Delta announced an immediate devaluation of its Skymiles program on the redemption side this week effective for flights on or after 01 June 2016. We are now seeing just how draconian these changes are. Folks, this is a devaluation unlike any we have ever seen. But Delta just reported a $1BN profit and I am buying Delta stock today, for if this gambit works, there is no limit to how much airline loyalty programs can devalue…
Intercontinental Business Class Up to 375,000 Miles One-Way
Delta’s compounding problem aside, segments that used to cap out at 175,000 miles are now as high as 375,000 miles, a dramatic increase.
We are seeing this on routes to Sydney, Dubai, Johannesburg, Hong Kong, and a handful of other popular Delta longhaul destinations.
This more than doubles the prices on these routes, a huge devaluation to your mileage currency.
It Now May Make More Sense to Redeem Via the AMEX Travel Portal than with Delta
Some routes are so expensive that they now price at less than .01/per mile, something that was unheard of in the world of premium cabin redemptions up until this point. For example, take a round-trip from Hong Kong and Seattle for next June. Delta wants 750,000 miles r/t per passenger:
But you can purchase the identical flights in business class for $4,794.10 —
So if you have American Express points you can either redeem 750,000 Delta miles, pay AMEX the $99 Federal Excise Tax to transfer the points to Delta, then pay another $75 in taxes or just visit the American Express travel portal and redeem 479,410 miles on the same ticket and earn points on it (a lot in fact — 23,970 even with no Delta status).
Now, both of those alternatives are poor redemptions — better to look for partner space or saver space in other programs — but I never thought I’d see the day where AMEX $0.01/mile redemptions make more sense than an airline redemption.
Partner Awards Remain an Incredible Value
For whatever reason, at least for now, Delta is still charging the former Tier 1 rates for partners, which means still-competitive rates to destinations all over the world.
Look at the stark difference, for example, between flying Virgin Australia or Delta in business from Sydney to LA next June–
Here’s another example–say you want to travel from Brisbane to LA. On Virgin the price is 80K, on Delta the price is 397,500 one way via Sydney (the extra 22,500 miles being tacked on for the Virgin segment from Brisbane to Sydney):
I cannot realistically expect this pricing level to continue, though Delta refuses to answer whether prices on partner awards will change or not.
Award Charts No Longer Even a Reference Point
Interestingly, the new 375K one-way awards are coded “OK”, the former Tier-5 designation for an award that capped out at 175K miles. It is fair to say at this point that the award chart really means nothing any more — not even as a reference point; only as a piece of nostalgia of better days. You can still view the archived award charts here.
Mileage Upgrades on Delta Are A Huge Waste
Upgrade rates also were dramatically increased this week. Let’s take a look at Europe–
A one-way upgrade costs 60,000 miles if you book a Y/B/M ticket (full-fare economy) or 80,000 miles one-way if you book a still pricey S/H/Q/K ticket.
What a horrible deal! Redeem miles on Virgin Atlantic, Alitalia, Air France, or KLM and the price remains 62,500 miles one-way for a straight redemption. Granted, finding space is easier said than done, but Virgin Atlantic is currently very generous in releasing award space and the Air France – KLM – Alitalia trifecta are also not too bad if you book 10-11 months in advance.
But let’s put this in perspective. Aeroplan charges only 45,000 miles one-way for a redemption in Europe to business class. AA charges 50K, United 57.5K, and even Delta still charges 62.5K if you can find space at the saver level. These upgrades just don’t make sense unless you really do have an unlimited supply of points and are forced to buy economy class tickets.
Delta’s Cardinal Sin: Lack of Notice
Delta told us it was giving us notice, but it actually gave us no notice — the changes took effect immediately (for all travel occurring on or after 01 June 2016). There is no excuse for this. In an era of consolidation with high profits and low oil prices, Delta might think it can get away with anything — but the economy will eventually sour and the airline will find itself hurting for loyalty once again. Delta’s view on loyalty is that it just isn’t necessary, but it plays the game still, possibly due to pressure from American Express and because it still is profitable, but that is a very short-sighted view. I predict Delta is paving the way for American and United to do the same thing, eventually, but there is a breaking point where the return will start to diminish and Delta is fast approaching that point.
Still, let’s be real. It’s 2015, not 2008. The loyalty world has changed. If you’re expecting upgrades and award seats, you should not: Delta now sells more than half its premium seats (up from the low teens during the Great Recession) and wants to get that number above 70%. People are willing to pay and I’m sure I’ll have clients willing to pay Delta whatever it wants for a premium cabin ticket. Delta is an enviable position of having the luxury to say — we just don’t care. We don’t have to care.
I really do give Delta props for having the audacity to do this — a massive devaluation without notice takes guts. Pity the pour soul who has built up a nest egg of Delta miles with expectations to use them as a retirement account…
Despite these changes the apologists say, “But they run a great operation”. I would counter that they may run a great operation but these moves take advantage of the most susceptible customers, unsuspecting casual travelers that have always flown Delta. Even business travelers (flying coach tickets) will only really see at the end of this year that they made pittance compared to the previous year in miles and their dream trips are not so far out of reach they might as well have evaporated into nothing. I hope their customers start sending a message that they won’t continue to pump money into the giant as a result, but as you stated, so far that seems unlikely.
As much as we may not like it, the fact is that, there are only 3 legacy airlines left in the US. It’s just not feasible for everyone to stop flying DL despite their behavior.
Like I said last week, get ready for more of the same with AA any day now. Those Level 3 AAnytime awards are only the tip of the iceberg.
But I’m with Kyle and JA. You’re going to have a mix of apologists who keep flying DL “because the operation is great”, and travelers stuck in DL fortress hubs who don’t have many other options aside from taking multiple connecting flights on regional jets. While demand destruction would cause DL to rethink things, where’s it going to come from?
So many of us are still putting $60K or $120K on various Skymiles Amex cards to buy 30 or 60K elite qualification miles. That spend is far in excess of what we spend on DL tickets and generates far more now in Skymiles earn than flying itself. The value of directing that spend into a 2x or 3x flexible points currency is obvious. For those stuck in DL fortress hubs who cannot afford the time penalty or operational inconvenience of UA/AA, the problem is the loss of status. I no longer want to accumulate Skymiles, but neither do I want to to try to fly 1-2x/month as a silver medallion. The devaluation hurts. Now the question is what add’l pain do we want to incur to preserve our status or find a home with an airline that requires us to fly to DFW to get from the Midwest to Seattle.
Delta is the one frequent flyer program that I have no investment in. In the past my investment was in Continental, which had Sky Team partnership with Delta and Northwest. When Delta and Northwest merged, the Sky Team partnership ended, and Continental eventually merged with United, I didn’t bother to do anything with Delta.
I really expect that United will follow in this. United has been Delta’s copycat for the last few years in many many respects, particularly with their loyalty program. I’ve basically lost interest in playing that game with United.
I am not sure about American yet. So far they have avoided repeating the worst of what those two have done. I’m basically transitioning from United to American, which I will probably complete next year if nothing goes wrong. I worry that American will eventually give in and go the way of these two though. With only three legacy airlines, it’s bound to be hard for American to avoid this, especially if they see success with the same programs on Delta and United.
And at that point, I probably will no longer care about loyalty programs. It just won’t be worth my time or money to pick my usual airline at higher prices when status is so elusive, miles are so hard to come by, and even those you have give so little value.
Look, this (and other similar devaluations besides Delta’s) are a logical and predicted consequence of consolidation. Among the big 3 – who really can’t be touched by any other US niche carrier today – the market control is simply huge. And combined with their alliances, not to mention their (smart) rationalization of equipment and markets, the scale is even more concentrated. There is simply significantly less competition. And since there is much less competition, the “loyalty programs” aren’t as valuable relatively. UA and AA will now follow DL’s lead….might not happen this month or this year….and might not be the exact same type of devaluation, but it will absolutely happen in some form. And a couple of the small inconsequential niche carriers won’t devalue, hoping to tout it as a customer draw….which for the most part won’t matter. There could very likely be a day when we will talk about those olden times when there were things called Frequent Flyer Programs.