Delta Air Lines President Glen Hauenstein said something in this week’s quarterly earnings call that could send chills up the spine of points and miles travel hackers, “Pay with Miles”.
Buried in a monologue about the airline’s increased premium seat revenue and expanded premium economy offerings, Hauenstein mentioned that SkyMiles members will have “the ability to pay with miles by the end of 2018.”
The ambiguity in Hauenstein’s statement is cause to fret. Delta already gives frequent flyers the “ability” to pay with miles in certain circumstances, including Miles + Cash and pay with miles options for Delta Amex credit card holders. Delta has not said it will end its current fixed mileage awards, but Hauenstein appears to be alluding to an expansion of the pay-with-miles ethos.
Mileage award experts have long feared a transition from fixed-mileage awards to fixed-rate “Pay with Miles” redemption programs. When mileage award rates are fixed relative to fare prices, frequent flyers can get significantly higher per-mile values than they would if miles were fixed to the fare price.
Direct pay with miles frequent flyer programs have thus far been utilized exclusively by discount airlines, including Southwest and JetBlue. In this program there are no fixed mileage “awards”. Instead, frequent flyers convert their points to any available cash fare at a fixed rate.
Delta already allows American Express Delta Gold, Platinum and Reserve cardholders to pay for fares with SkyMiles in increments at a rate of 1 cent per mile.
Pay-with-miles Makes Business Class Awards Painfully Expensive
To illustrate this potential devaluation, it makes sense to compare the cheapest fall awards to Europe in DeltaOne business class with similar cash prices.
If Delta SkyMiles members paid with miles to secure this flight, at the present 1 cent per mile rate, securing a round trip DeltaOne business class seat on this route would cost 524,400 miles.
Level 1 SkyMiles awards to Europe currently price at 70,000 miles one-way, 140,000 miles round-trip. I could not find a single Level 1 round-trip pairing between New York or Boston and Amsterdam for October and November, but partner Virgin Atlantic offered a connecting itinerary at 150,000 miles, plus some surcharges.
Delta has already made infrastructure changes to its website that both obfuscates award levels and makes it possible for the airline to dynamically adjust SkyMiles award rates.
A lot of DeltaOne SkyMiles redemption calendars show dystopian award rates, even in slow seasons. In this example, we see round-trip DeltaOne business class award rates New York City to Paris — two of Delta’s largest international hubs — in lowly mid-October.
What about Amex?
One complication that could impede Delta from implementing a complete shift to pay with miles redemptions is its revenue relationship with American Express. SkyMiles is a transfer partner with American Express Membership Rewards.
If Delta forgoes the high-value fixed mileage awards that do occasionally appear, it will all but forfeit these transfers. American Express offers higher pay with miles rates through its own travel portal.
Delta made $3 billion off its relationship with American Express last year, including revenues from co-branded cards. Delta executives didn’t address Thursday how much of that revenue is sale of miles through Membership Rewards points transfers.
Don’t take these words lightly. Delta has been on a warpath to minimize its liability by jacking up SkyMiles prices and gutting the structure of the award redemption process.
SkyMiles awards calendars are increasingly looking like fare calendars, and Hauenstein’s remark about giving SkyMiles members the “ability” to pay with miles is an omen.
Find a Level 1 SkyMiles award, book it fast. Those looking to maximize points and miles values will have to look to carriers other than Delta.