 5 to 10 years.

    Always things go in cycles it seems.

  21. I think Delta and Amex count on MQM earning and status as the “aspirational” part of the credit card equation. They are by far the easiest airline to spend your way to status. Depending on how you value status/MQMs it is pretty easy to convince yourself that $60K on the Delta Reserve card can earn you ~3% return on spend.

  22. A few vaguely related thoughts in no particular order:

    1) Premium domestic travel is almost an oxymoron. since foreign carriers are not allowed, standards are abysmal. I am not willing to pay a lot more to travel in 1st, even coast-to-coast.

    2) It makes sense for airlines to have a system of upgrading that isn’t just at the whim of the desk staff. Either auction upgrades or at least grant based on seniority (status and lifetime miles)

    3) The best deal for using miles is international premium travel. 50,000 miles is worth no more than $1,000 but it can get you a one-way business class flight across the Atlantic with a foreign airlines, which might otherwise cost 2 to 4 times that

  23. AA has been charging for upgrades for years (except for EXP) – so I am not sure Delta is getting best value for its F seats.

    For a Platinum member on AA – the upgrade cost can be more than the cost of the coach ticket.

    Example – A DCA-DFW-LAX RT is takes 12 – 500 mile upgrade stickers. You get a few free ones, but in general that RT upgrade is going to cost $40 x 12 = $480 upgrade cost ($40 goes into effect from $30 this month). You can sometimes get a coach RT ticket on this route for $240. So in this case a Platinum would pay 3X the coach cost for the upgrade.

  24. I’m already seeing lower “reasonable” prices on European Business Class seats this year on AA. I paid $2457 from PHL-VCE for a ticket in September. Last year, same seat/aircraft/flight number(s) was $4400 (150 days advance purchase). Maybe I got lucky and hit a sale or maybe change is happening.

  25. I recently purchased my first-ever business class tickets for leisure travel. I was planning a somewhat last-minute vacation to Mexico, and economy cares were not sure only quite high – there were also no aisle or window seats available without paying for premium economy (or, for that matter, seats together for my family). I noticed that business class was about $100 more one-way than Y, and premium economy was $50 or more above Y. So it was a no-brainer. We had very pleasant flights and it was money well spent – one of the few times I’ve felt positively about the value I’ve gotten from a paid airline ticket that wasn’t a deeply discounted Y ticket.

    So if that’s the direction the industry is going, so far I’m fine with it.

  26. Michael
    “one way on Delta is the same amt of miles as round trip!”

    Delta has one way award tickets at 50% of the price now.
    Without an award chart anymore, you just don’t know what the 50% should be!

  27. At Christmas, I sent Delta a letter of divorce. I’m using up my skymiles for international travel and then using other airlines. I don’t think they give a damn. I have found their employees to be wonderful people and have been loyal with 1.4 million miles. But I’m tired of their penny pinching frequent flyer program. For most of domestic and some international, I’m going exclusively with Southwest. I just booked a trip from GRR to PVR for 19,040 miles. And with the companion pass, my wife flies free.

    By the way, I got a call from Delta about my letter. There was no apology, just recognition that they received the letter.

  28. Delta miles have always been next-to-worthless. I’ve never paid them much attention. And while Delta might be marginally better than the other legacy domestic carriers–for domestic travel only, I might add–it’s not that big a difference and it’s trivial in relation to real-time experience which varies from day to day, route to route.

    As someone who is 6′-3″ tall, 220#? I have to pay up for domestic first class anyway, and twice the coach price is no problem. But if it’s 3 or 4x I look for alternatives.

  29. I like how airlines do business like Delta: to avoid people over churned like you. Why we would like to sit with the people who got upgraded while not paid to sit in the front? This is absolutely not fair to the people who sit in the J and F

  30. typical delta. promising something, then when it’s time to deliver, changing the game to suit themselves.

  31. TPA is the ONLY market I have seen that low first class fare and it was sweet to book it. Why can I not find it anywhere else?

  32. I flew LAX-JFK-SFO this weekend, on AA’s wonderful 321Ts. For both my flights, and others I queried the agents about, there was no way you’d get an upgrade unless as an EXP. (I’m just Platinum this year.) There were no seats for upgrades at all on the outbound, and only 2 on the return. On each flight, there were at least 5 EXPs who did not get the upgrade, and easily another 5+ of us lowly Plat’s that were left in coach too. This was the norm for most of the transcons.

    OK, so this is not news nor surprising to those of us who read and understand this forum. We all know how to get high status for low effort if we want, how to manufacture trips, use credit cards, etc. And as shown in some earlier comments, we are starting to pay for premium cabins rather than expect it as a recognition of true loyalty.

    The key takeaway is that there is tremendous demand for better seats and service than what the airlines are willing to offer (in coach), and this demand is at a reasonable price point. I.e., if the airlines would price their premium cabins properly, more people would forget about upgrades and just buy it.

    Which leads to the second takeaway, that there is a shortage of premium seats. I like F as much as anyone, but AA needs more C seating. For instance, if AA converted some or all of the 321T’s 8 F seats to 16-20 C seats, that would go a long ways to providing the service levels wanted by their customers. Or shorten the coach cabin further, or eliminate it entirely on some of the flights.

    When creating the 321Ts, AA made a corporate decision to bring higher levels of service back to the US airspace. I applaud them for doing that, but think that now they have proven their investment thesis, they ought to go the next steps and better match the supply with the immense demand out there for premium level seats.

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