Earlier today I speculated on whether United and American would copy Delta in introducing free economy class meals on premium transcon routes. Gary had a different take on the issue. Now I get to respond!
First, I hope it goes without saying that this banter is in good fun. I consider Gary truly a “Thought Leader in Travel” and hold him in high esteem.
My argument
Even while not totally dismissing the idea from a revenue standpoint, I expressed doubt over whether Delta can actually win loyalty and ultimately increase revenue by providing free meals.
I do think it is a curious move by Delta, but perhaps the analysts truly are wrong. We often hear a refrain something like this: consumers are primarily price conscious and will not pay more for an airline ticket with extra benefits if there is a cheaper option. That’s not totally true, as many refuse to fly ultra-low-cost-carriers like Spirit or Frontier even though it saves money. Nevertheless, consumers are not going to pay an extra $50 to fly Delta over American at approximately the same time in economy class just for a “free” meal.
Gary’s Rebuttal
Arguing my analysis fell within “the Scott Kirby spreadsheet approach” (i.e. without incremental revenue directly tied to this investment, the cost isn’t worthwhile), Gary argued that in providing a reliable, high-quality onboard experience, Delta primes customers to choose it first without first factoring price (obviously within reason).
He uses two examples to make his point. First, he argues that US Airways did not see internet as a source of positive revenue thus was reticent to install it. But US Airways quickly found out that it was losing bookings because of the lack of internet and was forced to play catch up. Similarly, the merged American – US Airways drastically reduced investment in onboard meals in 2014 but had to undo the cutbacks less than a year later in response to consumer outrage. His bottom line: think big picture.
Secondly, Gary points to a conversation he had with a Delta Diamond Medallion member in New York. She flies between JFK and LAX for work is very content at Delta. According to Gary, she had no idea that other competitors have flat beds or even that Delta doesn’t have flat beds on other transcon routes. Put another way, she is happy with Delta and has no desire to even learn about the competition, let alone shop around. The point is that she has “internalized that she prefers the experience on Delta, so goes to Delta first when she needs to travel”.
Thus, providing complimentary meals may not be a winner on a transactional basis, but it engenders loyalty, which pays off on a macro basis when a traveler returns to Delta instinctively.
My Rebuttal to Gary
While Gary’s argument is cogent and rational, I still do not buy it.
We agree that rewarding customers purely on a transactional basis as opposed to their long-term loyalty is a curious strategy to win customers at margins. Yet, I think Gary’s two examples rather make the point that this experiment by Delta will only result in lost revenue.
First, the lady he uses as the basis for his argument does not even know what other airlines offer and was already happy with Delta. If she is already predisposed to just book Delta, why would a free meal make her more loyal?
Lack of Consistency = Disappointment
On the contrary, I think a customer like her would be much more disappointed to receive her free meals between New York and LA and then fly from LA to Boston or New York to Seattle on Delta and find no free meal service. Thus, the lack of consistency will be a greater danger to someone who does not tend to shop around.
More importantly, Delta is not just paying for the cost of food: it losing quite a bit of potential ancillary revenue from buy-on-board (BOB) sales. Delta’s BOB program has been generally well received and represents a source of income that contributed to its approximately $3.8BN in additional revenue collected in 2015.
Next, how will Delta advertise this? Certainly on its website this can be highlighted, but how about with online travel agencies and other booking sources? Will passengers really read the fine print and be able to distinguish between 
and 
?
Catching Up vs. Trendsetting
Isn’t this situation different than US Airways sitting on its hand while other carriers installed wi-fi? In the case of in-flight internet, travelers began to expect it and insist upon it and US Airways could not withstand the competitive disadvantage of not offering internet. Here we see the opposite. No other legacy has put forward a free meal plan and it is unlikely they will except perhaps to match Delta. Indeed, after a decade of no complimentary meal service on domestic flights, passengers have been conditioned not to expect it. By offering it again everyone may match, but that hurts revenue and leads to my next point.
Finally, if United and American match, what competitive advantage does Delta have? Will passengers really become so enamored by Delta based upon a complimentary meal that they will automatically shun other carriers offering the same or superior product at a similar price point? I just don’t think so. If everyone sticks to their “usual” carriers because each one increases quality, consumers may win but no airline does.
CONCLUSION
I admitted in my earlier post that if I had to choose between Delta or American in economy from JFK-LAX, I’d chose Delta simply for the free meal. Nevertheless, I would only fly Delta if both United (my preferred carrier) and JetBlue (fast complimentary internet) were not available. And I’m the guy who writes about airline meals multiple times each week! While I love the concept of free meals on domestic flights, I assert it 1.) does not win meaningful loyalty and 2.) hurts revenue on a transactional and long-term basis. Therefore, my advice remains to keep improving BOB offerings. Maybe something like Austrian…
very interesting point of view
Good for you for discussing ideas and differences without taking things personally. I enjoy hearing both perspectives and I imagine similar dialogues have probably gone on within DL as well. It will be interesting to see what comes of the experiment.
if United and Delta match, what competitive advantage does Delta have? Don’t you mean if American and United amtch?
I don’t think wifi is a valid comparison. Wifi is only important to frequent business travelers. Wifi is an unnecessary, albeit welcome luxury to us infrequent leisure travelers. Aren’t business travelers using free upgrades to fly in business class? Moreover, even if their upgrade doesn’t “clear,” they’re traveling on business, and thus can expense the BOB. Infrequent leisure travelers aren’t savvy enough to differentiate on the basis of free meals. Remember AA’s extra legroom? Similarly, of course the Delta Diamond’ s not going anywhere. She’s got status and miles with Delta, even if they are Skypesos. In short, sorry Gary, Matthew wins!
Gary is a big fan of Delta so who’s shocked. It has been stated that 75% of passengers that fly (at least on American) are once-a-year fliers meaning they probably booked on price alone. Therefore, by adding an incremental benefit, while it may benefit the frequent flier to decides to fly Delta, its not going to benefit Delta in the long run because the majority of their customers are going to be the pleasantly surprised type, as opposed to the i was expecting something type.
If giving away free things was the key to airline profitability then Jetblue would be the richest airline in the USA. Ryanair would not be crushing the competition in Europe, and Jetstar would be bankrupt by now.
Instead the free meals is an attempt by Delta to market themselves, which is why its only being offered on a number of routes i can count on one hand. I found the conversation with the “diamond medallion” member hilarious, since any so called frequent flier should know that only American offers a real first class product on the JFK/LAX-SFO routes. Surely anyone who flies that much cannot be that ignorant to the rest of the airline industry.
I think this is the first time I’ve been called “a big fan of Delta” 🙂
I agree 100% with your logic. Loyalty is consistency and consistency is loyalty, on both ends of the transaction.
Airlines arbitrary definition of “transcontinental” routes is maddening:
Flying business class from New York to LA? Here’s a lay-flat seat and lounge access.
Flying “first class” from New York to San Diego? Here’s a similar experience as New York-to-Chicago.
If you want to differentiate your product from the competition, make it simple, make it consistent, and most importantly, advertise the hell out of it. “Free meals on flight over 5hrs” resonates with customers a lot more than “free meals on select routes”.
New York-LA is infinitely more premium than New York-San Diego. You have the two largest cities in America linked and heavily traveled by celebrities, corporate executives, etc…
Meanwhile San Diego is more a leisure destination if anything.
This does not need much analysis to determine that free meals leads to loss revenue. I agree with your rebuttal but disagree with your opinion on Gary. He is an idiot whose blog has digressed to tabloid type articles aimed at getting as many clicks as his sensationist type topics can muster.
I do not think that is a fair characterization of Gary.
I traced gary’s post to yours – I like this, very enriching conversation.
My point is that – Delta hasn’t been advertising these free meals at all (yet), not even when you book their tickets on their own website, and no expectations are created. The only people who get ‘advertised’ are those who flew the routes. This is a very interesting targeted approach. An emphasis on in-flight meal might make (an average) customer think a DL economy ticket worth $5 more than an AA economy ticket on the same route, while an impression of the overall “quality” signaled by the free meal might lead (an average) customer value the experience at a $20 premium. These numbers are made-up, but I think DL has been consistently experimenting & data-mining, and they seemed to have the data to back up their decisions.
Props to Gary & Matthew, BOTH of whom are extremely knowledgeable about the airline and travel industries. Anyone who suggests otherwise, is either unaware of how often many other widely available publications lack the knowledge these two bloggers have, and how few and far between are there accessible outlets with reporters who cover these two industries and actually know something about what they’re reporting. Sure, there may be some trade publications that cover these industries more in-depth or with greater technical analysis (financial or otherwise), but by any fair analysis, by and large, Matthew & Gary, offer insights and points of view, far and away better than most. I offer this opinion based on many, many years of actively working in the airline and travel industries, passionately following them when not working within or in affiliated industries (for example, research & consulting), or even as someone who has been blessed with the opportunity to travel to places near and far, on a wide array of airlines and aircraft, in every kind of “class” offered, save for the current iterations of international “premium economy” or extreme luxe first class on some airlines’ Airbus A-380’s (suites, “Residences”, etc.) My work has included extended periods working on-site at JFK Airport, as well as at the offices of airlines with operations in the NYC region. Lastly, although it is quite some time ago, I have a fairly extensive list of published work and comprehensive data reports/analysis covering the airline industry, mostly in a trade publication, but with some also in marquee newspapers and a financial newswire geared to Wall Street investment banks whose coverage of the industry to this day, remains among the few names that devote the resources towards covering the airline industry as well as they do. So, please, say what you will if you disagree with their opinions, or even their “spin” of numbers (since we all know data can be “interpreted” to mean many things sometimes!), but overall, it makes little sense to disparage their reputations if you disagree with their opinions or conclusions. Agreeing to disagree on the merits is one thing; and if someone makes factual errors as every writer does from time to time, it’s always helpful to politely and thoughtfully offer corrections. But taking pot shots because either of these bloggers earn their livings by clicks and page views is unfair when the quality of their work far and away exceeds typical internet fare. As someone with real life experience writing about the airlines for several years, who’s background also includes many years working as a travel agent (with corporate & leisure clients), these guys can be counted on as “reliable sources” in an age when truth is hard to come by. Would that others’ work seen on the internet were as accurate as theirs is for what they do…the world would be a much better place…
I think Delta is smart to offer free meals in coach on these specific transcon flights because they CAN! Remember, the major US airlines cut meals when they weren’t doing so well financially. It was a way to cut costs and earn money through a new revenue stream by offering buy on board. Fast forward to today. The US airlines are now rolling in cash and earning record profits. It seems appropriate Delta wants to use some of that cash to enhance the experience of its customers. Just like when they took away so many of the “perks” during the last down cycle.
I think a key thing to distinguish that BA writers seem to forget about at times is the business vs leisure traveler. I personally fly DL for work. Always have, always will. The skymiles may be worth less and less for premium travel (as if I have time to use them anyway), but my recognition as a loyal Diamond flyer is better and better each year. I would fly them, meal or no meal and price is not even a thought in my mind when booking. I instantly go to their website without even looking at other airlines.
However, a leisure traveler is different. When I travel with my friends/family, it is a completely different thought process. The bottom line is most important. How can we save the most on parking. What is the cheapest flight? Does this hotel have free breakfast and a free happy hour. These are all questions that suddenly become important. In this regard, I do see DL offering free meals as a factor in determining the best flight. That is of course, if they are able to advertise this in a way that a normal Joe can learn about. Oh, the delta flight is $5-10 more, but we wont have to buy any meals in the airport either way. Now we are saving some money! This is something that could help DL.
Just my two cents.