>That means business customers and the wealthy will still be their main clients.
I think you're grossly overestimating the fallout from this. I am the aforementioned business customer. Literally the only way you'd ever hit the dollar amounts they're looking for is flying multiple times across the Atlantic paying full fare business class - which I don't do. But I do fly multiple times a month across the continental US. Previously I would book Delta regardless of price for both business and personal travel due to status. They've made it basically unobtainable unless you're paying full fare first class on every flight AND booking your cars and hotel through them.
Going forward I'll just book the cheapest flight available and drop their card. They will be losing at minimum 10s of thousands a year in profit from my travel and card spend alone.
Merchant credit card fees are at most 3%. I doubt airlines pocket a big portion of their branded cards’ fees as profit, and I would bet they get less than even 1%. The vast majority of the fee probably goes to the banks and card networks.
Even assuming 1%, for an airline to lose $10,000 in profit, you would have to be spending $10,000 / 0.01 = $1M per year on that credit card.
And if you are spending a minimum of $1M on your credit card per year, I doubt you are spending your time optimizing “miles” and “points”.
I assume there are lots of smart people working at airlines that can work out which of their policies earn and lose money, especially now that all the competition is minimal except on the most popular routes.
>Even assuming 1%, for an airline to lose $10,000 in profit, you would have to be spending $10,000 / 0.01 = $1M per year on that credit card.
I think you missed the part where they're losing ALL of my business, including dozens of flights a year.
>I assume there are lots of smart people working at airlines that can work out which of their policies earn and lose money, especially now that all the competition is minimal except on the most popular routes.
I assume they think customers with lots of miles banked won't go through the effort of dropping them entirely. I think they're wrong.
When you're losing customers that have million miler+ status, you've made a pretty poor decision.
> I assume they think customers with lots of miles banked won't go through the effort of dropping them entirely. I think they're wrong.
I agree with you on this. Nobody who flew Delta did it for the value of SkyPesos anyway. The airline miles on Delta have historically had the lowest value among US major carriers and that hasn't gotten any better, so frankly I have no issue giving up my miles. I flew Delta for better hard product and a better set of co-brand + FF perks. By changing the latter, the difference on the former is mostly ameliorated, and the miles are basically meaningless. At most a skypeso is worth maybe 1 cent. A million skypesos is only worth $1k in EV, and that's being generous. A one-time cost of $1k that isn't even a fully realized loss (I can always use the miles later without seeking status) is nothing compared to the betrayal of the program changes.
Mostly agreed, but still ... I used to fly United/American from PHL to LHR all the time because .. well, its a hub city and I lived there and they were the best deals and had convenient departure times for the transatlantic crossing.
Then I moved to New Mexico, and found that Delta was the obvious choice for getting to London from here. And OMFG ... the difference in the product was just spectacular. Seats. Food. Movies. Uniforms. Air quality (not kidding). Probably will still use them when I do this journey.
Domestic flights it's a big difference, but for international flights if you're in Polaris at the front of the bus, United is actually better than Delta, although the United food is pretty horrid even in Polaris. The best news though is with United you can fly Turkish Airlines, Lufthansa, or Singapore Airlines on United. Singapore Airlines has the best business class hard product in the world. United and their partners also heavily operate 787s, which are great for noise and air quality.
United domestic routes are disgusting though. Most of the planes are falling apart CRJs without IFE and WiFi, and if they do have WiFi they charge you for it, and the domestic United staffers are not good. I would put United service quality on-par with Spirit or Frontier. Easily the worst in the big 3.
That said, I'd still rather develop status on United, take directs, and then fly Polaris full-fare or Singapore Airlines biz class for my personal / international trips now that Delta has made these changes to the medallion program.
I guess we will have to let it play out and see. I’ll take the bet that the same airlines that exist today will be there earning the same measly profit margins in 10 years (except JetBlue, which may not be around).
10 years ago there was USAirways and Continental, and Northwest a little before that. Reduced competition buoys the remaining survivors, but the history of bankruptcies in the industry certainly lends quite a bit of doubt towards your assumption.
The assumption is that as they become fewer, the ones that remain gain staying power. Which is why I excepted JetBlue since they could get sold or fail, I think they are hoping their Spirit purchase goes through.
Crazy to think JetBlue wanting Spirit. I remember when JetBlue started, their goal was to provide a better experience than all the other airlines. It is really a cutthroat business. Virgin Airlines had to be folded into Alaska too.
I think in many cases they are just buying routes/gates. If the airports are maxed out in gates how is the company supposed to grow? And a company that doesn’t grow is a “bad” company, or at least management doesn’t get paid as well for high profitability/low growth it seems
I imagine they meant the airline as a whole is losing out on the $10s of thousands due to lost loyalty resulting from removing convenience. Not just the 1%, but the whole spend is lost.
In that case, airlines have sub 5% profit margins, so $10,000 / 0.05 = $200k spend on flights before the airline comes close to earning $10k in profit.
Huh? Citation? Delta's profit margin last quarter was 12%, and that's a horrible way to calculate per-ticket profit. When I'm spending $1200 on a ticket to fly 500 miles round trip on a flight that's packed, they're making a LOT more than 12% on that ticket.
Did you actually bother to verify those links? They're wildly inaccurate. It claims Delta is making $50B/quarter??? They make roughly $13B/quarter. Your very first link claims Delta's profit margin 6/20/23 is 5.36% - it was 11.72% per their earnings report. 12/31/22 - claims 2.61%, it was 6.17%. Garbage in, garbage out.
And again, that doesn't address the fact their net profit margin has literally 0 relation to their profit margin on MY TICKET which is CONSIDERABLY higher than 11.72% on average.
And page 63/64, it seems like Macrotrends is using “net income/loss” row and the “total operating income” row, and Google is also using the same, so not sure why the quarterly figures are different. Macrotrends does look erroneous here.
>And again, that doesn't address the fact their net profit margin has literally 0 relation to their profit margin on MY TICKET which is CONSIDERABLY higher than 11.72% on average.
Yes, the delta bosses are not considering the profit margin from your specific flights, but assuming the vast majority of their business is flights where their airline miles come into play, then I figured it is a good assumption that, on average, losing a flight costs them the around the same profit margin.
Of course it is possible they lose so many flights that it cuts into their fixed costs, but I assume they are smart enough to make those calculations.
The allocation of profits down to specific activities depends on the allocation of revenues and expenses amongst activities, and all such allocations are inherently arbitrary. They depend on the stories we tell.
I worked with accounting enough to know that it is unable to provide a proper analytical framework for social or economic problems. Or, as Lenin put it, "For practical work, we need to have figures ... But we will defer the verification of the accuracy of the figures, the estimated percentage errors, etc., to a later period.”
The macrotrends graphs are clearly labeled TTM (trailing twelve months), and seem accurate to me cross-checking just a few Delta measures against published financials.
> especially now that all the competition is minimal except on the most popular routes.
I guess airlines are betting sufficient passengers have no better option, and I would bet that too. I cannot remember the last time I got to pick an airline without heavily inconveniencing myself and wasting tons of hours with extra stops. Even a busy airport like Newark, you are basically flying United for 90% of destinations if you want to get there in the shortest amount of time with the fewest stops.
You're generalizing to the overall population, but "tw04" already said he was leaving the airline, so I guess he's determined that alternatives do exist and aren't that inconvenient.
True but moreso than your average business, airlines are dependent on the revenues from the customers at the margins. In the short term, the plane needs to fly whether it's full or not. Even the lowest fare customer brings in more revenues than the added costs of flying them. It's the fixed costs that need to be spread across a plane full of passengers in order to make it all profitable.
An airline like Delta will adjust but there will be pain for them in the short term and pain for customers in the medium and long term with fewer, more expensive flights. All of this assumes these changes actually lead to customers changing their behavior rather than simply saying they will.
SkyMiles MQDs (flight spend, basically) is only 12K/yr for Platinum and 20K/yr for Diamond now, rising to 18K/yr and 35K/yr next year. IMO, the current thresholds, despite being higher than last year, are still too low, resulting in over-crowded lounges and difficult upgrades for their most frequent fliers.
Even next year's thresholds are not that high if you're crossing the continental US multiple times per month and are surely less than the flying you're doing on Delta if the loss of your business represents "10s of thousands a year in profit".
Delta's gross margin percentage is roughly 25%. For them to lose just 2 10 thousands in profit on you, you'd be spending $80K with them and doing so would continue to easily qualify you for Diamond, whereupon you'd get more reliable upgrades and service from them due to fewer people making Diamond each year.
I'm a little torn. I've never had a problem with spend, but there have been years where I didn't hit my MQMs, and just to make status, I'd fly a trans-pacific. It's giant waste for everyone involved, so I'm glad to not have to do that anymore.
I can spend $35k on flights, but I can also fly private for about the same amount, excluding most trans-oceanic. So I'm not sure what I'm going to do about next year. I'm not sure if it's really worth it. It's a weird calculus. To hit the number, it's basically buying a bunch of F/J fares. If I'm already doing that, I don't care about upgrades.
> I think you're grossly overestimating the fallout from this.
Really, I think if anything I might be underestimating the fallout from this in that I don't see it being an issue at all and I think most airlines will follow with the same changes in the future.
Since I lost all my status during COVID I changed my approach: no frequent flyer programs, far fewer flights, and only ever book first class.
No more worrying about upgrades, middle seats, air-ragers, and all it took was a little more money.
Of course now sometimes I fly on airlines I’ve never heard of whereas previously, I had taken exclusively American for my last 200 or so legs. I think the effects of shaking up these programs will be to make consumers like me much, much less brand sensitive.
I think you're grossly overestimating the fallout from this. I am the aforementioned business customer. Literally the only way you'd ever hit the dollar amounts they're looking for is flying multiple times across the Atlantic paying full fare business class - which I don't do. But I do fly multiple times a month across the continental US. Previously I would book Delta regardless of price for both business and personal travel due to status. They've made it basically unobtainable unless you're paying full fare first class on every flight AND booking your cars and hotel through them.
Going forward I'll just book the cheapest flight available and drop their card. They will be losing at minimum 10s of thousands a year in profit from my travel and card spend alone.