Delta Air Lines next year will flip the premise of its SkyMiles program by rewarding members for fares paid, not miles flown. Compared with the current program, it's a better deal for a lot of corporate travelers, based on 2013 fare data, but certainly not all. As for corporate travel buyers, there are concerns that the new program could steer travelers to higher fares to maximize their awards rather than company savings.
"We want customers who spend more time and money with us to be the most rewarded," according to a Feb. 26 memo from SkyMiles vice president Jeff Robertson, who used the term "high-value customers" to describe the targeted crowd.
It's hard to get more "high-value" than business travelers and key corporate accounts.
How do they fare?
First, the travelers. Overall, this should be a net benefit for your "average" corporate traveler, if such a thing exists, based on aggregate corporate fare and length-of-haul data analyzed under the current and the coming versions of SkyMiles.
In short, if you buy a lot of high-cost tickets for short-haul travel, you're a winner. If, on the other hand, you're a long-haul-on-the-cheap flyer, you won't come out ahead. For the rest, it's a toss-up__and varies quite a bit based on status in the SkyMiles program.
While this does not represent Delta-specific numbers, Travel Leaders Corporate provided The Beat with overall 2013 corporate fare data. Its "average blended domestic/international fare for all carriers" absent government taxes and fees was $524.13, and "the average trip length for all carriers was 2,322" miles. (Since Delta's new program doesn't reward for dollars spent on government-imposed taxes, they are excluded.)
Using that sample fare and distance, a general SkyMiles member would accrue 2,621 miles under the new fare-based program, which sets a rate of five miles per dollar spent. Under the current mileage-based program, which awards a mile for every mile flown, that fare would earn 2,322 miles. Seems like a modest win for the traveler.
Prime Analytics has Delta-specific, per-segment averages for cost (absent taxes) and length of haul. A service of Prime Numbers Technology, Prime Analytics also segmented data for international and domestic segments.
According to that data, the average cost per domestic Delta segment booked last year primarily through U.S.-based corporate travel agencies, based on 2.2 million segments, was $253.34. The average number of miles per segment was 979. Delta's current scheme would reward a general SkyMiles member with 979 miles, while the upcoming revenue-based program would award 1,267 miles.
It should be noted that Delta's new plan also would give status holders a higher per-dollar accrual rate. If you're Gold, you get eight miles per dollar spent, which amounts to 2,026 miles for that same average segment. Under the current scheme, that same status holder would get 1,958 miles, accounting for Delta's 100 percent mileage bonus for Gold members. So, still slightly ahead__by just a little__under the fare-based scheme.
It's a different story for the international flyer, based on Prime Analytics fare and distance averages.
Based on 200,000 international air segment bookings captured by Prime Analytics in 2013, the average cost per segment on Delta international flights was $852.17, and the average number of miles per international segment was 4,484.
So, your basic SkyMiles member would get 4,484 miles today but only 4,261 miles a year from now. The math, of course, changes based on status level. For Gold, you'd get 8,968 today and 6,817 a year from now. Not looking as good.
Of course, all this is based on last year's data. If fare forecasts from corporate travel agencies come to pass, the earnings potential should improve into next year, when Delta launches the program. Meanwhile, the distance between New York and Los Angeles will remain the same.
'On The Company's Dime'
What about the companies that employ these corporate travelers? Some analysts said the new program establishes an incentive for travelers to buy more expensive fares__a potential threat to managed travel programs.
Wolfe Research airline analyst Hunter Keay last week in a research note pointed to what he called "an unintended benefit"__for Delta, that is__of "business travelers who are now incentivized to book more expensive itineraries (in order to claim more miles), if the expense is on the company's dime."
There always has been some tension between supplier loyalty programs and managed travel programs. A company that promotes American as its preferred carrier might have a traveler who is a United loyalist. It's a common scenario, and complicates preferred-supplier compliance.
But Delta's new program creates a different kind of issue, in which even if the company's preferred carrier is Delta, travelers may, for example, wait to book closer in to secure a higher fare.
"I think a lot of corporate buyers are going to say that this crosses the line of a kickback to the traveler," said The Advisory Board Co. travel buyer Steven Mandelbaum. "I totally understand rewarding for loyalty, but directly tying it to ticket price and encouraging folks to spend more is probably going to result in more companies telling its travelers they can't keep their miles."
While that may be a bridge too far for many, it does place buyers in a position of concern.
According to a blog post from Oracle travel buyer Rita Visser, "only time will tell" if the new policy steers travelers into "gaming the systems to make their reservations closer in to pay more for their travel," among other potential outcomes. Miles hounds for years have gamed the mileage-based system by forcing connections and elongating distances flown, so it wouldn't be surprising if a similar class of travelers exists under a newer scheme.
Still, Visser in an email said she expected that Delta's new program "won't force travel policies to change, only the management of those policies."
As for Delta, they've heard the concerns from buyers and said that the policy change was made after direct feedback from constituents that included corporate accounts.
"The key is that the travel manager has the information that they need so that they can give the best direction and best advice to the populations they're managing travel for," a Delta spokesperson said, noting that the airline has and would continue to provide clients with key data to understand their spending and travel habits.
Furthermore, it's not an entirely new complication. JetBlue, for example, has a fare-based frequent-flyer program with another threat to corporate travel compliance: double points if you book direct.