Opening Remarks – June, 17 2010

Opening Remarks – June, 17 2010

Awards and Big Government

I’ll go on record as saying that I think Delta SkyMiles has been given a bad rap lately with regard to award availability.

Recently, another effort was made to analyze award availability–this time by a firm named IdeaWorks. The analysis contained some rather interesting, if somewhat unusual, results, specifically related to the SkyMiles program. I’m not challenging that some have professed nothing but problems getting an award out of Delta SkyMiles, but in this case the numbers just don’t appear to add up.

In overall award availability, IdeaWorks ranked SkyMiles next to last with awards available only 12.9 percent of the time. Now that’s a number that raised some red flags with me and demanded a bit closer inspection, especially as it doesn’t match prior research conducted by Consumer Reports, The Wall Street Journal and InsideFlyer–each of which ranks SkyMiles more favorably.

The first thing I examined was the method of the IdeaWorks research. It was interesting to see they only looked for awards on a Tuesday through Friday. Many members redeem miles for weekend travel and some programs manage award availability based on members’ redemption patterns. Whether this was a factor in this particular study I can’t definitively say, but it is certainly a possibility. Even with that in mind, there should be a balance of awards available all the time for members.

The really troubling thing though is that, based on our own research, we know the SkyMiles program statistically ranks among other high-ranking programs in the actual number of awards redeemed. In 2009, approximately 8.5 percent of Delta’s total revenue passenger miles were allotted to award inventory. As a percentage, that’s more than United sets aside for awards, and less than American, and when adjusted means that more than nine percent of all Delta’s passengers were flying on an award ticket in 2009. This just doesn’t seem to match up with IdeaWorks research that shows SkyMiles award availability at only 12.9 percent. Equally odd was that IdeaWorks placed both American and United somewhere in the middle of the pack.

This isn’t to say the IdeaWorks study is fundamentally flawed. In the study, Southwest trumped all others in award success, mirroring the results we see in our monthly award search charts. And I’m not just agreeing with this finding because the finding agrees with me–Southwest Rapid Rewards also won several Freddie Awards in its day. This also jives with a J.D. Power and Associates customer satisfaction survey in which they found that members of low-cost airlines’ frequent flyer programs generally have higher satisfaction scores than non-members, and the reverse is true for members of traditional airlines’ programs.

Regardless of the discrepancies between the various data points, the results of the IdeaWorks study reinforced in the minds of a number of SkyMiles members the idea that SkyMiles is indeed a disreputable frequent flyer program.

Now, I’m not here to defend SkyMiles and I encourage Delta to keep working at this, especially the availability of international premium class awards at the low level. All I’m saying is the Delta SkyMiles results are a bit puzzling, and that with any study it is important to keep in mind the methodology and related studies, and do your best not to fall into the trap of “using” results to prove what you already know to be “fact.”

Now onto big government.

The DOT is proposing to improve air travel for passengers, which comes as a bit of a surprise as previous attempts have been sidelined by the best lobby efforts of the airline industry (see Customer First, circa 1999).

While I may not be a big fan of big government, I like that the DOT has taken the lead in a new Notice of Proposed Rulemaking, which focuses on enhancing airline passenger protections. What is unusual about this current call for rulemaking is that the issue is not a result of Congressional hearings or a knee-jerk response to a specific incident. This seems real and comprehensive.

Many of the proposals are related to overall passenger rights, but there is an interesting inclusion that addresses frequent flyer miles and bumps. Part 250 deals with involuntarily denied boarding (“bumped”) from oversold flights, an idea first adopted in the 1960s, well before frequent flyer programs. The component we like is that they are seeking to clarify that Part 250 applies to passengers who hold “zero fare tickets,” e.g., passengers who “purchased” air transportation with frequent flyer miles or airline travel vouchers, passengers who travel on so-called “free” companion tickets. For the most part, these ticket holders have “paid” only government taxes and fees and other administrative fees.

The proposal includes amending the definition of “confirmed reserved space” to specify that zero-fare ticket holders have the same rights and eligibility for denied boarding compensation as any other passenger who paid for airfare. Passengers with zero-fare tickets earned those tickets in some fashion. When zero-fare passengers are bumped, they suffer inconvenience and/or financial losses as well.

While the focus on the rule change is monetary, we like the way this big government is thinking. They are proposing a possible alternative to allow airlines to compensate zero-fare ticket holders using the same “currency” in which the tickets were obtained. With this alternative, an involuntarily bumped passenger who redeemed miles to purchase a ticket would be eligible to be compensated with miles. Under the current rule, this would amount to 100 to 200 percent of the miles redeemed, plus a cash amount if appropriate to account for any taxes, fees and administrative costs paid to obtain the ticket. I do like this idea. If this particular proposed rule change is adopted it could set the tone for other rules that recognize that the frequent flyer award is not a “free ticket,” but rather something that was earned.

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