I always say that frequent flyer miles generally lose value over time (as programs raise award levels and start levying new fees and taxes) and that hoarding them is a bad long-term strategy. I do understand why people hold onto miles for a long time – we often get caught in the mouse wheel of chasing elite status so we pay for flights and then rack up tons of miles in the process that we hope to use “on a rainy day.” Most people also struggle with finding enough time to use all of the miles and points – whether you are in a grueling corporate job or raising a family – it can be hard to get away and when you finally do find time, syncing it up with perfect award availability can be a challenge.
That being said, whenever I use miles and I have an option of which currency to use, I make my decision based on a couple factors:
a) lowest amount of miles needed
b) lowest amount of fees levied
c) what kind of flexibility do I have to change the award/elite status with that program.
Lately, though, I’ve also added in a “d” factor which is: “which currency is most likely to be devalued?” And sadly, Delta is at the top of that list.
A Major Devaluation in the Works?
In March I wrote about rumors surrounding major SkyMiles program changes based mostly on job descriptions they had posted online seeking IT and loyalty experts to help create and launch a “Fare Based Award Ticket Redemption” project. In other words, they want to potentially peg the value of award redemptions to the price of the ticket, something that would be horrible for us who like to redeem miles for first or business class.
I don’t have any official details of their new program, but my gut is telling me that an announcement is coming in the near future and it won’t be pretty. If I were a stock trader, I’d definitely be going short on SkyMiles right now and in fact, I’ve been redeeming them as much as possible in anticipation of some major changes. What’s causing my paranoia? In addition to more job descriptions posted around the internet, some new verbiage on Delta.com that alluded to a “new” SkyMiles program (and was promptly pulled down), industry gossip and subtle cues like no transfer bonuses from Amex all year long when 2011 was a bonanza, I think some big changes are going to happen, whether we like it or not.
What Do I Foresee?
If changes happen in 2013, here are my guesses of what is going to happen.
1. SkyMiles redemptions will no longer be based on award charts and zones, but instead based on the price of the ticket and your elite status level. The higher the status, the more your SkyMile will be worth (but sadly, I suspect that it will still be less than what they are worth today). The model will be similar to Virgin America Elevate points that are worth less depending on the day of the week you fly, but Delta will also add in an elite element to make their elites feel like they are gaining even more value in the new program
2. Earning SkyMiles will no longer be based on the length of the flight, but instead the price, elite status and whether the flyer is also a Delta American Express cardholder.
3. Partner awards will still be based on zones (like Virgin America’s redemptions on partners like Hawaiian and Virgin Atlantic), but rates will increase and availability decrease (which we’ve already seen with Air France and KLM award space) so that people are inclined to redeem more on Delta.
4. Domestic upgrades shift away from complimentary elite upgrades to more “buy up” opportunities. Right now, you need to buy a K class or higher to use SkyMiles to upgrade a domestic ticket and I can see them making this available on all fare classes, but adding in co-pays. This may seem good to the masses, but it will chip away at Medallion upgrade percentages – similar to what is going on currently at United, where non-status passengers can pay a small fee and trump top tier elites for upgrades (and those same elites aren’t even given the same opportunity!)
5. International upgrade fare class restrictions will be eased, though the amount of miles needed will correlate to the amount needed to purchase a discounted business class ticket, which means more miles necessary to upgrade. Right now you need to purchase a Y, B or M fare to upgrade any international Delta flight. M fares are generally extremely expensive and advance upgrade space can be hard to find, so buying a ticket that is 2 times more expensive for the “chance” at getting the upgrade is a terrible value proposition. I imagine they will say “you spoke and we listened and now international upgrades are easier to get than ever”.
6. Low/mid level elite status perks will be watered down. Similar to what United did to decimate their Silver/Gold level Premiers, I imagine Delta will cut the mileage bonus for Gold Medallion down to 50% (from the current 100%) and make Economy Comfort seats only available at check-in or for a fee at booking.
7. In order to not completely dismantle their loyal following, special perks will be given to Platinum and Diamond flyers to ensure their business is appreciated. Getting rid of the insane 72 hour award change rule would be a great start.
8. Old SkyMiles will still be honored, but phased out. All new flights in 2013 will accrue “new” SkyMiles that are revenue based.
Winners and Losers
These changes may actually be really good for a some people, though we won’t be able to say until anything is announced. But if I had to guess, those who spend a lot will likely earn a lot and will feel like they are getting more value (and in fact, they may actually get a lot more value back if they are currently redeeming at the high/mid-tier award levels). These changes may be good for everyday flyers who will get a chance to sit up front for a fraction of the cost- at the expense of the mid/low-tier elites whose upgrades no longer clear. However, the savvy mile collector who knows how to accrue SkyMiles cheaply (aka TPG readers) may face a grim reality when international and premium awards become astronomically expensive, at least compared to other mileage currencies.
In the end, money talks and I don’t blame Delta for trying to be profitable. After all, loyalty programs are major businesses and sometimes some of the most profitable parts of an airline. They have the right to do whatever they believe what makes the most sense for their shareholders. However, as customers we also have the right to reject their business decisions and make our opinions heard loud and clear.
At the bottom of my conjecture post, I asked “Would you still fly Delta if they moved to a fixed-value mileage program?” and out of over 2,600 votes the results were 90% “No” and 10% “Yes.” Yes, I understand TPG readers are clearly going to vote in favor of value, but I think Delta may be underestimating the savviness of their flyers and if they do make negative changes, I hope consumers react strongly, because it could set a terrible precedent if the launch went smoothly and the collect value of SkyMiles slid even further (which I didn’t think was possible!).
The reason I’m worried is because airlines are copycats. Whenever you see a fare sale, most competitors will match. Frequent flyer programs even copy each others’ promotions like we saw with the current AA/British Airways premium fare to London promotion, which was matched in some capacity by both United and Delta (though sadly none took the bait with the current AA double EQM promo!). I’m worried that if Delta can devalue their program and get away with it, others will follow. And then the beauty of extracting 3, 4, 5, 6, 7+ cents per mile will be a distant memory. And heaven forbid I have to go back to flying coach internationally (when not on crazy cheap mileage runs!).
I’m also worried because Delta is known for making negative decisions and then implementing them without any advance warning. While I hope nothing is going to change, my gut tells me otherwise and I want to at least raise the possibility on TPG readers’ radars so you can think about your strategy going forward.
Of the major programs that I have mileage balances, I rank the following based on overall value of the miles:
1. United (low fees, one-way awards, lots of partners)
2. American (valuable off-peak awards, one-way awards great first class options and domestic availability and generally low fees excluding British Airways)
3. British Airways (amazing redemption opportunities for short- and mid-haul, no last-minute ticketing fees, one-way awards, valuable upgrade redemptions and low fees on many partner awards)
4. US Airways (lots of partners, flexible routing rules, off-peak awards and many cheap ways to accumulate/buy)
5. Delta (poor saver availability, blocked partner first class awards, blackout dates on partner awards, broken website and potential major negative program changes, expensive mileage upgrade program)
In terms of devaluation risk, I rank them as follows:
1. Delta (possible switch to revenue based program)
2. American (merger/bankruptcy unknowns)
3. US Airways (haven’t changed the award rates in several years and are pumping the market with buy miles promotions)
4. United (The merger earlier in 2012 was a headache – and still is – for many elite members and they aligned the Continental and United mileage programs in advance, so I don’t foresee any near-term changes, especially as they work through much larger IT-related issues)
5) British Airways (changed the program in November 2011, so I don’t foresee any changes in the near future)
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