Changes to BusinessElite Mileage Redemption and Award Hold policy
Aug 14, 2013, 3:58 pm
#151
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Join Date: Apr 2009
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Except this isn't an issue. The accounting is as follows for a flight earning miles:
Dr. Cash
Cr. Revenue
Cr. Deferred Revenue
The revenue drops to the P&L. The deferred revenue is offset by cash. I mean, this is Popeye level stuff - "I'll gladly pay you Tuesday for a hamburger today", only in reverse. They have your cash. You've loaned them money, and they get to decide how much to pay you back! The only job now is to make sure that they manage that deferred revenue to ensure it doesn't crowd out cash-generating tickets or tickets where the revenue would be higher. To whit, here is the accounting for a reward flight:
Dr. Deferred Revenue
Cr. Revenue
You see what is missing. Cash. Now, in a time of week demand, that may be fine, since at least they can show a profit. But in a time of strong demand, you'd have to be a moron to turn down the cash.
The second transaction also tells you what you should expect to spend for a reward ticket. You should expect to spend the amount of miles such that the revenue from the release of the deferral equals the revenue recognized from a cash sale, adjusted for the value of lost cash flow (raises the price) and the probability that you are taking a genuinely unsold seat (lowers the cost). When demand is strong (and it is really strong right now), the multiplier is not going to work in your favor. And when ticket prices are rising (as they are now), that is going to have to apply to reward tickets at some point too.
In an era of rising cash prices, clinging to the notion that a profit-seeking enterprise is not going to raise redemption rates and maximize revenue is setting yourself up for disappointment.
Dr. Cash
Cr. Revenue
Cr. Deferred Revenue
The revenue drops to the P&L. The deferred revenue is offset by cash. I mean, this is Popeye level stuff - "I'll gladly pay you Tuesday for a hamburger today", only in reverse. They have your cash. You've loaned them money, and they get to decide how much to pay you back! The only job now is to make sure that they manage that deferred revenue to ensure it doesn't crowd out cash-generating tickets or tickets where the revenue would be higher. To whit, here is the accounting for a reward flight:
Dr. Deferred Revenue
Cr. Revenue
You see what is missing. Cash. Now, in a time of week demand, that may be fine, since at least they can show a profit. But in a time of strong demand, you'd have to be a moron to turn down the cash.
The second transaction also tells you what you should expect to spend for a reward ticket. You should expect to spend the amount of miles such that the revenue from the release of the deferral equals the revenue recognized from a cash sale, adjusted for the value of lost cash flow (raises the price) and the probability that you are taking a genuinely unsold seat (lowers the cost). When demand is strong (and it is really strong right now), the multiplier is not going to work in your favor. And when ticket prices are rising (as they are now), that is going to have to apply to reward tickets at some point too.
In an era of rising cash prices, clinging to the notion that a profit-seeking enterprise is not going to raise redemption rates and maximize revenue is setting yourself up for disappointment.
Aug 14, 2013, 4:06 pm
#152
Join Date: Mar 2013
Location: PRG, NYC, MOW
Programs: Delta DM, AA EXP, SPG PLT75, Hyatt Diamond
Posts: 215
Miles Redeemed Since November 14, 2012: 650,000
Whew! Most of it was in J class too... to Europe...
Problem is that I have two itineraries with a return,which I thought about changing. I am guessing the new tix will cost me an extra 12.5K?
Whew! Most of it was in J class too... to Europe...
Problem is that I have two itineraries with a return,which I thought about changing. I am guessing the new tix will cost me an extra 12.5K?
Aug 14, 2013, 4:07 pm
#153
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If your return is after 6/1/14, then yes, otherwise no.
Aug 14, 2013, 4:32 pm
#154
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Location: SEA
Programs: UA Silver, BA Gold, DL Gold
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In an era of rising costs and cash prices, the deferred revenue amount can also rise. No reason mileage redemption rates need to rise. If it takes 10 trips to earn one of the same trip for free, who cares what the ticket prices are? As prices rise over time, people will pay more for those 10 tickets (and thus for the miles earned for the trip), and the higher deferred revenue covers the higher cost of the free ticket. What I would expect to happen, then, is increased prices for buying miles, and reduced earning rates for credit cards as a result.
So, unless Amex and other partners switch from the seemingly-ingrained 1 mile/$1 formula, then I don't see much reason to believe that the deferred revenue portion of a mileage ticket would rise with rising ticket prices. Thinking about the Amex example helps show how the "I pay more for my ticket, so the miles should be worth more" argument falls apart in reality. So, barring DL (and AA and UA and...) turning down the cash and revenue machine that is the selling of miles, folks need to accept that their return per dollar spent on tickets will diminish in times of rising ticket prices.
Aug 14, 2013, 4:39 pm
#156
Join Date: Dec 2002
Location: Meechigan
Posts: 1,006
In an era of rising costs and cash prices, the deferred revenue amount can also rise. No reason mileage redemption rates need to rise. If it takes 10 trips to earn one of the same trip for free, who cares what the ticket prices are? As prices rise over time, people will pay more for those 10 tickets (and thus for the miles earned for the trip), and the higher deferred revenue covers the higher cost of the free ticket. What I would expect to happen, then, is increased prices for buying miles, and reduced earning rates for credit cards as a result.
When you redeem your miles (and fly the route) they take revenue on that transaction based on the value of the miles - most likely using FIFO - but the miles you redeem are (if i understand it correctly) NOT valued the same as when you were given them.
They'd like to stay ahead of the imbalance between the value of awarded miles (deferred revenue) and redeemed miles (revenue). Raising redemption levels is a good way to do that, and it will give them a revenue bump.
Breakage (how much deferred revenue they believe will never be redeemed) is another method to positively manage their financials, hence the recent so-called "SM death tax".
Bottom line is raising redemption levels increases revenue. As pbarnette said, with capacity the way it is now, it also has a positive impact on cash. Given the significant CPM gap between paid and award tickets in this particular class they definitely want a heavier weighting on cash tix. When it comes to redeeming 40k miles for a $400 or less domestic trip DL is more than happy for you to use miles, they earn the same revenue.
Aug 14, 2013, 4:39 pm
#157
Join Date: Jan 2010
Location: CT
Programs: DL DM 2MM, MR LTT, Hilton D, Hertz PC. National Emerald Exec, UA Silver(thanks to Marriott)
Posts: 2,026
Delta has done a lot of unfriendly things to SkyMiles over the last couple of years, but frankly I don't think this is one to get the panties in a wad over. It's a modest increase in the Low award level for front cabin seats, which had been stuck at 100,000 (for Europe) for quite some time. Given the price tag on those seats, and the improvement in the cabins, that was probably artificially low. 125,000 SkyMiles does not strike me as unreasonable, particularly given all the ways that miles can now be earned.
Now, why they can't get their act together and establish a stable program with no changes for a couple of years, I don't know. The incessant change-every-two-weeks rulemaking strikes me as nuts and confuses the frontline agents, who simply can't keep up with the differences.
Now, why they can't get their act together and establish a stable program with no changes for a couple of years, I don't know. The incessant change-every-two-weeks rulemaking strikes me as nuts and confuses the frontline agents, who simply can't keep up with the differences.
20% is not a modest increase. So if you pass a gas station yesterday where it was $4/gal and went back today to see it was $4.80 you wouldn't be outraged?
Aug 14, 2013, 4:44 pm
#158
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Would it help if DL had raised prices by x% per year steadily, rather than 0% per year for several years and then 20% all at once?
Aug 14, 2013, 4:48 pm
#159
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I don't tend to get outraged over price fluctuations. Frankly, I've always found the fascination some have with gas prices to be incredibly odd.
Would it help if DL had raised prices by x% per year steadily, rather than 0% per year for several years and then 20% all at once?
Would it help if DL had raised prices by x% per year steadily, rather than 0% per year for several years and then 20% all at once?
Aug 14, 2013, 5:16 pm
#160
Join Date: Jan 2010
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I don't tend to get outraged over price fluctuations. Frankly, I've always found the fascination some have with gas prices to be incredibly odd.
Would it help if DL had raised prices by x% per year steadily, rather than 0% per year for several years and then 20% all at once?
Would it help if DL had raised prices by x% per year steadily, rather than 0% per year for several years and then 20% all at once?
Aug 14, 2013, 5:22 pm
#161
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Don't sit on your miles, then?
Aug 14, 2013, 5:33 pm
#163
Join Date: Jun 2002
Location: Kingdom of the Sun
Programs: DL GM/MM
Posts: 3,708
I really want to be acrimonious about this. But simply cannot work up any head of steam.
In the past two months I booked BE trips to SYD, BKK and SCL (this for two of us) and ran the account down to about 3K miles. And with MM there's no pressure any more to at least get the better seat selection and bags for those times I should select DL in the future.
So even before this announcement I declared myself free as an eagle to chase only the best fare/schedule flight regardless of airline. Freedom feels great!
But I'll miss the old gal, especially the in flight crews. They are the best in the business.
In the past two months I booked BE trips to SYD, BKK and SCL (this for two of us) and ran the account down to about 3K miles. And with MM there's no pressure any more to at least get the better seat selection and bags for those times I should select DL in the future.
So even before this announcement I declared myself free as an eagle to chase only the best fare/schedule flight regardless of airline. Freedom feels great!
But I'll miss the old gal, especially the in flight crews. They are the best in the business.
Aug 14, 2013, 5:41 pm
#164
Join Date: Mar 2008
Programs: DL BA Amex
Posts: 916
I just finished a BE trip to Europe (redeemed at 100k) last week. It was an excellent experience and worth the 100k SM price. But at 125K I could go to Europe twice if booked in coach. I'm not sure I would pay the increase -- I don't have that many SM to burn. (burned em' all except about 25k)
I guess I can't whine about DL too much... on this same trip I took 5 relatives with me... booked them in Y, all at low-level 60K SM each! And to boot they all got OP-UP's on the return!
I booked their Y tickets months ago, and my BE ticket the day before I traveled. (I had it on HOLD for 3 days...)
I guess I can't whine about DL too much... on this same trip I took 5 relatives with me... booked them in Y, all at low-level 60K SM each! And to boot they all got OP-UP's on the return!
I booked their Y tickets months ago, and my BE ticket the day before I traveled. (I had it on HOLD for 3 days...)
Aug 14, 2013, 5:43 pm
#165
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This was a wretched program before and even worse now... no one ways, no TATL/TPAC First Class on partners, inflated award ticket "prices", no changes at T-72. See ya.