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Delta's premium-revenue focus means it could soon get harder to snag a free upgrade — but cheaper to buy one

Dec. 23, 2021
5 min read
Delta's premium-revenue focus means it could soon get harder to snag a free upgrade — but cheaper to buy one
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Delta doesn't want you to get a free upgrade.

That's not to say the airline wants its loyal elite passengers crammed into a middle seat in the back of the plane. Instead, it wants to see its frequent flyers — the road warriors who chase the next level of status for benefits like extra legroom and last-minute free upgrades — pay to fly up front.

The challenge: How to make that happen without pricing people out.

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That's the message that Delta delivered during its annual investor's day event in New York last week. Airlines typically use the investor days to detail their performance over the past year, share insights gleaned from the rapidly changing air travel market, and discuss the company's plan for the coming years.

How Delta views its premium seats was one of the more interesting topics to arise from this year's event.

It's not just the road warriors Delta wants to buy those first-class seats, however. It's also a new segment that grew markedly during the pandemic, particularly over the last year.

"What is so interesting is that consumer high-value leisure actually grew during the pandemic," Delta president Glen Hauenstein said. "So, when you look at this and say consumer travel demand is 100% restored, what's leading that ... is high-value leisure."

Part of the strategy, which Delta began to plot in 2011, is to essentially hook customers on the added space and service. Seventy percent of customers who fly in a premium seat will buy a premium ticket again in the future, Hauenstein said. That can add up to billions of dollars in new revenue streams.

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"When we add the component of domestic and international high-value leisure — and this is, of course, revenue that we didn't have in 2019," Hauenstein said, "and you put those together, that's about $2 billion to $3 billion of additional high-value leisure travel that is now in our base."

That $2 billion to $3 billion comes from purchases of things like first- and business-class tickets, premium economy or extra-legroom coach seats, upgrades and lounge access. It's counted separately from the ancillary revenue associated with standard coach seats (like checked bag fees).

About 33% of the airline's revenue will come from premium products this year, Hauenstein said, compared to 24% in 2014. By 2024, Delta estimates that share to reach 36%.

"This has been a huge evolution for us," Hauenstein said.

The airline also wants business travelers to pay up for better seats. While business class remains out of the question for many companies, premium economy on long-haul flights presents a decent option.

Aside from that, many companies are considering more generous travel policies in order to attract talent, Bastian and Hauenstein said.

More: A Suite Ride to China: Delta One on the Brand-New A330-900neo

"I think you're seeing in this very tight labor market is that companies who are hiring people who they know will be traveling quite often realize that to attract top talent, they have to make their products more competitive," Hauenstein said.

Bastian said that by pricing strategically, the airline can increase the number of customers who buy up to a premium fares class – and change from decades past where first class was sometimes several times more expensive. "[Y]ou don't see the step change, massive retail changes that we used to have in the first structure, they're reachable," he added.

Already, the airline has seen success with premium economy, which it brands as Premium Select. It's currently available on about 40% of Delta's international flights, Hauenstein said, and consistently sees load factors in the 70%-to-80% range.

The key is making sure that while premium prices are high enough to differentiate the products and produce strong yields, they're still reasonable enough for individuals and companies to be willing to pay them.

For premium economy, for instance, that's meant about double the average coach fare, Hauenstein said.

As it finds that balance, that means Delta will continue to see more of its premium seats sell ahead of time — which could also mean that fewer are available as upgrades, even for top-tier elites.

Image courtesy of Delta Air Lines

In 2019, the last full year before the pandemic, Delta saw paid load factors averaging 63% in its domestic first class cabins, up from 55% in 2014 and just 13% in 2011. That means that 37% of seats, on average, were left available for upgrades.

By 2024, Delta estimates load factors in the high-60% range, which would mean as few as 30% of seats available as upgrades.

The good news for elites, Hauenstein said, is that the airline plans to add premium seats to its aircraft, meaning the overall number of seats available will increase.

Plus, in the airline's ideal scenario, passengers could look into paying for an upgrade — either using cash or miles — and find that it's not as expensive as they expected.

The airline has already seen over the last several years that passengers hoping to sit up front who found "better price points and more ability to see what products they were buying were happy to pay to confirm their seat at time of purchase," rather than playing what Hauenstein referred to as "the great lottery" for upgrades.

Still, free upgrades remain a valuable perk that the airline uses to attract and retain its top spenders, so it will have to balance the push for premium with the risk of driving those customers to a competitor, which may have lower yields, but may also have more open first class seats.

Featured image by Photo by David Slotnick/The Points Guy
Editorial disclaimer: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airline or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.

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Why We Chose It

If you are looking to take your premium rewards to the highest level, this card is really a no brainer in our eyes. Chase's Ultimate Rewards make points easy to redeem, with a wide range of 10 airline and three hotel transfer partners and a friendly user interface. Despite the high annual fee, Chase is consistently adding new benefits to keep the card competitive in a fierce premium rewards field.

Pros

  • $300 annual travel credit as reimbursement for travel purchases charged to your card each account anniversary year
  • Access to Chase Ultimate Rewards hotel and airline travel partners
  • Unlimited 3x points on the broad category of travel and dining
  • 50% more value when you redeem your points for travel through Chase Ultimate Rewards®
  • Broad definitions for travel and dining bonus categories

Cons

  • Steep $550 annual fee
  • May not make sense for people that don't travel frequently
  • You must spend the $300 travel credit before earning 3x points for travel and dining
  • No automatic hotel elite status
  • Earn 80,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening. That's $1,200 toward travel when you redeem through Chase Ultimate Rewards®
  • $300 Annual Travel Credit as reimbursement for travel purchases charged to your card each account anniversary year.
  • Earn 5x total points on flights and 10x total points on hotels and car rentals when you purchase travel through Chase Ultimate Rewards® immediately after the first $300 is spent on travel purchases annually. Earn 3x points on other travel and dining & 1 point per $1 spent on all other purchases
  • Get 50% more value when you redeem your points for travel through Chase Ultimate Rewards®. For example, 80,000 points are worth $1,200 toward travel
  • 1:1 point transfer to leading airline and hotel loyalty programs
  • Access to 1,300+ airport lounges worldwide after an easy, one-time enrollment in Priority Pass™ Select and up to $100 application fee credit every four years for Global Entry, NEXUS, or TSA PreCheck®
  • Count on Trip Cancellation/Interruption Insurance, Auto Rental Collision Damage Waiver, Lost Luggage Insurance and more