Do Revenue-based Frequent Flyer Programs Help/Hinder Award Travel?
In Delta’s recent SkyMiles announcement, they say they are working on a better system of award availability. We hope that is true. One of the things we looked at in our analysis of the changes SkyMiles is making is the way the change to a revenue-based program at Southwest Rapid Reward affected award redemption for that program. Say what you will, but the SWA revenue-based program takes top honors for award performance.
In 2010, before the move to a revenue-based program, Southwest redeemed out 3.2 million awards counting for 7.9 percent of their revenue passenger miles (a loose approximation of the percentage of passengers flying for free). That jumped to 3.7 million awards and 8.3 percent of passengers flying on awards in 2011. The changes to that program began in March 2011. Even with a late start for the year, there was a nice 15 percent increase in the number of awards redeemed.
For the first full year following the change to a revenue-based program, 2012, award redemption jumped to 4.5 million award tickets and 9.0 percent revenue passenger miles. And in the year just ended, Rapid Rewards distributed 5.4 million award tickets accounting for 9.5 percent of their revenue passenger miles.
In just three years, they have seen almost a 69 percent increase in the number of awards distributed, and are approaching 10 percent of their entire passengers flying on an award.
While there is no current knowledge of what the revenue-based change will mean for SkyMiles, Rapid Rewards sets a pretty high bar on the positives of their revenue-based change.
A Look at a Possible 5-Tier SkyMiles Award Chart
As is well known, Delta SkyMiles currently has a three-tier award chart, with an announcement that in some markets it will go to a five-tier award chart. We were able to hunt down one of the proposed award chart changes to see how it will look in Jan. 1, 2015.
Currently to Europe in economy, you have Saver awards at 60,000 miles roundtrip, Standard awards at 95,000 miles roundtrip and Peak awards at 130,000 miles roundtrip.
We believe that the new levels that will fill in between the current levels will be 70,000 miles roundtrip and 105,000 miles roundtrip. We have no idea what these new levels will be named but it is interesting to note that they are slightly above the existing tiers—70,000 miles being closer to Saver’s 60,000 miles than the Standard award at 95,000 miles, and the same would be true for 105,000 miles.
With 10 months to go, this certainly may be nuanced but we do think it gives us a glimpse of where Delta may be going.
NOTE: Some of those analyzing the situation think that the early announcement by Delta is because they think someone else may be readying their own similar announcement. We’re not sure that would be wise unless there’s a leadership component here. For such a ‘hot mess’ topic, many would have opted to let anyone else make their announcement first and then ‘draft’ behind that news. Regardless, if anyone wants to sit outside the AA building on Amon Carter Boulevard in Dallas this evening or the Willis Tower in Chicago and count the number of pizza deliveries to each location well into the night, we’d be interested in knowing how many had anchovies.
It’s not economy class awards we’re worried about. Those are about 1.5 cents in value.
It’s the business class awards to europe that are the concern. Will there still be options to redeem and gets 3 cent per mile value if you’re flexible?
Answer that for us.
Randy Petersen says
Got it, but someone still flies economy. Looking closer, Delta already announced higher redemptions for premium cabin long-haul so we would not expect much more there, if any. Why announce that and then this shortly after? If you can wring that value (hopefully more) out of awards after June 1, then likely you’ll be fine. We think this move was predicated around trying to build better award redemption practices and hope we are not wrong.
Gary Leff says
If the changes on the redemption side weren’t going to be bad, Delta wouldn’t be hiding the ball. They’d be sharing how great the changes are overall now.
Randy Petersen says
A couple of theories: Top Ten Reasons For Hiding The Ball.
1) they heard rumors of others and wanted to be first out of the gate so they can develop the program for others to follow rather than they thinking they needed to respond. (TOTH: MSPeconomist @ Milepoint)
2) they were burned from the social element of no/not so much notice on last few changes and read the View From the Wing blog that they are on the short list for not giving notice. So they over notice everyone.
3) They are crowdsourcing the award chart. Given enough notice they will have enough time to measure feedback and then decide the award chart. Thought about doing the new award chart on Kickstarter but thought it might look tacky.
4) they are still trying to figure out how much to charge for awards to/from Seattle (inside joke w/ Alaska Airlines)
5) Read [my] lips. OK, then read others. Top airline analyst Henry Hartevelt points out that DL recently did announce changes for premium long haul awards, and the kimono doesn’t look like its got much junk left in it.
6) They used the same heating, air conditioning and refrigeration firm that Target was using and as a result the new award chart was breeched and hackers now have all the miles. No miles, no award chart—what’s so difficult to understand about that?
7) The Winklevoss twins have convinced Delta to accept Bitcoins as partial payment in the new Miles + Cash option and unfortunately with the value of a BitCoin down, they need to wait as that market recovers before they can introduce the program that the Winklevoss’s sold them.
8) Hoped to buy time so that they can return to the Texas market now that the Wright Amendment has been appealed and announce intrastate awards between Love Field and Ellington Field.
9) Gary, don’t you know your numerology? The number 5 is the most dynamic and energetic of all the single-digit numbers. It is unpredictable, always in motion and constantly in need of change—Five tier award chart .. .get it?
10) And the number one reason why Delta is hiding the new award chart: Don’t trust Doug Parker to come back and want to buy Delta again so left just enough room in the notice to scare off anyone, including Doug. Really would Doug want to buy an unknown award chart? Don’t answer.
Gary Leff says
The idea that they’re somehow rushing out the news for one reason or other, or just taking in ideas of what to do, strikes me as odd considering you wrote yourself in an earlier article that they’ve been working on this for three years.
Plus if they were trying to be open, and not making changes on the premium redemption side after all because they’ve “just done that” then that would be good news and they’d come out with that.
Nine months will tell, but my bet is that this won’t be good.
I have an inside scoop: Delta’s new domestic coach one-way levels will be 10K, 15K, 20K, 25K, and 30K. No higher tiers, one lower, but the old 12.5K (25K RT) standard is gone. If 10K and 20K availability, on average, matches or exceeds what 12.5K (25K RT) provides now, then we benefit.
Randy Petersen says
Doesn’t look like the scoop was correct. We can only hope that we benefit from the real award chart—in 2015.