Awarding frequent flyer miles to customers based on how far they flew was a relic of a prior era and no longer appropriate, the CFO of Delta Air Lines told investment analysts this week.
But though Delta’s program now gives fewer miles to many passengers, the change has helped the airline win loyalty from customers who matter, Delta’s Paul Jacobsen argued Thursday at the Bank of America Merrill Lynch 2017 Transportation Conference.
“I think loyalty really took off when we ultimately made the conversion away from miles-based program to a dollar-based program,” he said. “The miles-based program was an antiquity out of deregulation and really didn’t have a practical application in a world where pricing is set … irrespective of distance.”
Delta was the first legacy U.S. airline to move to a revenue-based model, adopting it in 2015. Some high-spending business travelers earn more miles, but most passengers earn far fewer. American Airlines and United Airlines now have similar policies, which are similar to how Southwest Airlines and JetBlue Airways have long awarded miles. Among major U.S. carriers, only Alaska Airlines has kept the old approach, with its executives betting they can win new customers by keeping a generous loyalty program.
It was an obvious decision for Delta, Jacobsen said, because it keeps the airline from awarding too many miles to customers who fly long distances but do not create much revenue for the airline. Now, he said, Delta is less worried about how customers redeem miles, because travelers who have earned them are valuable for the company.
“We can get into different options for our customers where from a revenue perspective we truly are indifferent, whether someone spends a dollar or a mile,” he said. “We know what the cost is, and we know what the whole pool looks like versus somebody who gets the same amount of miles when they pay 10 percent of the ticket cost that somebody else did,” he said.