Delta Air Lines said Wednesday recent changes allowing business travelers to easily use their own miles or money to pay for upgrades will help it weather a recession.
Selling first class and upgrades to better seats are among the most profitable parts of an airline’s business. Delta is looking to assure investors worried about a possible recession that their revenues will remain strong even if companies cut back and no longer allow employees to book first class.
Atlanta-based Delta said premium products make up about one-third of its revenue, while revenue from the main cabin has declined from two-thirds to about 50 percent. Another big chunk of Delta’s revenue comes from selling miles to American Express through its lucrative credit card agreement.
Historically during recessions, airlines are hit by declines in business travel and are forced to lower their business air fares, while demand for coach class remains more steady.
Delta chief financial officer Paul Jacobson acknowledged on Wednesday that investors “have looked at this and said, well your increased reliance on premium revenue should make you a little bit more volatile during the economic cycle.”
However, said Jacobson, “when corporate customers maybe in economic headwinds scale back and pull people to the back of the cabin from the Comfort+ or from first class,” Delta can now sell passengers upgrades to first class through a separate transaction that allows them to use their own cash or miles.
The company late last year added the option of using miles to pay for upgrades via its website, saying it was targeted in part at business travelers whose corporate policies don’t allow them to book first class or other premium seats and are willing to pay out-of-pocket.
“Will some people do it? Sure,” said Matthew Bennett, publisher of firstclassflyer.com. “There will be people who throw [miles] around for upgrades.”
Jami Counter, an air travel expert for SeatGuru and TripAdvisor Flights, said business travelers on international flights may be particularly inclined to use miles to upgrade.
On long international flights with lie-flat seats in business class, it’s “a night-and-day difference between economy and business,” Counter said. “If you’re flying to Seoul or Tokyo and you have to present the day you land, getting a decent night’s sleep is critical to the success of your meetings.”
On domestic flights, many elite frequent fliers instead wait for the chance of a complimentary upgrade. Others might be willing to pay for a better seat because “the closer the flight comes, the more tension and horror of flying coach can be,” Bennett said.
But, doing so could give the airline “another data point on the customer behavior to further segment them into: ‘Should we give this guy an upgrade or not?’” on future flights, Bennett said. “What you’re willing to pay [for] is not something they’re going to give you for free.”