The Revenue Component of SkyMiles: A Closer Look, with Questions

Although details initially posted at The Gate pertaining to the upcoming changes in the SkyMiles frequent flier loyalty program have now been confirmed by Delta Air Lines, what does it really mean — and are more changes eventually in store and on the way?

First, if you:

  • Do not care about Medallion elite status at all
  • Typically purchase full-fare airline tickets most — if not all — of the time and therefore usually enjoy most of the benefits of Medallion elite status anyway
  • Are a Million Miler who already has Medallion elite status with no desire to achieve a higher Medallion elite status for the next year

…then you are not affected, as you have nothing about which to be concerned — at least for now.

The big news is the part which has been vaguely announced at best: the earning of Medallion Qualification Miles on partner airlines have been — or will be — significantly decreased. Even though SkyMiles frequent flier loyalty program members who are based outside of the United States are not affected by the new revenue component scheduled to take effect on January 1, 2014, they are adversely affected if Delta Air Lines has infrequent service to their base airport, as it will be significantly more difficult to earn Medallion Qualification Miles on partner airlines.

Let us use Korean Air as an example:

After March 1, 2013, significant decreases of 50 percentage points in the earnings of Medallion Qualification Miles will be implemented across the board — except for the business class J fare, whose decrease will be 35 percentage points.

Ouch.

Then, there is the part about Medallion Qualification Dollars. While I do not blame Delta Air Lines for wanting to introduce a revenue component to “better recognize and reward our elite customers”, it is only based on dollars spent on flights marketed by Delta Air Lines. At first glance, you would think that Medallion Qualification Dollars — or MQDs — are now valued at ten cents per mile, as based on the following chart:

  • Silver Medallion 25,000 MQMs or 30 MQSs and $2,500.00 MQDs 
  • Gold Medallion 50,000 MQMs or 60 MQSs and $5,000.00 MQDs
  • Platinum Medallion 75,000 MQMs or 100 MQSs and $7,500.00 MQDs
  • Diamond Medallion 125,000 MQMs or 140 MQSs and $12,500.00 MQDs

…but that does not take into account the fact that taxes and fees imposed by governments on airline tickets are not included towards the earning of Medallion Qualification Dollars. Some FlyerTalk members calculate that this increased the cost per Medallion Qualification Dollar up to 12 cents per mile — and we are not taking into account destinations where the taxes and fees of countries such as England can potentially be a significant part of the airfare.

I am also uncertain at this time if fuel surcharges — which can be hundreds of dollars — are included in that exemption. If so, the poor international traveler does not stand much of a chance with Medallion Qualification Dollars — not that that person could be upgraded anyway. Even then, M fares used to earn a 50 percent bonus on Medallion Qualification Miles — but not any longer after March 1, 2013, which will cause some FlyerTalk members to hesitate purchasing traditionally expensive M fares for a chance to be able to upgrade to a seat in the Business Elite cabin on international flights.

More importantly, what does not count towards the Medallion Qualification Dollar count are dollars spent on:

  • Taxes and fees imposed by a government
  • Dollars spent on other airlines where the ticket number does not begin with 006
  • Certain specialty tickets — including but not limited to unpublished, consolidator, group, tour and opaque fares
  • Ancillary fees for purchases such as checked baggage fees, Economy Comfort seat purchases, Priority Boarding, Delta Sky Club memberships, Wi-Fi passes, in-flight food and beverage purchases, in-flight entertainment, unaccompanied minor fees, pet travel fees, Mileage Booster, ticket change fees, Direct Ticketing Charge, Same Day Confirmed fee, Administrative Service Charge, External Reissue Charge, and stand-by upgrades purchased at the gate

I find the last part especially unfair because — unlike taxes, for example — Delta Air Lines profits from those ancillary fees to the tune of billions of dollars per year. Although I have no quantifiable data to support this statement, I believe that Delta Air Lines would increase sales of ancillary revenue as an incentive to those who want to achieve elite status for the next year. Remember, this means that you must also have the minimum amount of Medallion Qualification Miles to achieve Medallion elite status, so it is not like just anyone can buy their way to Medallion elite status via expenses on ancillary fees. If you really want to do so, why not buy a meal, purchase a Wi-Fi pass and pay your Same Day Confirmed fee in the hopes to increase your Medallion Qualification Dollar amount? Delta Air Lines will profit from those purchases. Here is a couple of extreme examples where you will not earn the desired level of Medallion elite status:

  • If you earned 150,000 Medallion Qualification Miles — more than enough for Diamond Medallion elite status — from flying as a passenger of Delta Air Lines but only earned $6,500.00 in Medallion Qualification Dollars
  • If you earned $150,000.00 in Medallion Qualification Dollars but only earned 65,000 Medallion Qualification Miles

In both of the above cases, you will only earn Gold Medallion elite status at best. However, you get to roll over 100,000 of those Medallion Qualification Miles towards the next year in the first example. Do you get to roll over any of the Medallion Qualification Dollars in the second example? If not, why?

Do not get me wrong — I do not expect for Delta Air Lines to roll over $145,000.00 in Medallion Qualification Dollars for the next year. However — with the kind of spend needed to achieve those Medallion Qualification Dollars in the first place, should not some of it roll over to the next year? Would that not at least give some incentive for the customer wanting to achieve a certain level of Medallion elite status to spend more money?

Another question I have with regard to the above example is this: let us say that there are two Gold Medallion elite SkyMiles frequent flier loyalty members in line for an upgrade on a flight. Assuming that they earned the same amount of Medallion Qualification Miles to achieve Gold Medallion elite status, does the member who has $150,000.00 Medallion Qualification Dollars have priority over the member who has $4,500.00 Medallion Qualification Dollars?

Using more realistic figures than in the extreme examples shown above, will the new Medallion Qualification Dollars component filter out and thin the number of Diamond Medallion and Platinum Medallion elite level members but then swell the ranks of Gold Medallion and Silver Medallion members — especially since an percentage of them are Million Miler members who do not have to re-qualify for those levels?

FlyerTalk members also wonder whether or not this new revenue component offers more — well — revenue opportunities for Delta Air Lines. For example, will Medallion Qualification Dollars be sold in a way similar to Medallion Qualification Miles at an inflated price over the way they are traditionally earned? Will there be double Medallion Qualification Dollar promotions? Who knows?

There is also speculation that the changes to the SkyMiles frequent flier loyalty program will not have been completed yet after this implementation of changes is completed. There is still the issue of the redemption of SkyMiles. One FlyerTalk member portends that SkyMiles will be devalued by as much as 75 percent by tying it to the cost of airfare where 100,000 SkyMiles would be redeemed for a $1,000.00 airfare, for example.

Many FlyerTalk members have threatened or resigned themselves to no longer being loyal to Delta Air Lines once these changes are implemented. Well, that is their choice — just as it is the choice of Delta Air Lines to change the SkyMiles frequent flier loyalty program rules and policies. It remains to be seen, however, if Delta Air Lines significantly benefits from these changes once they are implemented; how many frequent fliers will no longer choose Delta Air Lines for their flights; and if Medallion elite members see an increase in their benefits which correlates to the changes — especially since there are no indications that those benefits will improve even though attaining Medallion elite status will become more difficult for many SkyMiles frequent flier loyalty program members.

As for me, I have mentioned before that while I will not refuse a free upgrade in most cases, upgrades are not the most important things to me while flying as a passenger on an airplane for the following reasons:

  • I do not drink alcoholic beverages. Free alcoholic beverages mean nothing to me.
  • My body is of an average build, so I fit reasonably comfortably in an economy class seat. The most recent flight on which I was a passenger in the economy class cabin was on a Delta Air Lines non-stop flight from Atlanta to Tokyo. It was not 13 hours of torture for me, as some would have you believe. I have also flown in the economy class cabin on transatlantic flights several times in recent years and — aside from the lack of a comfortable position in which to sleep — I not only survived, but the trips were just fine.
  • Although I do enjoy it once in a while, I do not need to be pampered. In fact, I sometimes feel almost embarrassed when the pampering goes overboard, such as when two flight attendants waited only on me as I was the only passenger in the first class cabin on a flight from Atlanta to New York when domestic airlines in the United States used to have three cabin classes.
  • Sometimes the limited complimentary options on the in-flight entertainment system is enough to satisfy me — especially with the advent of personal music players and smartphones, which are now sophisticated enough to get work done or provide my own customized entertainment. I am not much of a movie watcher, anyway.
  • I virtually never check any luggage or baggage, so exemptions from paying fees for those do not affect me for the most part.

Upgrades are usually a major part of being an elite member of a frequent flier loyalty program. Taking that point of view, I really would not miss being upgraded if a seat in the economy class cabin of an airplane was reasonably comfortable, there was a fair amount of complimentary snacks and drinks, and if I were able to keep busy or sleep during the flight to pass the time.

If I were no longer an elite member of any airline, I would miss the bonus miles earned as an elite member, as well as priority boarding and other perks — but they are not worth the investment of cash that it would take to remain an elite member when assuming that there are less expensive options in terms of flying as a passenger on an airplane.

What concerns me is that frequent flier loyalty programs keep getting more and more complicated since the days when American Airlines first introduced its frequent flier loyalty program greater than 30 years ago. Frequent flier loyalty programs were quite simple then: redeem miles and get a free flight — yes, a free flight with no taxes or fees. Perhaps there was one elite level for which to strive. Those days have been long gone. The Delta Air Lines SkyMiles frequent flier loyalty program keeps getting more and more complicated — and that in and of itself could be enough for a person to quit the frequent flier “game.”

Although United Airlines supposedly first attempted to implement — or at least reportedly thought about implementing — a similar change to its MileagePlus frequent flier loyalty program, will the frequent flier loyalty programs of other airlines follow suit to what Delta Air Lines has done with the SkyMiles frequent flier loyalty program? Does this threaten the practice of “mileage running” in the future?

What do you think?

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Comments (Showing 4 of 4)

  • bruscol at 8:37pm January 17, 2013

    One thing you left out – if you have the Delta Credit Card and spend $25k per year on it you are exempt from the MQD limits. Seems a good deal to me since I do that by Feb!!!

  • lindros2 at 3:22pm January 18, 2013

    I spent $15k for business and $1500 for personal (ironic/no reason/relation) on Delta last year, PRIOR to taxes.

    I’m a Platinum for 2013-2014 with 110k MQM’s.

    So I still get screwed on the back side.

  • Markie at 9:35pm January 18, 2013

    Can anyone see United not doing this too? They are so desperate for cash they sell ‘elite’ perks and upgrades to anyone.

  • DLroads at 7:21pm January 21, 2013

    The program may have pros and cons, but I see some concerns at this time:

    (a) Joint Venture problems.
    Jane bought 006 tkt on DL8601, class K
    John bought 006 tkt on AF0007, class K
    Jing bought 057 tkt on DL8601, class K
    Jim bought 057 tkt on AF0007, class K.

    Only Jane (and maybe John, but not always) will get MQD. Also, it is not clear what would happened with fuel surcharge. Also, removing the taxes and fees from calculation is a hit. The same applies for additional charges (EC seats, baggage, etc) that do show as 006 tkt on delta.com

    (b) M problem.
    Big tkt. It’s hard to justify M purchase as the lowest UG INTL fare. It would also move away leisure travelers who were willing to spend and lower or eliminate their status

    (c) Partner’s earning, retroactive changes:
    Unlike the changes to earnings on tkts with DL (that affect tkts purchased on or after 3/1/13), partner’s earning changes are RETROACTIVE (if you bought a tkt on 1/16/13 and will fly on 3/3/13, you are under the new partner rules).
    In many cases, even DL agents were selling partners tkts, because flt has no allocation on the DL codeshare number, or has no codeshare number, lower pricing, etc. People will get ‘screwed’ coming 3/1/13. On the surface, it is a violation of 49 U.S.C. § 41712, retroactively changing the T&C of the sale and contract of carriage. I do not think that Delta would be able to defend it if the DOT will require explanations, especially for tickets on partners that were purchased from DL (so they are on 006 stock)

    (d) Where are the pros? No incentive comes with the new restrictions. No real SWU, no new inventory, no better redemption options. The program, as stated in the press release by JR is just meant to make it more “exclusive”. Well, exclusive- but, what afterwards? loyalty is in a way a two-way street

    (e) the “salami”/”slippery slop” approach.
    The service record DL holds suggests additional changes mid-year (aka- enhancements, or modifications). The fare-based awards is still out there, making the miles that were already earned being at risk of losing non-ingnorable value

    (f) the one million dollar question: Is there a way to be an elite client (even ST E+) just by having an AMEX card, irrespective of whether you spend a single dollar on it?
    The answer may surprise some.

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