Big Changes At Delta, A Revenue-Based Program. Sort Of.

I woke up this morning to the big news that Delta had announced their change to a revenue-based frequent flier program.  It was bright and early, around 6am on the East coast.  I needed to get my daughter dropped off to school and then wanted some time to digest the changes.  First, what happened:

 

It’s a tiered earning program based on your status level with Delta and also contains a bonus if you hold the Delta SkyMiles American Express Card.  The tiers:

General Member:        5 miles/$

Silver Medallion:        7 miles/$

Gold Medallion:          8 miles/$

Platinum Medallion: 9 miles/$

Diamond Medallion: 11 miles/$

All of these earning tiers are bumped up an additional 2 miles/$ if you carry the SkyMiles American Express Card.

One caveat I don’t like here (though it won’t affect most) is the language “you’ll be rewarded with more mile-up to 75,000 per ticket”.  Is that 75,000 miles more that can be earned per ticket or is there a cap of 75,000 earned per ticket?  At 13 miles/$ spent and a 75,000 cap on a ticket, you essentially stop earning miles on a ticket more expensive than $5,769.  Definitely an outlier scenario, but it always makes me nervous when someone like Delta thinks about capping something, since maybe caps creep into lower categories later.  The point of revenue-based is that the more you spend the more you earn.  No glass ceilings, please.

They’ve also made some changes to redemptions:

I don’t view the miles and cash announcement as significant but one-way awards is a nice change.  Delta and US Airways were pretty much alone in the domestic US with not allowing one-way awards, and you could get around the US Airways issue by booking their flights with United Airlines MileagePlus miles (or other Star Alliance carriers, for that matter).

So far this morning, I’ve read that the sky is falling and this is the beginning of the end of lucrative opportunities for cheap travel.To an extent, that’s true.  But, here are my observations:

Delta Has, Essentially, Gone The Way Of Hotel Loyalty Programs

The major hotel chains by and large hand out their loyalty currency based on how much a person spends on a room.  There are bonuses for hitting a certain number of stays, booking for certain nights or staying at certain properties.  But, for all intents and purposes, the earning part of the equation for hotels is based on how much you spend.

Delta has replicated that in the airline industry with one important caveat (more on that later).  Personally, I don’t have a big issue with that as I rarely buy cheap tickets.  I’m either flying for business travel or redeeming for awards.  As a general rule, though, these changes will make it harder for a non-business traveler to earn free tickets while flying on Delta.

Revenue Tickets On Partners Will Still Earn “Old-Fashioned Miles” 

The language on the website indicates that “Group 1 Partner Airlines” (folks like Alaska, Virgin, Air France) will still earn regular MQMs and MQDs when ticketed on Delta stock.  I’m guessing this has something to do with how airlines share revenue in alliances, but it could also be a technology issue (though I doubt it).

We Don’t Know What Redemptions Look Like Yet

Delta has said there will be 5 redemption tiers as well.  I tend to think that the changes to redemption aren’t going to be ugly because Delta has already made 2 recent changes to award pricing.  I could well be wrong here, but I suspect that Delta is not going to gut award redemption again.

One-Way Awards Are a Solid Plus

When looking at the full picture of what Delta has announced the positives have to be considered.  Not being able to ticket a one-way award is frustrating.  It’s not that lots of folks want to buy one-way tickets.  But, it means that if any of your flights on a prospective itinerary are not available in the cheapest redemption bucket, the whole award prices higher.  American Airlines made this change a number of years ago and allows folks to blend saver awards and standard awards on the same vacation.  United does the same.

Credit Cards Are Even More Important With This Announcement (Shocker!)

Credit card sign-up bonuses are the way a lot of folks are leveraging their daily spending for lots of free travel.  But now, with Delta’s changes, they represent a huge increase in the amount of miles you earn.  Conversely, this change is better for lower tiered members.  A general member earns 5 miles per dollar under the new program but gets a 40% bonus of 2 miles per dollar for buying that ticket with a Delta co-branded credit card.  At the very top, a Diamond member gets that same 2 mile/dollar bonus for carrying the credit card but that only represents an 18% increase in total miles earned per dollar.

But, at those rates, nobody who’s actively looking to collect miles with Delta can look past carrying a Delta credit card in their wallet.

Bottom Line It For Me, Ed?

As a current elite member of Delta’s program, you’re going to earn less miles.  It’s still unclear that it will take more miles to redeem for your next vacation, but you’ll likely earn at a slower rate going forward.  After you get over that sharp stick in the eye, feel good that you can now redeem one-way awards and that might mean you spend less miles for an award in the future.

If you don’t have a Delta credit card, you’ll need to get one this year.  Keep your eye out for big sign-up bonuses.

I wouldn’t hold your breath all the way until the end of the year when the redemption changes are announced, but that’s really the key as to whether this is truly a death blow or not.  I don’t think it will be horrible but I’ve been wrong before.  Heck, I’ve been wrong today already.

What This Means For United And American

I expect United to follow Delta into something similar very quickly.  I don’t think they’ll make an announcement today, but I can imagine Jeff Smisek jumping  up and down like an impatient 7-year old every day until they have enough string, duct tape and glue to put together something that looks like a technological solution to implement similar changes.

I’m very torn on what American will do.  Let’s set aside my hopes for a minute that they do their own thing.

It’s essentially March.  American has the US Airways integration to contend with.  But US Airways was already considering a revenue-based program prior to the merger.  They have weaker computer systems than American so likely don’t have the whole thing wire-framed and ready to go.  I don’t think Doug Parker would roll out changes of this magnitude without significant notice to elite members and changes like these really do need to happen at the beginning of a qualification year.

That likely means we’ve got a window of about 60 days for them to announce something.  And, since American hasn’t introduced minimum spending requirements for elite qualification yet, they might be more inclined to make that announcement in the never-ending game of keeping up with the Joneses, domestic airline edition.

American could go the other tact and not roll out any of these changes.  They haven’t updated their award chart recently and certainly not as bad as the Black Friday United changes late last year.  They’ve also got an integration to contend with.  While they’re likely to learn lessons from United and Delta’s rocky prior paths, there are still going to be problems.

Lots of decisions for the folks near DFW to contend with.  Do you make announcements under the cover of Delta’s changes or stand pat and trumpet yourself as a different kind of airline?  There’s certainly more than one way to run a successful airline.  Which one will American choose?