Delta announces smart upgrades to 2010 SkyMiles loyalty program

Henry Harteveldt 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:

  • A 500-mile minimum on all flights
    and for all customers.

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.

  • 1 full "EQM" (Elite Qualifying Mile) and base mile on all
    fares regardless of booking channel

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.

  • A 50% EQM and base mile bonus on fares booked in Delta's the three highest (most expensive) economy-class inventory classes: Y, B, and M fares

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.

  • Premium security access, priority
    seats, priority boarding and waived baggage charges for everyone in the elite
    itinerary.

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.

  • Rollover MQM (Medallion Qualifying Miles). Delta will become the first
    airline to allow customers to permanently roll over any Medallion Qualification
    Miles (MQM) earned above a Medallion threshold at the end of the year, which
    will supplement their ability to earn status the following year.  This is a
    permanent feature and not a promotion and will take effect this year.

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.

  • A new fourth Medallion elite tier,.Diamond. A fourth Medallion level for flyers who earn 125,000 MQMs or fly 140 segments
    per calendar year that will offer the richest benefits of any airline elite
    tier.

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.

  • Fee-free ticketing. The three top Medallion tiers of the new SkyMiles program (Diamond, Platinum, and Gold) members will have ticketing fees waived for
    all bookings, regardless of channel, including phone and in-person. 

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.

  • Unlimited complimentary upgrades on Award-travel tickets.

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.

  • No co-pay on any upgrade award

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?

Comments

re: Delta announces smart upgrades to 2010 SkyMiles loyalty pro

Hi Henry -Great post! Thanks for breaking down the benefits of each new aspect of the SkyMiles program. It's very useful.One nit-pick though; while Delta doesn't charge a co-pay for Upgrade awards, they limit the fares which are eligible for upgrades. Typically only the highest fare classes (i.e. Y, B & M). On a cost basis, it's almost always less expensive to buy a cheaper fare and pay the co-pay (similar to AA and other airline programs).

re: Delta announces smart upgrades to 2010 SkyMiles loyalty pro

Thanks, belvie1. I'm going to double-check w/DL about this. I know that UA has, in the past, also restricted international upgrades to certain economy fares, though UA's upgradeable fares went beyond the three top booking inventory levels.Henry

re: Delta announces smart upgrades to 2010 SkyMiles loyalty pro

This is enough to make me personally rethink my trip to San Diego from NYC in August to NBTA. I was debating AA vs. Virgin America. I was AA Platnium but lost it because I started flying Virgin America. That said, with the power of the Amex partnership, maybe I should be switching to DL?On the professional not, it is clear that sources of data for update and award, such as ExpertFlyer, compliment the loyalty strategy of Delta, providing easier use, more recognition, and more for their loyal customers. That's why they play with ExpertFlyer, like AA, they see the value of providing unbiased data to the elite traveler.

re: Delta announces smart upgrades to 2010 SkyMiles loyalty pro

Thanks for writing, romeo7.I don't think it would be appropriate for me to offer advice on whether you should switch from AA to DL. It's important that you examine all the details.I hope to attend NBTA as well.Henry

re: Delta announces smart upgrades to 2010 SkyMiles loyalty pro

belvie1, Delta confirmed that the upgrades are only offered on the Y, B, and M-level fares.I think that's a bad decision on Delta's part. As an ex-airline guy, I can see why Delta wouldn't want to allow upgrades on all economy fares. However, I think they need to reconsider broadening this to be more competitive with American and United.Henry

re: Delta announces smart upgrades to 2010 SkyMiles loyalty pro

Henry,Just to be perfectly clear the fares discussed in the last couple of upgrade e-mails pertain to only upgrade awards purchased with miles not the complementary upgrades based on status/fare type, etc. most of us hope to get eaxch time we fly

re: Delta announces smart upgrades to 2010 SkyMiles loyalty pro

here is my post again...this time with the question askedHenry,Just to be perfectly clear the fares discussed in the last couple of upgrade e-mails pertain to only upgrade awards purchased with miles not the complementary upgrades based on status/fare type, etc. most of us hope to get each time we fly...correct?

re: Delta announces smart upgrades to 2010 SkyMiles loyalty pro

Subman619,The upgrades being discussed are the upgrades using miles. Any SkyMiles member can redeem miles for an upgrade. In the SkyMils program, on international flights only fares purchased in the Y, B, or M inventory "buckets" can be upgraded.FWIW, the complimentary systemwide upgrades (SWU) certificates offered to Platinum Medallions (and, in the future, Diamond Medallions) are also valid only on y, B, and M fares.I hope this is helpful.Henry

re: Delta announces smart upgrades to 2010 SkyMiles loyalty pro

Why do those who travel miles because of home or office location and travel across country get more benefit (miles vs segments) than those who travel within a region (such as the south east and travel throuh ATL to get any where, get mor benefit and quicker program upgrade than those who travel frequently and spend more money usually, and rely on segments to earn advanced status. In the words of our President-that's acting stupidly.

re: Delta announces smart upgrades to 2010 SkyMiles loyalty pro

I can't figure out of the system wide 6 upgrade certs which Delta used to provide to platinum members will still continue of not.can you help clarify ... thanks!

re: Delta announces smart upgrades to 2010 SkyMiles loyalty pro

MA,Thanks for writing. As I understand it, the 2010 Platinum benefits include 4 systemwide upgrades (SWU). The "choice benefit" feature allows Platinum members to select one item from a menu of options, one of which is two SWU's -- meaning you could still get six SWUs.I'm not an expert on the SkyMiles program, so I'd encourage you to check out the program details at www.delta.com/newskymiles for the most accurate information (the page includes a document about the 2010 program features/benefits you can download). There is also a thread on FlyerTalk.com about the new program: http://www.flyertalk.com/forum/delta-skymiles-489/Thanks,Henry

re: Delta announces smart upgrades to 2010 SkyMiles loyalty pro

For me as a silver elite flyer on NWA/Delta, I don't see the changes as good news. This means more elite flyers so fewer upgrade chances for me.The value of my accumulated miles was severly degraded last year when NW started charging $150 to use miles to book a last minute flight (this was the primary way that I used miles).So if I can't book my miles for free anymore and every Tom, Dick, and Harry is getting upgraded before me - what is the value of loyalty to Delta?

re: Delta announces smart upgrades to 2010 SkyMiles loyalty pro

bvgirl,Thanks for contributing.Your points are valid.If you haven't already done so, you should join the conversation on Flyertalk.com in the Delta SkyMiles forum about the 2010 program. I know that Delta SkyMiles executives and managers are reading that. Your contribution to that may help Delta reconsider some of the program rules and fees.Henry

re: Delta announces smart upgrades to 2010 SkyMiles loyalty pro

I am a frequent flyer (PM) on Delta and I fly mostly international. The 2010 changes are good but I am not sure they address the biggest concern of international upgrades. Delta, even if the business class is empty, would not upgrade you even if you bougth a class Y,B,M ticket unless there is a class Z available at least 24 hours in advance. Many times I was waitlisted after purchasing a premium economy ticket and ended up with sitting in coach for 18-hours flights - just ridiculous. I actually stopped buying upgradeable tickets and my best chances of upgrades are when the economy class is overbooked where I get priority for business class seats. I do collect those Systems Wide Certificates and can't really use them.Not sure if has been addressed in the 2010 program but I am seriously thinking of moving to United Mileage Plus

re: Delta announces smart upgrades to 2010 SkyMiles loyalty pro

kandou, thank you for contributing as well.Delta announced that they would accept same-day upgrades for long-haul international (offering BusinessElite service) flights as part of the new program.Please check www/delta.com/newskymiles for more infromaiton about the program. The Delta SkyMiles forum on www/flyertalk.com may be another helpful resource for you to get all program details.Henry