Originally Posted by
kokonutz
VFTW's evolved take: Delta is destroying the romance of FFPs.
My take:
The executives who invented miles-based FF programs grew up under the Standard Industry Fare Level (SIFL) formula, which provided a distance-based formula for calculating fares based roughly on industry-level costs, a 12% rate of return and target load factor of 55%. SIFL-based fares were intended to better align the fare structure with the distance-based economies of modern jet aircraft. (see
http://www.nber.org/chapters/c12570.pdf)
So those executives naturally and correctly correlated distance (miles) flown by a customer with revenue in creating those programs, designed to reward those customers who flew the farthest and therefore, by regulation, paid the most. The tactics (rewarding flyers based on miles) was closely correlated to the goal (making your most profitable customers happy).
But it has been two generations since the US airline industry was regulated. And price has been divorced from distance for over 30 years. Miles flown by a customer is now a totally irrational way to measure revenue from that customer.
The whole notion of mileage running is/was simply a result of this enormous lag in FF program tactics keeping up with their goal (rewarding the most profitable customers).
If I ran an airline frequency program it would be dollar based, not distance based. Because the distance based model only made sense in a regulated environment where price and distance were directly correlated by regulation/law. Today revenue from a customer is only correlated to…revenue from a customer.
FF programs were always meant to be commodity based: reward those customers who spend the most. But two generations of incompetent airline execs were simply employing outmoded tactics to achieve their goal.
So what you call romance, I call airline executive incompetence. Incompetence that worked out in mile grinders’ favor, to be sure. But incompetence nonetheless.
And it’s kind of hard to berate execs for trying to be rational and competent.
When I read VTFW today, I had to check to see that it wasn't April Fools' Day. One of the most cynical posts I've seen from any travel blogger. For the proudly self-proclaimed author of the phrase "SkyPesos", a blogger who regularly pushes the viewpoint that the best use of Delta miles is generally on carriers other than Delta, and someone who rarely seems to write about actually flying on Delta to talk about the romance and loyalty of FF programs, but Delta's in particular, seemed ridiculous. As I mentioned earlier in this thread, I have no particular love for Delta, but I don't think their decision to move FF programs in a different direction is a bad business practice on its face--perhaps it will work, perhaps it won't, but it's not an irrational approach to try.
If, as has been speculated, Delta's reluctance to go all the way and make redemptions revenue based as well arises from Amex's demand that their $675 million investment in SkyMiles not be diminished by taking that step, then the old phrase, "money talks, BS walks" seems applicable here.
And, recently, Gary's been doing a lot of walking. . .