Delta Rolls Out Basic Economy Award Tickets. Is It The Right Business Decision?

Two days ago we saw the next step in the relentless march to make it harder for you to use your miles to plan that dream vacation.  Delta Air Lines was the first to roll out Basic Economy tickets.  These were paid tickets in the economy class cabin that came with….less.  American and United both have versions now and they vary.  In some cases, you won’t be allowed to bring on a full-size carry-on bag or get an advance seat assignment.  Up until now, Basic Economy has been confined to paid tickets.

Delta Rolls Out Basic Economy Award Tickets

One Mile at a Time brings us news that Delta is testing out Basic Economy award tickets on select routes.  The first reports I saw indicated that there was as small as a 2,500 point difference between Basic Economy and Main Cabin award tickets.  However, a quick search yesterday showed a wider range of pricing:

I assume someone booking the cheapest award ticket possible understands that they might not have first pick at the best seats.  But, the penalty of losing all your miles if you can’t take your flight is a pretty significant departure from the status quo.

Is This The Right Business Decision?

As you can imagine, there’s been plenty of teeth gnashing with this announcement.  Are customers justified in their anger?  Is Delta making the right business decision here?  In an odd way, I believe both are true to an extent.  Hear me out before you fetch your pitchfork.

For years, Delta has focused their energy in other areas than the value of SkyMiles.  They did away with award charts and raised the prices of awards, in some cases substantially.  They put a SkyMiles price tag on just about everything they sell.  In essence, they view SkyMiles as currency to which they control the value.

They already charge customers hundreds of dollars to change a paid airline ticket.  And, in the case of Basic Economy, they require customers to forfeit the entire value of the ticket if they have to make a change to their travel plans.  Yet, Delta is by far the most profitable of the Big 3, earning millions more than American and United.  They’re also perceived by many to have a significantly better operation, with better in-flight service and amenities.

In a world where their customers are loyal and continue to pay them a premium for the Delta experience (and don’t seem to be impacted by the nebulous value of SkyMiles), why wouldn’t Delta try to roll out award tickets with more restrictions?  If they believe this can result in increased profitability, I’m shocked it took them this long.

How About Those Customers?

Now, before you spear me with that pitchfork, I do have a bone to pick with Delta.  It’s a pretty big one.  One that revolves around the premise that Platinum and Diamond members will have the same cancellation penalty on Basic Economy award tickets as someone who flies Delta once a year.

Delta Air Lines told these customers just about a year ago that if they hit all the requirements for Platinum or Delta Medallion status in 2018, they would enjoy a host of benefits through the end of 2019.  One of those benefits was free award ticket changes and cancellations.  Now, with roughly 3 weeks left to go in 2018, Delta is saying that’s no longer the rule.  If you’re a Platinum or Diamond Medallion member, you did your part.  You fulfilled all the obligations Delta asked you to.  And, at the end, Delta changed the rules.  That’s just dirty pool.

The Final Two Pennies

From a business perspective, Delta seems to be betting that either:

  1.  Top-tier elites won’t be impacted by the change, choosing to book Main Cabin award tickets at higher prices without getting annoyed.
  2. The lost revenue from elite members who decide this is a step too far is outweighed by the incremental benefit of clearing more miles off their balance sheet.

Ultimately, Delta’s strategy seems to be to continue providing a high level of service and to raise prices until customer’s behavior changes.  That can be a winning strategy when planes are full of paying customers.  I wonder what that strategy does to the loyalty of their customers when the economy sours?

If you’re a Delta Platinum or Diamond, how do you feel about this change to your elite benefits?

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  1. Elites buying tickets aside, what about the value of points earned from the airline’s $3 billion Amex deal? That’s the risk here. They have an incredibly profitable relationship. Making that less attractive for customers could squeeze some extra margin, but risks a lot.

    1. Gary, I suspect the garden variety member who doesn’t fly the airline a lot and acquires miles through a credit card isn’t as well-versed in program details.
      I think many of those folks will fall into two different categories. Many will not notice or care. Some will book Basic Economy award tickets. A smaller portion of that second group will need to cancel or change those tickets and will be angry when they can’t. I suspect it’s a small group of non-elites who changes their behavior because of this.

  2. There’s a couple of points to consider here. You say that having flexibility with an award ticket that you don’t have with a paid ticket is unreasonable. I disagree completely. In order to redeems those miles, you need to have spent time, money, and effort to fly Delta in the past. While the whole idea of airline loyalty programs is to make otherwise impossible dreams possible, some people just want to fly the family in economy to Boise. This move just further exemplifies how Delta feels about loyal customers, which is why I don’t fly them.
    Regarding your point about elite exemptions to the new rules, I can see both sides. One one hand, the elites fly your airline an awful lot, so you should do for them. On the other hand, you’re already going out of your way to make your customers unhappy, so why not go whole hog? It’s not like Delta cares, or if they do, they give every indication of the opposite.

    1. Christian, always respect your opinion. But, I don’t think you need to have spent time, money and effort to fly Delta in the past to have award miles. You do have to have spent some money, at a minimum, on their credit card. But, I don’t think Delta has made a promise to someone who doesn’t have elite status that they’ll have the right to change or cancel their award tickets without a fee.

      You bring up a good point about Delta going whole hog. My guess here is that they believe in an incremental approach of continuing to grow incremental profit until they see behavior changes they don’t like.

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