javabytes

Revenue.

One simple reason: airlines aren't going to share with you how profitable you are.
One more simple reason: This is a customer facing program, so it has to be easy for people to understand how they got to where they are. MQM? It's pretty clear and pretty visible how you got to 50,000. Revenue? It's pretty clear how you spent $25,000. Margin takes a big leap into obscurity, not to mention the enormously difficult task of even calculating that at the passenger-flight level.

dcline414

I'm in between the two... $20k spend, all domestic, primarily on K/Q/H fares. The counter argument is that my $600 r/t tickets are paying Delta nearly $0.50 per mile flown.

The equivalent per-mile price on a TPAC route (assuming it is DL-operated) would be MUCH HIGHER. For example, LAX-NRT is 5,445 miles, so a r/t ticket that costs $0.50 per flown mile would be $5,445 IN COACH.

I conclude that fare class is a close approximation of profitability, but would still be skewed IN FAVOR of long-haul international flights. Revenue, however, is a better approximation of value to Delta, IMHO.

javabytes

Keep in mind the reasons why the $25k sLUT passenger ends up on sLUT fares:
1. The passenger purchases non-refundable tickets in advance, allowing DL to predict and plan for the future with great certainty.
2. The passenger fills seats that DL recognizes it is unable to sell at M fare levels. You can be certain of this simply by the fact that DL offers the sLUT fares. If they could fill the plane at M fare levels, you can be sure they would.

I know this discussion happened hundreds of posts ago, but DL still needs this flier even though the margin made off them may be slim or negative. All that matters is whether or not the marginal revenue brought by the passenger is higher than the marginal cost of transporting them. Most costs (the plane, the pilots, the cabin crew, the GA, the gate, the airport fees, etc.) are the same no matter how many passengers are on that plane and are locked in well in advance. If you can get extra passengers on those planes, sure, their overall margins might even be negative if you take the total cost of the flight and divide by the number of passengers, but assuming their fare is higher than the marginal cost of transporting them, your profit on the flight is higher than it would be without them.

Example:
Flight is a 150-seater, and costs $30,000 to operate both in terms of fixed costs for the flight and variable costs for the 125 people who currently hold tickets. Those 125 people have bought tickets worth $40,000.

Delta can dig its heels in and refuse to sell any sLUT fares on the flight and operate it at a $10,000 profit. Or it can sell 25 more seats for $200 each, and suppose it costs them $100 more in fuel for each additional passenger (no additional cost for things like pilots that are already locked in). If they do, the cost of the flight is now $32,500, and revenue for the flight is now $45,000. Total profit is $12,500.

If you take the cost of the flight and divide by the number of passengers ($32,500 / 150 = $216.67) it appears those 25 sLUT fares are all unprofitable because they only paid $200 each - below the average cost to transport a passenger on the flight - but they actually increase Delta's profit on the flight.

This is obviously a completely made up example using random numbers, but it demonstrates the point. And airlines operate on much slimmer margins.

HongKonger

But you have a customer value score that takes profitability into account. It could be used to award status.

javabytes

As long as you are okay with passengers having no idea what they need to do to obtain status, sure. I don't see that working for an entire loyalty program. Maybe a white envelope tier, sure, but not the whole thing.

dcline414

+1

The mystique of an invitation-only tier allows it to have unpublished qualifying criteria. But much of the incentive of having tiers (rather than a sliding scale) is that it incentivizes behavior such that at every tier you have a visible goal to reach the next tier.

Sort of like "buy 10 get 1 free" at a coffee shop. If they randomly told you "oh, you've earned this cup for free" but you had no idea WHY, it would just frustrate consumers and fail to motivate them to be loyal to reach the next goal.

HongKonger

Yes, the problem is obvious. With good customer relations and good IT the problems can be overcome. For example, maybe they go to a point system for medallion status and whenever you shop for a flight on DL.dumb you can buy a T fare for X points or a K fare for 3X points or a B fare for 5X points and so on. Just like WN does now. So you can plan out what you need to do to make your desired status.

dcline414

True, but for the CVS to play into the equation, Delta would have to be able to penalize customers for every frivolous complaint or DYKWIA episode. I'm not sure they could be that transparent ("okay, we'll give you a ton of miles for the IFE not working but take off 100 points for the trouble") without facing SERIOUS customer backlash.

Sure it makes sense, and in practice I'm sure it works somewhat like that, but I doubt they could make that a transparent process. The high maintenance customers would just argue every "qualifying point" penalty.

gooselee

+3

The whole point of the standard tiers (for the airline) is to influence future purchasing behavior - namely, make people spend more money with you on their way to the next tier. For that to work, they've got to be able to see the carrot you're dangling and know how far away it is.

TheMadBrewer

And that what something like White Envelope is for -- a program where the airline can invite people who are very profitable (which only they know) -- even if they may not fit in other criteria.

The status earning rules need to be transparent -- I (and most I think) am not going to fly a whole year with an airline to learn Jan 1 that I've been awarded XXX status based on hidden criteria. If it can't be figured out in advance, I think most will move to a program where one can.

Edit: See that everybody else pointed this out. In this case the next page was a real next page -- I've been assuming the last page is not there

mooper

Just speaking the truth.

turkeyRIOO

So the 717 rumor that started about the same time as this rumor thread came very close to the OPs original content. Does that give this rumor any more credibility?

AA_EXP09

That's encouraged though, as then we can't get screwed over as easily

itsaboutthejourney

Add in x1 more point for using the SkyPeso AMEX and it sounds like what could very well be coming in the new loyalty program.

pointy

Yup, and when I'm looking at which airline to book that "Maah deyusk iys maydurv ol' massas plantation house " echoes in my ears and I look for another carrier that can get me there without subjecting me to that dose of Orwellian doublespeak

yours sincerely
severely creeped-out flyer