Randy Petersen's Opening Remarks – November, 20 2007

Randy Petersen's Opening Remarks – November, 20 2007

Spinning off? As I collect my various electronic news clippings tagged from the words “frequent flyer,” I’m amazed, but not surprised, of the number of stories floating around about airlines “spinning off” their frequent flyer schemes. It’s amazing that so many airlines really think they have what it takes to drift these marketing units into the public sector. As I noted nearly two years ago, there are very few airlines that have a legitimate chance at this or should even consider it. The reality of any frequent flyer program being successful in the public market lies in their ability to clearly define a business model with expected returns — and more importantly than anything I’ve seen mentioned so far — show competent management and leadership in place for this to happen.

Let’s consider the current situation. The smart airlines will not bother to fan the flame for this topic in the public domain. But the less-than-smart CEOs and shareholders will take whatever attention they can get. So, what’s my point? I believe only two or three programs in the world have the perfect combination of personnel and business plan. And for at least one of them, the timing is not in their favor. Personnel? One of the most important parts of the stand-alone loyalty program’s business plan is who will be running it. They must have a great deal of experience dealing with the financial end of the business — when Wall Street wants to talk numbers, they must be able to talk Wall Street’s talk. I think United is the best candidate in the world right now based on that requirement. Their current General Manager is no less than the former Vice President of Investor Relations — a great training ground for this type of action. But while Mileage Plus may have the right personnel and business plan (they set up UAL Loyalty years ago for these types of situations), the timing is very bad for them. After the bankruptcies of the airline sector following 9/11, there are an inordinate number of IOUs outstanding to employees and other groups that enabled United to survive. Spinning off any asset like this right now would return a small amount of capital to the airline, that would then be swallowed up by outreached palms. Furthermore, what would be left if oil does indeed shoot past $100 a barrel? Right, nothing — except another possible bankruptcy. And as far as programs like Delta and Northwest, I suggest that they put the pipe dreams away and refocus on the work they have at hand with being an airline, not a dealmaker on Wall Street.

Cashing in? I got an email with a question from a reader that said she had heard that she should cash in her Delta SkyMiles because the program was going to be worth nothing. I’m sure glad she contacted me because with almost no research at all I can calm her fears. SkyMiles is in no danger of causing your miles to be worthless and anyone cashing in their miles is simply a fool. Has Delta announced that they will place some caps on a select number of their flights to not allow “double mile” award redemption opportunities? Yes, they have. Does that mean the end of SkyMiles? Well, if I remember right, up to about 10 years ago Delta had any number of restrictions in place which prevented members from redeeming for awards on certain days and routes. I’ve listed those restrictions here: DE1 = All flights to/from Atlanta; DE2 = within the continental U.S. (including Alaska) and Canada; DE3 = Between the continental U.S. (including Alaska) or Canada and the Caribbean, Hawaii or Mexico; DE4 = Between the continental U.S. (including Alaska) or Canada and the Caribbean or Hawaii; DE5 = Between the continental U.S. (including Alaska) or Canada or Mexico; DE6 = Between the 50 U.S., Bermuda, Canada, the Caribbean, Mexico, and Europe (to/from all cities); DE6a = Between the 50 U.S., Bermuda, Canada the Caribbean, Mexico and Europe (to/from all cities) Fri-Sun only; DE7a = Westbound between the 50 U.S., Bermuda, Canada, the Caribbean, or Mexico and Europe; DE7b = Eastbound between the 50 U.S., Bermuda, Canada, the Caribbean, or Mexico and Europe; DE8a = To Nice in First or Business Class; DE8b = From Nice in First or Business Class; DE9a = Westbound between the 50 U.S., Bermuda, Canada, the Caribbean, or Mexico and India; DE9b = Eastbound between the 50 U.S., Bermuda, Canada, the Caribbean, or Mexico and India; DE10 = Between Seoul and Portland; DE11 = All flights between the 50 U.S., Bermuda, Canada, the Caribbean, or Mexico and South America; DE12a = To Rio/Sao Paulo; DE12b = From Rio/Sao Paulo; DE12c = To/From Rio/Sao Paulo; DE13a = Westbound between Europe and India; DE13b = Eastbound between Europe and India.

Yes, Delta had a huge number of these types of blackout dates in the past (the most in the industry) and I don’t believe they are going totally back to those days. But rather, I think because of the number of full flights at certain times they probably just don’t like to continue saying “no.” Knowing in advance that I should not plan on award travel for a particular date — as it used to be — seems to be a better system than that roulette wheel we currently have. While I don’t like the mystery surrounding their latest move, I’m pretty sure there is something else behind it and I’m sure we’ll be glad when we get to see it all. In the meanwhile, cashing in your Delta miles? A foolish thing to do.

And finally, I’m “shouting out” the best of all holidays to you and yours. I really mean that.

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