shadesofgrey1x

Sadly I think the writing is one the wall for the final evolution of Skymiles.

The only major issues with either a spinoff or sale of Skymiles were the revenue liability uncertainty built into the program that made it so attractive for flyertalkers. Once upon a time you could do mileage runs at rock bottom fares spend very little end up with free upgrades, high elite status (even lifetime), lounge access and free First/Biz elite anywhere in the world with a little planning and knowledge of the system.

But, those self same perks made it a gamble most protential purchasers would be unwilling to take. Sure they could buy it and change the rules but, then they ran the risk of a rash of flyers leaving the program for greener pastures. This would have made their investment worthless. Who wants a group of disgruntled fliers?

Here were are the obstacles and the road map to fix them:

1) Elite flyers -
Problem: Very demanding and don't always make you money a flier could get silver medallion for a little over $1000 for ATL-LAX a few times at bargain fares. Then demand all the perks you would give another pax who buys last minute tickets for the same and pays over $8000.

Solution: Make the qualification revenue based. Now you know the minimum dollars that same pax must bring in to get the perks, it will always be profitable. (fixed in 2014)

2) Mileage earnings -
Problem: The number of miles/seat revenue is uncertain. Pax A pays $2000 for 2182 miles for ATL-SEA Pax B pays $300. Rev management can't predict max mileage liability/seat revenue for any given flight.

Solution: All miles earned are based on revenue. Rev management can see at any given moment the max mileage liability for a given flight, based on what each seat is sold for. (fixed 2015)

3) Mileage redemption -
Problem: The negative revenue value of a mile redeemed is not easy to predict. As flight costs and fare rise the value of a mile remains semi-stagnant. For example if fuel costs, maint, wages rise a flight ATL-AMS can adjust its fare at anytime. The mileage level required is not as easy to adjust. If it varies with fares then the public will loose confidence in its value thus losing confidence in the program itself.

Solution: Monetize and fix the value of a mile. As a partial transitional fix create analogous mileage fare levels to match fare buckets (2015 implementation). Final solution, after a year the public will adjust to having ATL-AMS at 5 different levels and having no easy guide to how many miles their intended redemption will now cost. At that point truly monetize the value of a mile. With each mile having a set $$$ redemption value, rev management can easily predict the negative impact miles can have on a flights profitability. As flight costs rise the value of a mile will fall just as the local currency does. If the flight from ATL-AMS goes from $1000 to $3000 the necessary miles needed will automatically rise accordingly since they have a fixed $$$ offset value.

When presented this can be given a positive spin as miles are now good without limit on any flight anytime. ( predicted full implementation 2016)

Prediction by 2017 Skymiles will be in a great position to separate fully or partially from Delta Airlines. With a monetarily fixed earn to burn on all mileage earning and redemption and up to 3 years of financials on some aspects it will be easy to access the year to year earning potential and possible liabilities for any full or partial sale.

Take a look at a few other things:
Amex has started prohibiting lifetime churns on its Skymiles card.

Just my two cents. But it looks like some other carriers such as AC and Lufthansa are already in the pool for this party. Delta I think took a good look and put its flannel one piece on with extra heavy rubber boots but, it still sitting at the shallow end dipping its booties in the water. After enough teases by the big boys DL will jump right in or Carl Ichan will come by and push them in.

ND76

Two questions:

First, how does a third party make money from operating the SkyMiles program? Do they sell the names on the list to willing purchasers?

Second, what is a "lifetime churn" on American Express?

relangford

Anything is possible, but I doubt that DL will see a need, at least in the short term, to sell or divest the SkyMiles program. Yes, there will be more changes. In the mid-term, I see a program of revenue-based credits (MQDs will be it) to a monetized award/upgrade program (variable miles depending upon the flight destination/duration with each mile given a value). I suspect AmEx might be the blockage (or even purchaser (?)) of the SkyMiles program; whatever they think would be what could happen. Just IMHO.

flyer4512

AMEX did that for ALL ( Hilton, SPG, DELTA, etc) PERSONAL cards but not for business cards.

From once they crunch the numbers and see how many fewer Amex cards are being used and figure out what % of people spent the $1000 and never paid interest or and annual fee I would be willing to bet the cards become churnable again once every 12 months but at a $2500 spend for 40k miles or something similar.

I have introduced about 6 people to this churning game, 4 have paid interest on the cards.

Very few play this game and win and that's why it goes on.

roknroll

point 1, 2, and 3 you brought up were all issues to DL with their SkyMiles program. So they fixed them and it's better for DL. I don't see how that means it is now beneficial for DL to sell or spin off the program.

But you never really gave an argument or reasoning as to why it is in Delta's best interest to sell or spin off the program. You just mentioned what you thought were prevented them from doing it in the first place. I don't really buy the fact that they ever wanted to.

Simple question: how does DL benefit for selling or losing control of SkyMiles?

shadesofgrey1x

The same thing that the others have. Quick cash then a steady source of revenue from the new owner. Skymiles would still have to be purchased from Delta. The new owner would have the program neatly packaged for easy management. If costs rise the new owner could give fewer miles or lower value per mile. All the benefits for DL and none of the liabilities.

shadesofgrey1x

or put it another way:

Simple question: how did NW benefit for selling or losing control of NWA?
A: quick cash then a steady revenue stream for its stockholders.

shadesofgrey1x

roknroll

Third party does not make money the same way Delta does though. Delta makes money on their flights, while someone operating SkyMiles does not. SkyMiles is an incentive for people to spend money on DL, similar to advertising/marketing. DL can make less on SkyMiles and make it up in operations and ancillary fees. A 3rd party would not have this, meaning they would probably gut the program more. This would cause people to have less incentive to fly DL, thus hurting DL's bottom line.

You just aren't really making a case for how 1) DL will benefit by selling SkyMiles and 2) how someone in SkyMiles will profit. I've only seen vague statements on how the SkyMiles program will make money and so will DL. Devil is in the details. I got "Quick cash then a steady source of revenue from the new owner" which tells me nothing really. explain steady source of revenue.

bonoman

I'm not sure about the sell-off. But I do think you're going to see MQMs calculated the same as RDMs now. Status will be obtained purely on money spent on Delta. I think the 2015 RDM reswizzle based on ticket price was the intro to that to soften the blow once that hammer is dropped.

grahampros

This is conspiracy theory nonsense. Simple as that.

MSPeconomist

I don't see the argument in (2) for how the 2015 changes reduce uncertainty regarding how many redeemable miles are given out on a flight.

In the old system, DL knows how long each flight is, the number of tickets sold at each fare class, and the elite status of each passenger. Calculating the total miles distributed is a spreadsheet exercise.

For the new system, DL knows the list of exact fares (prorated by segment) net of government imposed fees and taxes and the elite status of each passenger. Again, use a spreadsheet.

Sources of uncertainty include late sales and refunds, SDC/SDS, missed connections, the identities (and hence elite status, fare and fare class, etc.) of passengers being given IDB/VDB, folks changing FF numbers on their PNRs, and perhaps the inability to see elite status of partner FF program participants.

In fact, the only way that the uncertainty can be reduced in a sense here would be due to fewer total redeemable miles being distributed under the new program, but this would be a reduction in absolute rather than relative uncertainty.

GUWonder

Conspiracy theory? Who are the fabricated plotters and what is supposedly being covered up?

This seems more like a game of speculation than a conspiracy theory.

tcook052

This casual observer will only add that things haven't always gone swimmingly after AC spun off it's FFP Aeroplan years ago and hope DL avoids a similar decision.

Boltman519

I guess my question who in their right mind would buy a companies reward program that they ultimately have no control over whether or not the company adheres to their guidelines. I mean what is stop DL from selling the Skymiles program then saying oh by the way no matter what you tell these people we will never give them a free upgrade? It makes no sense to allow a third party to manage that system, not mention DL risk that third party doing something that pisses off all the FF and they leave DL based on perceived slight from DL when in fact it was the third party. None of that to me makes any sound business sense.