Tuesday, March 4, 2014

Fasten Your Seatbelts: Your Reward Miles Are In For A Bumpy Ride

I predict that airline reward "miles" will soon disappear, judging from a recent move by Delta.  In a stunning display of "it's a feature not a flaw," the company announced that starting in 2015 it will determine the number of reward "miles" on the basis of the ticket price, not the miles flown, and tried to tout this as an improvement for customers. As one Delta executive said in an interview with CBS news, the change was necessary because people paying top dollar for Business and First Class were having difficulty because so many seats were already taken by award travelers who had upgraded using their miles.  Imagine the gall of those riff-raft -- actually cashing in their award miles!  (Obviously my snide addition).  By changing to a revenue-based reward system, the company wished to recognize those travelers who contribute most to the bottom line.

Most industry analysts have determined that the new change effectively cuts the miles awarded for most travelers by 20-50%.  Despite what Delta says, this includes those who purchase more expensive tickets in Business Class because Delta is also dropping the bonus for this higher class of service. For instance, in a careful analysis by The Points Guy, the current award for an economy Delta ticket from Seattle to Boston is 4,992 miles versus 2,240 under the new system. For Business Class it is currently 7,448 miles (including the bonus) but will be 7,050 miles next year. The only time Business and First Class will actually benefit from the new system will be on very long haul flights, such as New York to London. Economy travelers, though will see dramatic cuts on these routes.

And there is still another shoe to drop -- Delta has held off announcing what the new requirements will be for obtaining award travel (i.e., cashing in your miles), which will likely be raised (again).  In other words, fewer miles awarded and more miles required to actually benefit from being in the Delta loyalty program. Hmmm.

Airlines have been moving in this direction for some time by issuing reward credit cards that allow people to earn miles for purchases that have nothing to do with travel.  The more you spend, the more miles you accrue, whether it is on buying milk or magazines.  Delta has now completely disconnected actual travel and reward miles -- the only thing that drives the reward process is money spent.  The more expensive the ticket the more you earn.  Period.  At this point it will be more accurate and honest to drop the "miles" and use a term like "points" or "units."  This seems to also be more in the spirit of what drives our economy -- spending, not saving.  Perhaps we should just give Delta credit for being honest:  you get what you pay for -- nothing is really free -- and the more you have the more you get.

In fact, I have to admit that if airlines had begun their rewards programs with this kind of structure I think I could have easily accepted it.  I use other programs that are based on this idea -- cash back credit cards, for example, and they seem perfectly reasonable to me.  I think what irks me here, though is the change from one kind of philosophy to another, and the motivation behind it.  It feels like a "bait-and-switch" -- I joined reward programs because I saw the value of the reward structure, but now the structure has been altered in a way that doesn't recognize my past loyalty and seems not to care much for my future loyalty, either. But then, I've never paid for a Business Class or First Class ticket and never will, and Delta is making it very clear that unless I do they aren't interested in rewarding me for using their airline.

The other irksome thing to me is that this kind of change comes when Delta is earning great profits and is hardly cutting corners in some areas.  For example, based on a $1 billion profit for 2012, Delta boosted CEO Richard Anderson's total compensation by 42%, to $12.6 million (about $ 3 million in cash, the rest in stock options and deferred retirement compensation).

I suspect he'll get a big bonus this year, too.  Perhaps we should give it to him in Reward Miles.
Some Relevant Resources and Related Blogs:
Delta to Frequent Flyers: Distance Mileage Is Over, Show Us the Money - Businessweek
Taking a Deeper Look at Delta’s New Mileage Earning Structure for 2015 and Beyond | The Points Guy


DoctorMcLovin said...

Better be careful or they'll start taking away miles for criticizing the company.

Larry Sherman said...

How does this play out with my American Express Delta Miles card?

Richard Sherman said...

I have one of those too. I think you'll get the same # of miles for purchases, they just won't be worth as much toward an award, once Delta announces higher requirements.

If you charge your Delta ticket with your Amex card, you'll still get miles for the ticket plus miles for the purchase. But the ticket won't earn as many miles (unless you go First Class).....

Coleen Hanna said...

My last air travel, to Puerto Rico, was so miserable that I am wondering if I will ever fly again.