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Posted by Henry Harteveldt on July 28, 2009
Delta Air Lines (DL) has announced a slate of upgrades to its SkyMiles loyalty program for 2010. The changes are being made as part of DL's merger with Northwest Airlines (NW). Delta tells Forrester that its remains on track to fully combine SkyMiles and the Northwest WorldPerks programs by October 2009.
As a result of the merger, it's believed that the Delta SkyMiles program may have more than 70 million members (net of duplications Between SkyMiles and WorldPerks), eclipsing the perennial category leader, American Airlines' AAdvantage, which has more than 60 million members.
Some of the best benefits of the new SkyMiles program will include:
Forrester's take: This continues a current Delta benefit. However, it's still great news for frequent fliers in that Delta isn't taking this away. In early 2009, some airlines, including American Airlines (AA), Continental Airlines (CO) and United Airlines (UA), eliminated the 500-mile minimum mileage credit in favor of awarding the actual miles flown. Most of the airlines, including AA and UA, later reinstated the 500-mile credit, but only for elite-level members. I expect we will see most of Delta's key competitors reinstate their 500-mile minimum.
Forrester's take: This is very consumer-friendly. It also shows the impact of the recession. Delta could have decided that in 2010 it would move to restrict this benefit to bookings made through preferred channels, potentially excluding channels like online travel agencies (OTAs). Forrester's online leisure travel channel forecast shows that airline sites are estimated to capture about 70% of all leisure bookings, increasing to 77% by year-end 2013. But Delta isn't Southwest Airlines (WN) or JetBlue Airways (B6).Those carriers generate about 75% or more of their bookings through their own Web sites. Delta, in contrast, generates about half that volume via Delta.com. Plus, given some of the past squabbles that periodically erupted between NW and online agencies, and occasional spats between Delta and the OTAs as well, it's smart for Delta to offer this.
Forrester's take: This, too, continues an existing SkyMiles benefit. Again, it's smart for DL to maintain this, especially in this recession. A) Fewer people are buying business/first class tickets (IATA's most recent premium travel report, covering May 2009, shows a 23.6% year/year decline in international premium cabin passengers), making it more important to keep this benefit. B), Delta needs to give its passengers a reason to "trade up." While I don't think anyone in his or her right mind would buy these fares just to earn more SkyMiles points, this is one way Delta says "pay more, get more." It's nice, and it's smart - though for what you shell out at these price points, Delta should also toss in vouchers for its buy-on-board meal/snack offering as well.
Forrester's take. Ding, ding, ding, we have a winner. If an elite SkyMiles member travels with family members or friends, all booked together in the same passenger name record (PNR) - airline-speak for reservations record - his/her companions all get the same courtesies. The preferred seating access and waived checked baggage fees will, no doubt, be among the most appreciated and useful benefits.
Forrester's take: Keep ringing that bell, we have another winner here. This one is fantastic.To start, we have the recession and the lack of any definitive time-frame for recovery. Business and leisure travel is down, as illustrated by the $257 million net loss Delta reported in its June 2009 quarter.Delta also faces growing competition from "low cost" carriers like AirTran Airways (FL), WN and B6, which are expanding their reach across more of DL's North American route network (WN, for example, recently entered New York LaGuardia, and will soon enter Boston Logan). Delta also faces an expanding Star Alliance - current SkyTeam partner CO leaves SkyTeam for Star October 24 How might this roll over program work? It's not unlike the "roll over minutes" program some mobile phone providers offer. Let's say a SkyMiles member earns 62,000 miles in a given calendar year. 50,000 miles qualifies the member for Gold SkyMiles status. The member can thus roll over his or her "extra" 12,000 miles (62,000-50,000 for Gold) towards the following year's Medallion status qualification. That's smart, because it (again, theoretically) keeps the member flying DL and its SkyTeam alliance partners once they hit a threshold.
Forrester's take. Another smart move. Several years ago, Delta reduced its Platinum-level qualification from 100,000 miles/year to the current 75,000 miles/year. It could have simply gone back to the "old" tiers, and moved Platinum back to 100,000 miles. That would create a bigger ruckus than Sherman's entry into Atlanta during, um, "that" war. Current Platinum's would have howled and insisted - rightly - that they be grandfathered through 2010. This gives Delta an out. The Diamond tier will recognize and reward Delta's "road warrior-est" of road warriors -- and, again in theory, keep some of members flying Delta and its SkyTeam partners for an extra 50,000 miles/year. Delta's tossing in a bunch of benefits, including complimentary access to Delta's network of SkyClub airport lounges. It also makes public a "whispered" program nicknamed "white envelope." Until now, Delat's fourth tier was not publicly communicated. Members only knew they qualified when they received their special "super elite" card in (allegedly) a white envelope. The Diamond-level program is potentially worth millions of incremental revenue dollars for Delta, so Wall Street should cheer this news as well.
Forrester's take: This is, again, smart. Think about the amount of traveling Delta's top-tier members do -- these people fly 50,000 or more miles a year on Delta and its SkyMiles partners alone. . While Wi-Fi makes it increasingly likely that a road warrior will have the potential to get online to book a trip, there are going to be times when that's not practical. And though DL has a mobile-optimized version of Delta.com, its user experience isn't comparable to the "traditional" Delta.com. Plus, in this business environment, why make life more difficult for your best customers? It's unlikely that Delta will see skyrocketing call volume because of this, meaning the airline will also likely not see a significant increase in its costs. Plus, with the online travel agencies still offering fee-free airline tickets, Delta retains a channel advantage for its best customers. It will be interesting to see how other airlines respond.
Forrester's take: Surely you don't expect us to object? This is a great member benefit. The concern I have, as an analyst, is that it may inhibit some SkyMiles members from requesting premium-cabin awards in hopes of getting a free upgrade. Airlines carry their frequent flier mileage balances as liabilities on their books, so the more miles that are burned, the better for the airline. However, since the upgrades are based on available seats, I suspect those who really want to sit in the pointy end of the plane will redeem the miles to do so.
Forrester's take: More smartness. AA, CO, and UA either charge, or have said they will charge, their loyalty program members fees to redeem miles to upgrade to the next class-of-service on all but their most expensive Economy-class fares (the airlines may exempt some of their elites from these fees). Hellloooo, these are supposedly "loyalty programs." How does an airline create and sustain loyalty when it charges a fee along with miles for an upgrade? Those type of fees are classic examples of traditional (read: bad) airline management thinking (I can say that, having worked for several major airlines earlier in my career). Forrester has researched the free-fall of traveler's brand loyalty. As airlines examine how to improve their business performance, they need to strike the right balance between generating revenue and creating programs that generate positive responses from travelers - rather than the usual venom.
There are other benefits to the new SkyMiles program, but we think these are the most important. We think Delta did more right than wrong with its changes, and believe it will serve the airline well as it navigates its way not only through the merger with Northwest, but this miserable recession as well.
By the way, if you're a SkyMiles member, Delta tells us you'll see these benefits phased in over the next 4-6 months. According to Delta, details about the program changes should be available online at www.delta.com/newskymiles.
What do you think - is Delta on the right track? How are you seeing customer loyalty change, and what initiatives have you seen -- or done -- to improve customer loyalty?