RealDLInsider

Hope everyone is doing well this week! I thought I’d write another update and gather your feedback around some important issues I’ve been thinking about. So here we go …

Couple Updates:

The 125K MQM promotion is out and offers bonus miles, rollover MQMs and an iPod as choices. Interestingly enough, we have tested these over the years, and having “choice” always outperforms any individual offer. The miles are the most popular choice over an over again – almost 2:1 relative to others – even when the Crown Room Club was offered. This year we tried an iPod, and then we may send out another “stretch” a little later for a few of you to reach 150K. The incentive is still being defined, but you just may see the Crown Room Club on that one. More to come on this, but these incentives have been asked for by many customers, they work to drive incremental travel, and as such, you’ll keep seeing them.

I appreciate much the feedback around customer service and the improvements that many of you are seeing. I absolutely am sharing this feedback with my peers, and it’s a fairly good feeling to see that “finally” we are turning this ship around. As you all have been discussing, and in response to customer feedback over time, we did institute the rewards program again that allows our customers to give paper awards to our employees. Platinums were just mailed these awards and giving them to employees will absolutely mean something to them. Those points are turned into gift certificates for our employees, and I love the fact that our customers can now participate in directly rewarding my peers for good customer service. Please use them – it’s one way that you can help make a difference for the Delta that you fly often.

I saw the postings on Medallion seating on international flights and the exit rows, so I’m going to have to investigate this one. I was unaware this was really an issue, but from what I can tell, it’s bigger than I originally thought. Speaking of another issue, we are on the verge of opening up the standby lists for Medallions on upgradeable flights, and ensuring that thing never closes. I heard you all loud and clear and am not a big fan of closing out a deserving higher Medallion and/or a higher-fare paying customer just because they check-in later. The standby upgrade program and technology will only be trusted when it fulfills on what it promises 100% of the time. That is my goal and we will fix this. There is a technology issue that we have to overcome, but we are close on this one.

Dilemma:

Let me share a couple obvious facts and then my dilemma – something I think about often. Loyalty programs have two components to them – a Medallion Program that provides loyal and frequent customers a better experience (upgrades, preferred security, bonus miles, preferred line access, etc.), and a rewards program that provides customers frequent flyer miles that they can use toward award travel. Many of the things we do today attempt to recognize both, but as everyone is aware, doesn’t do so perfectly. For example, a 50% MQM bonus on YBM fares bump someone’s status faster and gives them more award miles. Many airlines do this and for this purpose. However, let’s think about fare types and how we give out miles.

Given the financials of the airline industry, the cost of fuel, labor, pricing and similar, and excluding the frequent flyer miles we giveaway, we generally don’t make money on LUT fares. In turn, we only profit on Business Class, First Class and higher coach fares. Thus, an L fare for $329 from ATL-LAX generally not only doesn’t make money, we give away 2,000 base miles, and then give another 2,000 bonus miles for our Platinum and Gold Medallions. On the other hand, a $589 H fare from ATL-LGA earns 750 miles and 750 bonus miles. For simplification purposes, if you assume the cost of a frequent flyer mile is 1 cent, I just added another $40 on to the cost of the L fare, and another $15 on to the cost of the H fare, making the ATL-LAX customer even more unprofitable and the ATL-LGA only slightly less profitable (but still profitable). Thus, if a Medallion earns Platinum status by flying back and forth to LAX every week on an LUT fare, no matter how often they fly and our loyal to us, I lose money – and to be blunt – more and more money the more and more they fly.

So while you ponder that issue, consider this additional fact. The way airlines account for frequent flyer miles is generally changing. In the simplest terms, airlines now or will soon get credit when they burn/expire more miles than they sell/giveaway, and will have to take a hit to their net income when the opposite occurs. For Delta, we have worked very hard to strike a balance between what is given away and sold compared to what is burned and expired. This past year, for the first time in a very long time, we actually burned/expired more miles than we sold/gave away – which means our mileage liability actually dropped. I bring this up, because many of you have suggested in the past that maybe we keep the base and bonus miles the same on LUT fares and raise them on higher fares. Good suggestion and we continue to consider -- but doesn’t this in essence just raise the number of miles we giveaway and become a hit on our net income? If there isn’t an offsetting increase in the number of miles we burn, expire or remove from accounts, isn’t that moving in the wrong direction?

At Delta, we absolutely believe that we need to do more to make award seats easier to obtain, but we also have to continue to stay profitable. Given these facts, I’d love to hear from you all on how we deal with the above issue and profitability. Please understand that I may not be able to respond to some of your suggestions from a competitive or legal perspective, but your consultative ideas would be greatly appreciated – and could save millions in research and consultative services.

Maybe I’m thinking too much about this, but I think that is what Delta pays me for! Thanks in advance for your insights!

Til next time … have a great week!

Jeff

cordileran

wow. i finally get to post first to a realdlinsider thread. usually i don't see them until they've got 10 pages of replies.

This post actually addressed some issues. Thanks for looking into exit row seating for medallions when travelling internationally. i was floored by the fact that delta actually lowered its mileage liability this year. especially given the complaining about lack of saver availability. or maybe everyone is redeeming skychoice awards.

Great news about the never closing waitlists also.

I hope the dissertation on LUT mileage accrual isn't a sign of a return to the dreaded 50% LUT accrual.

By the way, I'll be happy to offer you my consultation services for only $500/hour

Congrats on the most recent earnings report!

Thanks!

WBurcham

Jeff,

Thanks for the update. I'm looking forward to seeing the packages for Plat's for both the feedback and on the international upgrades.

I'm most excited about you looking into the exit row reservations for international flights. This is helpful for a medallion traveling infrequently on international flights in coach.

DiscoPapa

Jeff,

Thanks for posting! I know you have said that you (and your peers) appreciate "us," but let me say, that we sincerely appreciate you! Nothing raises up more of a feeling of ownership ("this is MY Delta") than knowing that your opinions, ideas, concerns, etc are not only heard by upper-management, but are addressed. So thank you! One complaint... you don't post enough! Greedy, I know.

I agree with "cordileran"...please no return of the 50% LUT mileage accrual. That would definitely be a setback for a good number of business travelers. I imagine while most/all of your higher fare class tickets come from business travelers, quite a few companies travel policies require lowest fare and thus include LUT. I'm sure you know that already, though...

I don't have any concrete suggestions in regards to the profitability issue. However, congrats on the incredibly high 2Q profit that was just posted! It seems like everything is heading into the right direction for Delta.

Thanks again for your service to the FT community.

spgaston

Nice post. I like what I think I might be hearing re: exit rows on intl flights.

50% LUT means bye bye DL for me, but maybe DL wouldn't mind if I left as unprofitable as I may be (even though I travel mostly on LUTs, I find it hard to believe that I am always unprofitable, given CRC membership and the occasional expensive LUT or YBMHQK).

I might stick around with 75% on T fares only, and you might even force me to buy up in such a situation. Of course, I would just find a way around this by flying on a partner's cheapie fare and crediting it to my SkyMiles acct. for full miles and MQMs. Given that there are a lot of competitive mileage programs out there, DL may have no choice but to continue with the status quo as far as earning is concerned.

Why not a more dynamic (published!) pricing structure for awards similar to paid tickets?

Anyway, one of your more interesting posts, thanks for sharing!

Feather Man

Wow...thanks for the candor. While I don't always like what I hear, it is refreshing to hear the rationals for DL's actions.

I love to hear someone is at least "exploring" the issue on international exit row seating for Medallions. I am in HKG now, and if I buy a Y,B or M fare with hopes of using a PMU, it would be somewhat comforting to know I at least have an exit row if the upgrade does not clear. I just can't get from CVG to ATL earlier enough to catch the desk in time to reserve the exit row on the NRT flight.

Now your dilema on miles and fares. OK, I will admit, I am in a very small minority of DL customers. My home base is CVG. So my fares are out of whack when compared to other DL cities. For example:

Aug 7 thru Aug 10 CVG to LGA L Fare = USD $479.00
Aug 7 thru Aug 10 DAY to LGA Q Fare = USD $268.00

OK...I understand the need to put a premium price on "direct" flights from CVG, but I will have paid significantly more for the CVG seat AND have a lower priority on the upgrade list. Higher costs and lower chances for an upgrade + 1000 miles less in mileage liability ( not counting the bonus).

Good luck with this. I know there will be winners and losers regardless of DL's decision. But the current pricing and fare class inequity out of CVG will be a problem for this PM, who must be more profitable to DL flying LUT fares out of CVG than your Q customer from DAY.

gvandora

Great information as always.

As far a finding a way to burn more miles... perhaps DL could consider something like the weekly fare special for miles. On flights where there is an temporary excess in capacity (slow week, etc) encourage medallions to use their miles on those flights, i.e. open reward inventory up. If those flights aren't going to be above say 70% load, filling those seats with reward tickets isn't going to cost significantly more than letting those seats go empty. It will also make miles more valueable to medallions, as they will be able to use them more often.

Thanks again!

rwsatl

Thx for the update.

It would be great to see DL pass along the 'paper awards' to us lowly FOs and GMs to give to DL staff. I've really been pleased recently with service and care from staff in ATL, DEN, ISP, BNA and would like to offer something in addition to a sincere Thank You.

Ditto that!

Thx again.

jimrpa

Jeff,
First, thanks for the update! You're updates here are VERY appreciated.

Second, please take a moment to look at the Avis/Hilton promotion thread and all the confusion it's caused - I fear you may end up with some disappointed customers (particularly on the Avis side) because of the unclear T&C.

Third, to your point about the purpose of a miles program - to reward loyalty and ensure future loyalty. I've said it many times and I'll say it again: On the rewards side, I'm looking for special, unique, and luxurious rewards. I seriously doubt you'll see me redeeming my miles for a coach ticket between PHL and DAB (unless there's a drastic reason to do so). Similarly, AF and KE Business Class are of marginal interest to me when both those carriers offer a First Class product. I'm willing to fork over the miles and work the system for things like SQ First Class awards. We need more awards that are distinctive, and some potential rewards just might be closer than you think - For example, what about 25K miles for a day at Delta's simulator facility, including emergency exit training and some time in a 777 sim? I'll snap that up in a heartbeat, even if I have to cash in more miles just to get from Point A to ATL.

While on the subject of rewards, recently it seems that you've introduced a lot of complications in the rewards. It used to be fairly easy to understand: 25K for a CONUS coach reward, 45K for a CONUS First Class award, 80K for BusinessElite between CONUS and Europe, etc. Now, there appear to be all sorts of bizarre restrictions on the routings of these awards, timing between connections, and so on, all of which introduce additional miles, nickel-and-diming us to death. If you really need to raise the "prices" on awards, just raise the "prices", don't introduce a lot of arcane restrictions that only seasoned travelers could hope to understand.

Finally, to your dilemma - Wow, that's a TOUGH one! The problem with the 50% miles/MQMs of old was that many people perceived it as "punishment". I'm wondering if you can't look at some macro economic models. Think of SkyMiles as a "currency", the SkyMiles program as a "Central Bank", and yourself as Chairman of the Fed I think what you're really facing is a SkyMiles equivalent of "inflation" - you've issued a lot more SkyMiles, hence the value of the SkyMile should be less, yet you're artificially holding it constant (i.e. award levels haven't really changed). Somehow, you've got to "devalue" the currency. It sounds like the new accounting rules will help you. Another way to get the currency out of circulation is to encourage people to spend ("burn" to use your term). Finally, you've got to stop "printing" quite so much currency. Not sure how you do that.

One thing I don't get (and this is closely related to your point) - If Delta really loses money on L, U, and T fares, why sell them at all? O.k., I can see maybe making a few of them available as "loss leaders", but what if you just sell fewer L, U, and T fares? Would that mean that loads would go down? Is it better to lose a little money but have a seat filled, or have an empty seat? I don't know - perhaps you can tell us (if that's not confidential information).

I really think the focus should be on finding ways to incentivise us to burn our miles. For me, get a couple of world-class partners offering First Class (especially to Australia, the Indian Ocean, and the South Pacific), and I'll burn some more for you (as long as my Marriott points hold out ) Please don't punish me though when my company tells me I must purchase the L fare from PHL to DAB. Remember, AirTran is also one of our airline partners, and it would probably be a simple software change for my company to "force" me onto AirTran if I don't exercise SOME degree of responsibility with the company's money.

lykstyk

Not necessarily true...

Assume the plane is going anyways (for the biz/first/higher coach/connecting passengers) almost every incremental dollar you earn on that flight is profit.

In this case $329 dollars for 10 bucks in gas, $.50 for soda/chips, and 4k miles (which probably cost you $5-10).

Not to mention the east/west flights keep your planes in the air during times when nobody would be on it (think atl-lga 10pm-6am EST)..

Its not as simple as you state...If you truly think so make LUT miles only count 50%.... my guess is your LUT fares will have to drop to find ma and pa kettles to fill them...

jerry crump

Whatever you do I trust you will do the right thing. Delta now seems to be doing things right now even unpopular things, in comparison to a few years ago when it seemed everything done was a disaster.

JBLUA320

Jeff, I'm big on the exit row issue and appreciate your looking into it.
Please let us know what comes of it, it really does affect our experience when we can book on say NW, get the same MQMs on a cheap fare, and be ensured those extra few inches of space.
-A

indufan

As to the buying low fares issue, one solution is to somehow reward someone for voluntarily buying a higher fare class. It's been a while now but I have always been an advocate of K+ fares getting upgrades at the time of booking for PMs. I routinely bought those tickets in the day. What else can be awarded for "buying up" other than MQMs, miles, or upgrades? I mean I would be all for a free iPod for buying up 15 times but can an airline ever really find something cheaper to hand out other than miles?

I also agree about the problem with the low fare classes from CVG. I almost always spend considerably extra to fly from CVG. I do this by choice....IND is closer and a LOT cheaper. But the $600 L fare out of CVG is becoming more and more standard. There are full Ys less than $600 out of IND sometimes. I absolutely understand the market conditions at CVG and support Delta's need to charge as much there as they can (like everyplace). Previous to SimpliFares, CVG was even higher but at least the fare classes were more equal. Bottom line is comparing fare classes doesn't tell that much about profitability. For a solely domestic FF going out of CVG almost exclusively, I would think that I would be one of the more profitable customers but not getting anything tangible more than someone hitting those cheap fares every week.

cup.of.jo

I appreciate the dilemma as I definitely want Delta to remain profitable. I don't claim to understand the ins/outs of the fare structure but I do know that my LUT fares seem to frequently be equal/more than my QK fares even though I fly the same route week after week. ($428 this week for U/K but $256 for Q/K last week). With that thought, it probably wouldn't cause me to switch from Delta but I sure would hate to see the return of 50% reduction for LUT fares.

Consider waving the change fee if all a customer wants to do is buy a higher fare only (esp if LUT earnings change). Just talking about fare changes--not changes to flights. For example, I may buy in LUT but want to change to a higher fare later on for various reasons (more MQM's if it's a 'tight' year, pay the difference to fly F on a long flight...). A few years ago, this fee was frequently waved. The last few times I've checked, there was to be no waving of the change fee despite significant $$$ for switching to a higher fare.

Thanks for the update!!

TTT

Thanks for the post Jeff!

Regarding the SkyMiles dilemma one way that may encourage me to burn more miles would be the popular "short haul" awards UA had. Basically, a two segment round-trip (one segment each direction) with each segment less than 750 miles could be redeemed at 15,000 miles. It may encourage people to burn more miles for short weekend trips.

Regarding the LUT fares perhaps instituting a system like Air Canada for their "Tango" fares. Make LUT 50% or even 0% mileage earning unless you choose to "buy" the miles for $5-$10 each way, depending on distance. I would imagine the $10-$20 round-trip would more than cover the mileage liability on the books, and it would offer another revenue source for Delta. I don't know if this would be a popular idea with the board, but just something that crossed my mind. (Of course, if you decide to do this I would like to be excluded from the fee)

Thanks again for the update. It is always interesting to see how things are going on Virginia Ave.