March 5, 2014
UPDATE 3/6/2014: Delta’s new award chart has been released. It is almost exactly as I predicted below except that some mid and high tier award prices have gone down slightly. You can find the new chart here.
UPDATE: The following post, in which I predict Delta’s 2015 award chart, was written today (Wednesday March 5th) and originally scheduled to be published tomorrow morning. After I wrote and scheduled this post, however, View from the Wing said that Delta would publish their 2015 award chart tomorrow (Thursday) or Friday at the latest rather than late in 2014 as originally planned. If he’s right, we’ll know much sooner than I thought if my award chart predictions are any good! As a result of this development, I decided to publish my award chart guesses tonight (Wednesday night) rather than tomorrow morning.
Last week, Delta announced major changes to their SkyMiles program that will take effect January 1, 2015. I seemed to be among a very small group who were actually happy about the announcement (see “Am I the only one happy about Delta’s announced program changes?”). Delta announced that, beginning January 1, passengers would be awarded miles based on the price of their ticket, not based on the miles flown. For most people, that will mean earning fewer miles for their flights. People who fly mostly expensive, short to medium distance routes, though, may earn more. And, people like me, who earn miles primarily from credit cards, will hardly be affected at all with respect to earning miles.
So, we have a good idea now of the winners and losers with respect to earning miles. What we don’t know is what will change with regards to redeeming miles. We do know a few things. Delta says they will allow one-way awards for half the price of round trip. And, Delta has said that they’ll move from the current 3 tier to a new 5 tier award chart, but they haven’t yet shown us the details of that new chart (they say that the details will be available in the fourth quarter of 2014).
In the above example, Delta would keep the same pricing as they have today, but add new level 2 and level 4 awards at prices in between the current levels. And, Delta has already said that domestic economy flights will still be available for as low as 25,000 miles (which is also consistent with the current award chart).
My best guess(es)
Based on what little information we have, my guess is that the 2015 award chart will be essentially the same as the chart that is effective for travel beginning June 1, 2014, but with the addition of new levels in between the current Saver, Standard, and Peak levels. This would mean, for example, that round trip domestic economy awards will still range from 25,000 to 60,000 miles. And, to go to the other extreme, round trip business class awards from the US to South Africa will continue to range from 160,000 to 380,000 miles. I’m sure that there will be some changes to the award ranges, but I do think that most of the ranges will stay essentially intact. My basic argument for this is simply that they have very little reason to change the chart. If they want awards to cost more, all they will have to do is make fewer awards available at the lowest levels. And, I presume they put a good deal of thought into their June 1 award chart. Why would they go to all that trouble if that’s not the near term “final” chart?
On the negative side, my guess is that availability of the lowest level awards (currently called “Saver” level) will decrease. On the other hand, I expect that availability of the new Level 2 awards (awards priced between Saver and Standard) will be significantly better than today’s Level 1 (Saver) availability. For a full explanation of why I think this is so, please see my recent post: “Delta’s tricky little s and what it may mean about award space.” Overall, if this plays out as expected, I see this as a good thing for those looking to use Delta miles. Overall availability of reasonably priced awards should be better than today even if availability of the very cheapest possible awards is lower. The real losers in this scheme are likely to be those who want to book awards using miles from Delta’s partners. If nothing else, it will be very interesting to see how that plays out.
I do not think that Delta’s award pricing will be tied to revenue pricing any more than it is today. Some have speculated that by moving to a 5 level award chart, Delta is essentially moving very close to a full revenue based award chart. With some airlines, like Southwest and JetBlue, award prices are 100% determined by revenue flight prices. Some speculate that Delta will use the 5 level award chart to move towards that model. The thought is that very cheap flights will price out at Level 1 in the award chart, and very expensive flights will price out at Level 5 in the award chart. With 5 different levels to work from, Delta could closely tie award prices to actual revenue prices. But my guess is that they won’t. Here are a few reasons:
Flight prices are often low or high based on whether or not competition exists for the same routes. When Delta charges less in order to compete with low cost carriers, I bet you’ll find that their flights are often completely full. In those cases, it doesn’t make sense for Delta to make awards available at low rates. And, conversely, in markets where Delta has no competition, prices are high, but seats often go unsold. In those cases, it makes sense for Delta to fill up those unsold seats by making low level awards more readily available.
What if I’m wrong about the first point above? Another argument against revenue based redemptions is that Delta would have to completely change how awards work. Today, the price of an award is based on the highest level of any one segment in your outbound or return route. For example, if your outbound route has three segments and two are available at the Saver level, but one segment is only available at the middle “Standard” level, then the entire outbound part of the award will be priced at the Standard level. If Delta were really to tie award prices to ticket prices, they would have to dynamically assign the award level to the entire itinerary rather than segment by segment. Think about it this way: in order to compete with other airlines, ticket prices often seem completely nonsensical. For example, I just priced out a Delta one way flight from Detroit to Los Angeles for a random date in March. For the date I picked, the best fare was over $500. However, on the same date, if I fly Detroit to San Jose, with a layover in Los Angeles, I would pay only $282. To make their awards be based on ticket prices, Delta would have to price the award based on the entire outbound itinerary (Detroit to San Jose) rather than the segment by segment approach it uses today.
Not only would it be a huge technical challenge for Delta to make the switch described above, but I think it would be stupid of them from a business perspective. It simply makes sense to use award availability as a tool to fill up unsold flights. Delta may be evil, but I do not think it is stupid.
Going to a pseudo revenue based award system would be further complicated by partners. When a Delta award includes a partner segment, would Delta still price the award based on the total cost of the itinerary? I suppose they could, but only when award space is available, I guess?… But what about the opposite: when someone wants to use partner miles (Air France, Virgin Atlantic, etc.) to book Delta flights, how would that work? Currently, availability is based on the existence of lowest-level awards, per segment. If Delta were to go with a pseudo revenue based award scheme, I think they would need to preserve the old way of pricing awards just to have an answer for partners about whether or not award space is available. Maintaining two separate schemes like that sounds unnecessarily complicated to me. And, complication leads to extra costs, which Delta surely doesn’t want.
I see two primary arguments for why the 2015 award chart will be much worse than it is today. One argument points out the lack of information: The fact that Delta did not publish their 2015 award chart must mean that it is bad news. The second popular argument is basically that Delta is evil: Every time Delta changes anything about their SkyMiles program, it’s bad news. A person would have to be crazy to believe otherwise.
You may be right. I may be crazy…
There is no doubt that Delta has done a lot in recent years to piss off their (previously) loyal customers. Rapid Travel Chai gives details here. On the other hand, I do feel that they’ve made large strides towards making the actual flying experience better and better. I know I’m in the minority when I say this, but I think that their goal with regards to SkyMiles is probably a good one. I think that they have finally realized that a hugely devalued SkyMiles program is a bad thing. And, I think that they hope to make the experience of redeeming Delta miles a better one. I guess we’ll have to wait until the end of the year to find out how crazy or idiotic I am (or, simply read the comments of this post to get a quick answer…). In the meantime, keep in mind that my musings here are just guesses. I’ve been wrong before and will be wrong many times in the future. Every now and then, though, I may be right…