Delta’s recent announcement that its SkyMiles loyalty program will begin awarding miles based on ticket prices instead of distance flown has induced a predictable outpouring of vituperation and hand-wringing, much of it misdirected.
To be sure, airline loyalty programs deserve much of the animosity they’ve engendered. Unregulated lotteries? Guilty. Bait and switch? Arguably. Gratuitously (if not insidiously) obfuscatory? Indubitably.
But for all their warts and detractors, the programs have survived. Nay, prospered. That’s due to a simple fact: Millions of travelers have been able to squeeze solid value from these programs, in the form of free travel (which can be viewed as a form of rebate) or special perks. Which gives the lie to the broad contention that the programs are so scammy or irrelevant that they’re best avoided outright.
What is true is that the programs are not for everyone. If you travel only occasionally, and mostly for vacations or to visit friends and family, you’re probably best served by choosing airlines and hotels based on price, and letting the frequent-traveler points fall where they may. The extra cost of channeling your travel dollars to a single supplier will almost certainly exceed the value of any program-derived benefits.
It is also true that the programs increasingly favor customers who might be best described as the one-percenters — travelers whose disposable incomes or job descriptions make it possible for them to travel often, and on expensive tickets. Try as they might, the other 99 percent just don’t stand much chance of reaping significant rewards from loyalty programs that recognize dollars spent rather than miles flown.
There’s nothing nefarious or revolutionary about equating loyalty with a customer’s contribution to a company’s bottom line. After all, that has been the goal of the airline programs from their inception. Miles were merely a handy proxy — an imperfect one — for a traveler’s spending. But once embedded in the programs’ sprawling computer infrastructures, and in airlines’ marketing ecosystems, miles were difficult to excise. That’s due largely to the fact that shifting from a program based on miles flown to one based on dollars spent is a hugely expensive, enormously complicated undertaking. It took Southwest three years to make the conversion, with costs rumored to total almost $100 million. No wonder the legacy airlines, with their legacy mileage-based programs, were reluctant to make the change.
Delta may be the first of the surviving legacy carriers to adopt the so-called revenue model for its program, but it certainly won’t be the last. And it’s hardly breaking new ground. In fact, viewed in the context of the travel industry overall, Delta’s move is late in coming. Southwest, JetBlue and Virgin America already have revenue-based programs. All major hotel programs award points according to spending, as do travel-rewards credit cards.
In making the considerable investment required to convert its SkyMiles program, Delta was simply acknowledging that the business case for spending-based programs is overwhelming. It is an axiom of modern marketing that a relatively small group customers account for a disproportionately large percentage of a company’s profits. The first priority of any sensible loyalty program must be to reward those high-profit customers for their past business, and to encourage their future business.
That’s just what Delta’s new program will do, and what the great majority of other travel loyalty programs do as well. And really, wouldn’t it be financially irrational to do otherwise?
Here’s a tip for Delta loyalists who will earn fewer miles under the new scheme: Ditch SkyMiles and buy the airline’s stock. You’ll save money by buying the cheapest-available tickets (probably not from Delta). And even as SkyMiles is rewarding you less, your shares will be gaining in value as the program, now better aligned with Delta’s financial goals, plumps up the company’s bottom line.
In other words, follow Delta’s lead and forego the miles in favor of the money.
Tim Winship, founder of FrequentFlier.com and co-author of “Mileage Pro — The Insider’s Guide to Frequent Flyer Programs”
