Time for a complete makeover of SkyMiles

 
Old Apr 9, 08, 3:15 am
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Time for a complete makeover of SkyMiles

It seems that nobody is happy with the SkyMiles program as it is today. There are certainly enough complaints by passengers on FT to show that they aren't thrilled with it and Delta's constant changing of the program is proof that it, too, is not satisfied with it.

There are two reasons for this problem: The idea that SkyMiles is a way of thanking people for their loyalty has never been true. The flight that you took last week on Delta is no more interesting to it than the Egg McMuffin you ate yesterday is to McDonalds. They are both interested in your future business, not your past purchases.

The second is the difficulty in getting award tickets -- and once you can find them, realizing that you often have to pay out a large sum in taxes and fees.

Okay, let's handle both of these problems with one, major, overhaul of the program.

To start with, SkyMiles can keep the MQMs for determining status. These would be based solely on the butt-in-seat miles and the class flown. FOs, GMs, and PMs can keep all of the same benefits they enjoy today -- with the exception of their 25% and 100% bonuses.

Next, stop awarding any SkyMiles at all. Instead, give Delta Dollars -- and give one dollar for ten dollars spent on a Delta ticket. This would include what was spent for fees, taxes, etc. You can give FOs a 5% bonus, GMs a 10% bonus, and PMs a 15% bonus.

In return, these Delta Dollars would be good for any flight and any fare. If a T fare TLV-FLL is available for $1000, it could be had for 1000 Delta Dollars. If only a fully Y ticket is available for that particular flight, and it costs $3000, then it could be had for 3000 Delta Dollars.

This is simplicity itself. You have to pay the full price for a flight (including all taxes and fees) in Delta Dollars but any fare available to a paying customer would be available to you.

There would be no "ands, ifs, or buts". No extra charge for using your Delta Dollars too late. You simply pay the same as you would if you were using real money.

Because you could not use your Delta Dollars to pay for part of a fare and make up the difference with real money, once you have some in your account you would be encouraged to keep flying Delta in order to get enough for a flight.

Medallion members would be rewarded for their loyalty by the small bonuses they would be given (as well as their other perks).

Basically, this means that for every 10 r/ts you take at a certain price, you will be entitled to one free r/t at that same price (with slightly better rates for Medallions). That is a good attraction for passengers and a realistic discount that Delta could afford to give.

Delta could continue to give work with partners -- be they airlines, florists, hotels, or whatever. As many Delta Dollars would probably never be used, Delta could sell them at a discount to partners, perhaps at a cost of 80 cents per dollar (I will leave the exact amount up to Delta's marketing people).

The partners, in turn, would be free to give their customers as many Delta Dollars as they want (and are willing to pay for). I would imagine that it would not take them long to discover how few dollars they could give while still making it attractive enough for customers to buy with them.

The whole program would be much simpler for both Delta and its passengers and, IMHO, would encourage people to fly Delta much more than the current SkyMiles system does.

The only headache would be the initial one: Delta would have to come up with some formula to convert SkyMiles into Delta Dollars. That would not be easy as no passenger is going to be satisfied no matter how good a conversion rate is established. Still, as long as Delta does make it a reasonable one (somewhere between 1 and 3 cents per SkyMile), I think that the future benefits of the program would keep even disgruntled members flying Delta.

And, as a final incentive, flights paid for with Delta Dollars would earn MQMs (although not Delta Dollars). This means that you would not endanger your status for the following year by taking an award ticket.
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Old Apr 9, 08, 3:37 am
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I like the idea of Delta Dollars -- it's a currency that would not be "devalued" as the airlines periodically do with miles.

However, in the U.S. market basing it strictly on revenue is unlikely to fly; still, the idea of accumulating what is essentially a growing ECV is appealing.

Besides selling DD$ to partners, you'd also have to figure out how to apply them on partner airlines.
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Old Apr 9, 08, 3:54 am
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Originally Posted by MikeMpls View Post

Besides selling DD$ to partners, you'd also have to figure out how to apply them on partner airlines.
That should be no problem at all. Every airline, partner or not, has flights available which it is happy to sell.

Delta already gets reduced prices from a number of airlines (including El Al) and, if it wants, could probably negotiate agreements with others.

If LY, for example, is asking the public to pay $500 r/t TLV-CDG-TLV on a particular day, it would make that same flight available to Delta for a lower price -- let's say $450, but it is probably much less.

Delta would charge me 500 Delta Dollars, give $450 to El Al, and I would get on my flight.

If the flight is on a SkyTeam partner, I would also get MQMs for it.

Yes, Delta would have to pay out the $450 -- but it would wind up with 500 less Delta Dollars in my account which would not be used on a Delta flight.
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Old Apr 9, 08, 3:55 am
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One issue I have with this proposal is that it gives a clearly assignable value to the miles. I fear that this will finally prod the IRS to stop looking the other way and start taxing them.

Also, I suggest really looking at the math. This values your miles at a pretty low rate. Consider a hypothetical pax (and disregard any elite bonuses):

- They fly frequently between JFK and LAX, in coach
- They can avail themselves of APEX fares, so each ticket costs an average of $400

Now, suppose that our pax wants to get a J ticket to Europe (90k miles).

- Under the current system, this would take approximately 19 return flights.
- Under your system, those same 19 flights would net our pax $760.

Of course, if you frequently fly BOS-LGA on last minute fares, then your proposal may make more sense, but for me, no thanks. Perhaps if you received more back, but I don't see anybody offering 20% anytime soon.
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Old Apr 9, 08, 4:03 am
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Originally Posted by pbarnette View Post
Now, suppose that our pax wants to get a J ticket to Europe (90k miles).

- Under the current system, this would take approximately 19 return flights.
- Under your system, those same 19 flights would net our pax $760.
No, under the current system it would take approximately 19 return flights if he is lucky enough to find a SkySaver fare. Otherwise, it would take a lot more flights.

Moreover, under the current system you would have to fork out a considerable amount of money for taxes and fees -- perhaps $400 or so.
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Old Apr 9, 08, 4:06 am
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Originally Posted by pbarnette View Post
One issue I have with this proposal is that it gives a clearly assignable value to the miles. I fear that this will finally prod the IRS to stop looking the other way and start taxing them.


Now, suppose that our pax wants to get a J ticket to Europe (90k miles).

- Under the current system, this would take approximately 19 return flights.
- Under your system, those same 19 flights would net our pax $760.

Of course, if you frequently fly BOS-LGA on last minute fares, then your proposal may make more sense, but for me, no thanks. Perhaps if you received more back, but I don't see anybody offering 20% anytime soon.
Given that there is precedent in various countries around the world (e.g. Germany) to already tax the benefit from FF programs, this is a valid concern.

I too prefer the current untaxed value of being able to book e.g. a free J class RT Europe-USA valued at say $3000-5000 for every 4 RT's flown in economy at $900.
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Old Apr 9, 08, 4:17 am
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Originally Posted by Dovster View Post
No, under the current system it would take approximately 19 return flights if he is lucky enough to find a SkySaver fare. Otherwise, it would take a lot more flights.

Moreover, under the current system you would have to fork out a considerable amount of money for taxes and fees -- perhaps $400 or so.
I still place my probability of finding a premium award that I can use at well more than 25%. Since I would only earn 25% of the value of a $3000 ticket, that is all that my probability needs to exceed.
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Old Apr 9, 08, 4:24 am
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Originally Posted by MikeMpls View Post
I like the idea of Delta Dollars -- it's a currency that would not be "devalued" as the airlines periodically do with miles.

However, in the U.S. market basing it strictly on revenue is unlikely to fly; still, the idea of accumulating what is essentially a growing ECV is appealing.

Besides selling DD$ to partners, you'd also have to figure out how to apply them on partner airlines.
I would view inflation as a continual devaluation of Delta Dollars.

I agree, this would be a tough sell to the US market, and I would choose a carrier using the current model over the Delta Dollars model.
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Old Apr 9, 08, 5:00 am
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Originally Posted by pbarnette View Post
I still place my probability of finding a premium award that I can use at well more than 25%. Since I would only earn 25% of the value of a $3000 ticket, that is all that my probability needs to exceed.
Originally Posted by starflyer View Post
I would view inflation as a continual devaluation of Delta Dollars.

I agree, this would be a tough sell to the US market, and I would choose a carrier using the current model over the Delta Dollars model.
The fact is that there are literally hundreds of millions of SkyMiles sitting unused in passengers' accounts. To me, this is a strong indication that many members do not value them very highly.

If that is the case, then they are worthless to both the passenger and to Delta. After all, the SkyMiles program will only get your future flights if you feel that SkyMiles have a real value.

Re the taxation issue: I am not a lawyer but it would appear to me that this would be seen as a rebate, not earned income. If I purchase a new car from GM, and GM sends me a check for $1000, it is not subject to tax.
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Old Apr 9, 08, 5:08 am
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Originally Posted by Dovster View Post
Re the taxation issue: I am not a lawyer but it would appear to me that this would be seen as a rebate, not earned income. If I purchase a new car from GM, and GM sends me a check for $1000, it is not subject to tax.
But surely the most valuable DL customers are business travelers. If my employer buys a car from GM, and GM sends me the check for $1000, surely that should be taxable?
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Old Apr 9, 08, 5:26 am
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How different is this from the corporate programs that airlines already use to reward corporate spending? It sounds largely akin to some of those programs but just expanded to allow for individuals to join up as individuals.

And are people going to get bonus "Delta dollars" for taking a connecting flight on Delta when there are non-stop options available on other airlines?

And is Delta going to really eliminate all terms and conditions that allow for it to do what it has done to Delta's "Old" frequent flyer miles?
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Old Apr 9, 08, 6:06 am
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Originally Posted by blagger View Post
But surely the most valuable DL customers are business travelers. If my employer buys a car from GM, and GM sends me the check for $1000, surely that should be taxable?
Ding, Ding, Ding! We have a winner!

As soon as benefits accrue to you that you, yourself, did not pay for, then you have to pay taxes on them. For an employee, this means that the Delta Dollars would be taxable earnings.
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Old Apr 9, 08, 6:43 am
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Originally Posted by Dovster View Post
No, under the current system it would take approximately 19 return flights if he is lucky enough to find a SkySaver fare. Otherwise, it would take a lot more flights.

Moreover, under the current system you would have to fork out a considerable amount of money for taxes and fees -- perhaps $400 or so.
It's not that difficult to get them short of the summer time. For a lot LESS than your system.

Look at it this way and you can see a MAJOR flaw in your system.

Say a BE seat round trip to europe is $3,000. That's $30,000 you would have to spend with DL. Lets say the average round trip is $400 a person would have to take 75 round trips to get a free J ticket under your system. Now suppose he doesn't like to go to europe alone that would be 150 round trips. Which is what a lot of frequent travelers fly in 3 years. Whereas right now I can get a skychoice J seat in 52 round trips using the formula from earlier. Although I would never do that - I've never had a problem getting Skysaver J tickets. So you've just jacked your system above and beyond the current Skychoice fare.

You act like it's DLs fault AF is charging all these fuel surcharges. Maybe you just need a makeover of your expectations.
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Old Apr 9, 08, 6:50 am
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Originally Posted by Dovster View Post
The fact is that there are literally hundreds of millions of SkyMiles sitting unused in passengers' accounts. To me, this is a strong indication that many members do not value them very highly.

If that is the case, then they are worthless to both the passenger and to Delta. After all, the SkyMiles program will only get your future flights if you feel that SkyMiles have a real value.

Re the taxation issue: I am not a lawyer but it would appear to me that this would be seen as a rebate, not earned income. If I purchase a new car from GM, and GM sends me a check for $1000, it is not subject to tax.
Maybe YOU don't value them highly. Me personally I've used 900,000 miles in the past 4 years and still have a bank of ~500k. (2 F Skysaver to Alaska, 10 F Skysaver to Las Vegas, 2 J Skysaver to France/Germany, 2 J Skysaver to Rome)

Now let's price that out. $2k for Alaska (F seats were 1k each), $7k for Vegas (F seats are ~$700 each), $5-6k for France/Germany, 5-6k for Rome.

A grand total of ~$20,000 I've gotten in return from the Skymiles program.
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Old Apr 9, 08, 7:08 am
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Originally Posted by blagger View Post
But surely the most valuable DL customers are business travelers. If my employer buys a car from GM, and GM sends me the check for $1000, surely that should be taxable?
I said in my OP that SkyMiles' real purpose is to get you to fly with Delta in the future. To that end, the important question is who should it be looking to attract. The answer is not necessarily the person who flies, but rather whoever decides what airline he will take.

In the case of many business people, that is the employer. After all, it is the company which pays the bills. It can choose your airline on whatever grounds it wants. It might be a pre-arranged contract, it may be generally lower prices, it might be more convenient flights from your city -- and it could be getting SkyMiles (or Delta Dollars).

Frankly, if I were Delta I would offer the miles/dollars to whoever pays the bill. Yes, the flyer himself would get the MQMS and the status, but it would be up to the person who pays for the flights to decide who gets the miles/dollars.

I suspect that most would wind up in the company's account, and the company would be much more apt to insist that its employees take Delta, but a company could, indeed, decide that this is part of your compensation package and give the miles/dollars to you.

If that is the case, why shouldn't you pay income tax on it? Why should an exec who gets say, 10,000 Delta Dollars each year which he can use for his vacation travel not have to pay tax while a secretary who earns 25% of what the exec gets have to pay tax on every cent she earns?

Of course, if you are travelling on you own dime, the Delta Dollars would simply be a rebate and that would not be taxable.
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