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Respected travel consumer advocate Chris Elliott is out warning today that the next big bubble in our economy is travel loyalty programs, and uses Delta SkyMiles as the case in point of a program about to get much worse.
Delta has in his view at least 500 billion miles outstanding because it has an outstanding liability of $4.4 billion worth of miles. He believes such a huge number out there thanks to 50,000+ mile credit card bonus offers and the like foreshadows hyperinflation where SkyMiles massively lose their value.
It’s a legitimate concern on the surface, especially after what happened to Hilton this year.
We dug through the numbers in Delta’s annual reports. They don’t dispute the outstanding balance and liability. But they tell a much different story about how that relates to the health of the program. The numbers are big, but the trends are benign:
|Total liability (millions)||$4,434||$4,549||$4,467||$4,812|
|Miles redeemed (billions)||262||275||264||NA|
|Total awards (millions)||11||12||12||NA|
|Avg miles per reward||23,818||22,917||22,000||NA|
|% of miles flown on awards||8.0%||8.2%||8.3%||NA|
|% year over year|
|Avg miles per reward||3.9%||4.2%||NA||NA|
Yes, we have a vested interest in the miles ecosystem remaining healthy, so you might call our analysis biased.
Does this mean we think you should run out and collect Delta SkyMiles at all costs?
Of course not.
They are among the toughest to extract the exceptional aspirational value for business and first class seats you can find in programs like United MileagePlus or American AAdvantage. But that’s not much new for Delta, it’s been that way for several years and earned them the SkyPesos moniker. Little value from Delta is not new news.
But are SkyMiles like the German Mark in the 1920s? The numbers say no.
The unremarkable *overall* value today of SkyMiles is probably not going to change a whole lot, unless you’re savvy and exploiting the most extreme values in the program regularly, as you should. What appears to be the case is Delta SkyMiles are losing a modest amount of value – the total number of miles redeemed fell 5% in 2012, while the liability fell about 3% – a touch less, and the average miles per award went up 4%.
So on the margin people may be feeling like they’re getting less value out of the program.
Chris’ advice is sound though – use your miles quickly. If you find a good value to use your miles, by all means take advantage. Your miles aren’t about to become worthless, but changes to award charts are inevitable. Those jackpot rewards are always at risk of getting tightened up to maintain the value of the more run of the mill awards like that roundtrip from New York to Miami.
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