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Delta Air Lines’ Chief Revenue Officer and newly named President Glen Hauenstein spoke at an investor conference this week, and SkyMiles is on his mind.
Delta SkyMiles has gone through a lot of change in the last few years, raising fears it wants to move to a world where your miles get you little more than one cent each in value with moves like these:
But it’s also made improvements that let some people get even more value than before, like:
So when he answered a question about what SkyMiles will look like in 3 years by saying “we have a giant liability out there for SkyMiles” and “we have to find new and creative ways for our customers to burn those miles,” it raised even more fears.
You can listen to his remarks here, but we’ve summarized them below, and this is our take after listening to his comments in their full context.
Delta isn’t moving to getting rid of the ability to use miles for free tickets.
Hauenstein emphasized “You will certainly still use miles to buy your ticket, but there are some other uses in much smaller increments that you can control your experience with Delta.”
In fact, he specifically cited the example of using miles to fly to Europe, saving “when you think about the increments of what it costs to fly to Europe, you’re talking about in a Business Class or even in Coach, you’re talking about 60,000 – 250,000 miles generally. That’s a pretty big increment to save for.”
So, Delta is concerned that 60,000 miles is too steep a price for many of its members, and because of that many are saving for years just for one award.
Or not using their miles at all.
That’s a bigger liability problem for SkyMiles than other programs like United MileagePlus or American AAdvantage because SkyMiles don’t expire.
And Delta wants to find more ways to coax members who don’t earn a ton of miles each year to use them sooner, rather than sit on them.
Getting rid of award charts to set goals was one step, and offering lower priced awards on short flights was another.
Offering things like using miles for priority boarding or drinks in Sky Clubs will be others, but the key will be whether these will s a good value proposition, and not just a small mileage price. We’re not betting they will be great values.
Hauenstein also emphasized the example of Virgin Atlantic’s Clubhouses, where you can get a haircut or massage in the lounge. And he said “in the future you should be able to use your SkyMiles to pay for something like a haircut in a lounge.”
Today, Delta Sky Clubs don’t offer anything more than drinks and some limited food, so talking about haircuts gives us the impression Delta will be enhancing some of its Sky Clubs to feature things you might find in a Virgin Clubhouse.
We can imagine the key Sky Clubs in New York and Atlanta offering more restaurant and spa like amenities for international business class travelers, or even domestic travelers who want to pay with their SkyMiles.
Delta seems to think if it can offer things in clubs people are willing to pay for with SkyMiles, they can justify the expense of adding them, with Hauenstein saying “bringing that currency alive to really be able to control your experience will also allow us to offer more types of experiences”
American announced last month it is expanding its Flagship first class lounge concept, and a more amenity rich Sky Club could be a way for Delta to counter that.
While there were no specifics on this front, it’s clear Delta is trying to telegraph a change to the value proposition of SkyMiles over the next few years, though we’re not yet convinced it’s an end to getting a seat to Europe in Business Class for well under 200,000 miles.
We think SkyMiles will continue to refine the program to iron out jackpot value awards, like getting a business class seat to Europe that’s selling for $7,000 with just 125,000 miles.
Instead, thanks to better algorithms you’ll see that 125,000 mile flight pop up at times it wouldn’t before, because Delta has a better sense of when it won’t sell for $7,000 – and it’s really worth about $2,000 – $3,000, and OK to make available for a discounted mile price. You already saw that this year with the recent sale on business class awards to Europe.
So the miles will be more of an aspirational discount, and you can still get into the big seat for a reasonable mileage price if you’re flexible.
It’s not great news for frequent flier enthusiasts, because part of the appeal of miles is the jackpot value you can get if you plan and save, and the extra flexibility miles give like stopovers and not having the minimum stay requirements. But the reality is Delta hasn’t been a great place for jackpot awards for some time now. It’s been a good place for reasonable awards.
It feels to us Delta’s bigger focus right now is on people who don’t earn a lot of miles, and finding more ways for them to use their small balances of miles.
For now, SkyMiles are among the most useful for getting to Europe in business class, and more useful than they used to be for getting to Asia.
But one thing is clear – don’t stockpile them for more than a year or so – which isn’t exactly something that engenders loyalty.
You can read our summary of Hauenstein’s comments here:
“We have a giant liability out there for SkyMiles, and it’s real to Delta through the partnerships like American Express, and we have to find new and creative ways for our customers to burn those miles.
And really when you think about how people have traditionally used miles, they’ve saved them up, sometimes they take their family on vacation, and sometimes they save them to retirement.
And what we’d like to do is really bring those miles to life in normal use.
When you think about the increments of what it costs to fly to Europe, you’re talking about in a Business Class or even in Coach, you’re talking about 60,000 – 250,000 miles generally.
That’s a pretty big increment to save for.
If you look at some of the models in Europe, some of the newer models…people are using them more to control their experience.
We think it’s a blend of both. You will certainly still use miles to buy your ticket, but there are some other uses in much smaller increments that you can control your experience with Delta.
Whether or not it’s you’re in the Sky Club, it’s your anniversary, you want to buy a big bottle of Dom Perignon, you want to be a big spender, why not use your miles?
But bringing that currency alive to really be able to control your experience will also allow us to offer more types of experiences. If you look at what some of the industry leaders have done, in places like our partner Virgin, where the clubhouse has many different amenities available to them…to use your miles to access haircuts or massages in the future is not out of the question.
I think that’s kind of the vision of making it something you can make your travel experience with Delta whatever you’d like it to be. It doesn’t just have to be in these large chunks for free travel.”
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