Delta’s changes to its loyalty program have prompted many negative reactions, and some fear that this is the harbinger of a general trend. But not all airlines face the same Delta challenges, nor can they afford to go so far.
Reminder: the radical evolution of Skymiles
We presented Delta’s latest Skymiles announcements in a previous post, but it’s always worth recapping them.
Firstly, the thresholds for the various statuses have been raised.
After that, only expenses will be taken into account to reach the status, not flights or the number of miles flown. The expenses taken into account are those made at Delta, at certain partners and those made through co-branded credit cards.
Last but not least, the rules governing access to the lounges have been tightened considerably.
And that’s how, in the space of fifteen years, Delta has managed to become the worst of the American majors.
Delta has too many Elite members
The reason for this controversial move is simple: Delta has too many Elite members and has been too generous with American Express, granting access to its lounges to even non-cobranded Amex Platinum holders. A generous benefit? But you’re never too kind to a partner who buys $6 billion worth of miles from you every year, as is the case with Amex.
And as we all know, the more Elites a program has, the less it can serve them. At this point, there are only two solutions: devalue the program or make it more difficult to achieve status. Well, Delta simply decided to do both.
Delta’s customers were pretty upset by this, but so were customers of other airlines, who thought that if Delta did this, it would probably give others ideas, even if they didn’t face the same kind of problems.
Not all airlines have too many Elites
For a start, not all airlines have Delta’s problem, either because they’ve managed their program well or because they’re struggling to recruit members.
Although there were some difficult moments following COVID, with a large number of statuses being extended, everything has since returned to normal. While some programs have or will raise their thresholds a little (Miles&More), and others are thinking of introducing new tiers, there’s nothing equivalent to what Delta has done.
And above all, no move to an entirely revenue-based model for status acquisition.
The glass ceiling of a purely revenue-based system
We’ve always explained that a “good” loyalty program distributes award miles based on spending and status miles based on flying. The two reward different things, give entitlement to different things, and should therefore have different bases. As award miles have a financial counterpart, it is logical that they should be based on spending, unlike status miles.
Well, Delta has blown this basic principle to pieces, and while it could give many airlines ideas, they simply don’t have the means.
As we said, Delta’s system is based on purchases made with the airline, as well as day-to-day expenses incurred with a co-branded credit card. And as we’ve explained to you many times, if loyalty programs are cash generators thanks to the sale of miles to credit card issuers, to such an extent that the loyalty program is worth more than the airline itself, this only works in certain regions of the world, mainly in the USA, but not in Europe and especially not in France.
This is one of the reasons why Air France-KLM has been slow to spin off Flying Blue: the economic potential of a program whose members are mainly in France and the Netherlands doesn’t justify it, and it will only become a cash cow if the program expands abroad, or rather, if they manage to convince other airlines to use their miles as currency if they don’t adopt their program.
For this to work, card issuers need to be able to buy miles in astronomical quantities, so the card must earn them a lot of money. With interest rates at over 20% in the USA, the pump is primed. With interest-free deferred debit cards, the client doesn’t generate much revenue, so the issuer isn’t going to buy miles – or not as many as we’re seeing across the Atlantic.
Perhaps one day, spending and consumption habits will have changed, but as things stand, such a system can’t work for status acquisition, or else with low thresholds and small gaps between thresholds, and therefore less easy to manage than with a traditional status miles system.
There’s a market logic that one can’t escape, and while Delta makes the most of its own consumer behavior, it can’t be exported everywhere else. In fact, it’s the weakness of the co-branded credit card business in our country that means that airlines don’t have to deal with crowds of Elite customers, nor with an uncontrolled influx of passengers into their lounges.
And another thing that makes us think that other airlines won’t follow Delta’s lead is, apart from the immense negative buzz it has caused, that the airline’s CEO, Ed Bastian, has himself said they had “probably gone too far”. and that adjustments will be announced shortly.
Delta has radically tightened up its loyalty program, making it harder to reach status and reducing access to lounges. But this is unlikely to herald a new trend for other airlines that cannot rely on a highly profitable partnership with a credit card issuer.