The impact on “us” from the Delta Investor Day presentation & executives comments

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delta investor day 2015 main slide

Slides from Delta Air Lines Investor Day 2015

Let me begin by saying I am not a Delta shareholder nor do I plan to become one any time soon. I do not hold any Delta shares in my or my wife’s investment accounts. Plus, the move up or down of DAL shares is not something that concerns me one tiny bit. My review is not from an investor’s standpoint because I have other priorities. Like what?

What matters to me is what has mattered to me all year long, that is, what impacts Deltas changes are making to you, me and to medallion flyers. Also the effect these changes will have on the ability to earn and burn SkyMiles for award seats. That is what is important in all of this, not Delta’s stock price (DAL).

I warned everyone to be very afraid a year ago. I again warn you to be even MORE afraid for 2016 as things are going to get MUCH worse than this year. If you think 2015 was brutal “you ain’t seen nothin’ yet“! Please keep in mind we have not yet received the crushing news of just what kind of “enhancements” are about to befall the frequent flyer program but you can bet your bottom $kyRuble that they are going to hurt. There is nothing in the current investors report to motivate anything but pain for us.

Let’s dive in and look at some of the high-lights and low-lights and what I took away from the Delta Investor Day call and sideshow.

delta investor day 2015 page 37

The first thing is what I have been “preaching” about all year, that is, the impact of FCM. Delta said on some flights, some days, they are seeing 80-90% 1st class seats sold. This does not surprise me one bit when even loyal Delta points enthusiasts are spending money and points to upgrade to a first class seat rather than enjoy complementary Medallion upgrades. Oh and come 1JUNE16 expect FCM to get even worse when the dirt cheapest fares are open to 1st class upgrades (at beyond bat crazy prices, but everyone thinks $kyRubles are worthless anyway so they will burn with hopeless abandon – know this)!

While all flights are clearly not 80-90% full they have a goal of 70%. Think about that for a bit. On a 737-900er you are talking 6 open seats for Medallion upgrade for the 160 passengers in the back. Those are not good odds folks. When you add in regional and global upgrades to the mix, even more will be out of reach for complimentary medallion upgrades.

Before we leave the topic of upgrade we have some the of the most disturbing information that came at the very end of the day when the topic of the SkyMiles program was at long last brought up. The Delta executive who was speaking was very plain and just shocked the living daylights out of me. This is not quoting word for word but the gist of the statement was that:

Delta does not want people saving their miles long term for award tickets. They definitely don’t want us saving them for retirement travel. They want the miles to be a “Live Currency”, that is, they want us spending them at high levels each year. They plainly stated that when we redeem for awards those are some of the lowest margin profits for Delta. The executive stated that he wants flyers spending the miles on things like “Dom Pérignon champagne” in the Sky Clubs and for upgrading themselves, and all those with you, flying home from a business meeting in 1st class. Talk was about wanting to push these kinds of FCM upsells to 50-60%. These are high margin items for Delta.

In other words, Delta wants folks to act like complete uneducated and misguided fools to burn any residual value of SkyMiles for nice award trips on things that make Delta more money and flush value down the drain. Oh, joy, oh, joy! They want flyers to be dumb and stupid and not have access to info like award charts right?

delta investor day 2015 page 36

We have already seen the OFCMB marketing spin tank in full operation this year and this is before they can break out and sell C+ as it’s own fare class. What a total joke this is. If you have flown C+ you know this seat is just a coach seat. The Delta “experience” is nothing like 1st class. I have been warning Delta flight attendants to expect that folks will want “1st class-lite” service in this “cabin” of service and have been scoffed at. Yeah, well, they had better step it up and get used to “coach” type passengers expecting 1st class treatment in the “upgraded” fare of travel. Delta is selling this as something special in the air and since the seat is nothing special AT ALL it is up to Delta flight attendants to make the experience special. Have fun with that, it will not be me!

delta investor day 2015 page 35

The next slide data I think is just wrong as I know better and listening to the executives try to sell us on the fact that new “high density” jets are more appreciated by flyers is a total joke. I think the only reason folks are liking the “mods” or modifications is because the old crummy seats with nonstandard power and over head VHS players were so bad that anything is better than 90’s technology and comfort. With the order once again on for more and more 737-900ERs (not that it was ever really off) it will be very hard to avoid uncomfortable coach “high density” jets plus the older 757’s that remain in service will also get this special mod treatment as soon as possible.

Speaking of pain and discomfort, expect nothing but narrow body jets for your domestic travel. If you are new to this topic a narrow body is a single aisle jet while a wide body is dual aisle and what you tend to find on international routes. The wide body tends to have Delta One or full flat nice seats compared to domestic 1st class narrow body seats that are just a bigger seat than coach. Delta made it very clear there is no business incentive to fly anything but narrow body jets inside the USA. So even if you do score a complimentary medallion upgrade don’t expect the seat to be all “that” amazing.

delta investor day 2015 page 11

Then we have the AMEX situation. Delta has locked AMEX into a long term contract. Good for Delta but my guess is not so great for AMEX. They stated that last year Delta added 3/4 of a million co-branded Delta / AMEX cards and wants to add 1 million in 2016. That is a tall order considering how much less value a SkyMile has today compared to the year before let alone going forward after 1JUNE16 when we could see a single business round trip award cost over 1 million miles.

Now for me personally I can still get value from my AMEX cards (all of them, not just co-branded) but that is much a feature from AMEX not from Delta. As long as AMEX controls much of the value I receive I am happy but I greatly fear what Delta will impose on the co-branded cards in 2016. Scary times indeed.

Other interesting bits and crumbs to take away from the presentation and tone from the Delta people. The attitude of Delta is off the charts arrogant. They are the 500 lbs gorilla in the room without question. They are happy with Virgin, AeroMexico & GOL who want Delta telling them what to do. They are not so happy with AF/KLM & Alitalia who do not want Delta telling them what to do. I expect an even more frosty relationship with Skyteam partners in 2016 (if that is even possible) and as a frequent flyer and someone who wants to spend my points with these partners I am not looking forward the fight to get value from my SkyMiles. I have a strong feeling my friend ADAM and his team are going to be VERY busy next year when “loyal” Delta flyers attempt to redeem their points.

Lastly we have the bits that just continue to amaze me and I think one day will come back and bite Delta and all the airlines, that is, the topic of capacity control. Now I get that it is a smart business move to fly jets full and to park jets in the dessert so you can keep control over how many seats are open for sale so you can keep charging super high prices with oil at near record low prices rather than pass any saving on to consumers, but you know at some point the “guberment” may decide enough is enough when Delta has a virtual lock on many routes. The airlines all hate regulation but pushing this so hard on consumers that already feel over the top gouged every way they turn in fees will not be sustainable forever.

I can tell you, my dear reader, many folks I have known for years who have been fiercely loyal to Delta have given up. They were once Diamonds and are dropping way down the elite list. Some that were Platinums are dropping to Silver or even giving up on chasing status at all as the rewards are just not worth it anymore. Delta values “loyalty” ONLY as spending a ton of money with the airline each year and burning your hard earned SkyMiles in all but worthless ways. That is not what I signed up for as an elite flyer – did you?

So what to take away from all of this? 2016 will be the year of “game on”. Delta is going to try to “up-gage” us. Let them try. I intend to use every tool at my disposal to game what there is to my, and your, advantage. I intend to spend as little of my money as I can on Delta next year (my spend was down for 2015 and will be again for 2016). I pledge to only burn my SkyMiles when I get value, that is, LEVEL 1 & 2 award where I am the one getting high margin value for my points – not Delta. I will continue to educate flyers to not reward the company and DAL stock with my “loyalty dollars” when they are clearly not showing loyalty back to me. – René

 

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19 comments

  1. Noticed today my corporate booking tool, for what I can only imagine is one of Delta’s largest customers, is showing basic economy flights. Delta doesn’t seem to even want to give me a seat selection, let alone miles or status. Guess I’ll book away as at least on AA I can earn something…

  2. We did see it coming – at least those of us who pay enough attention. I have one remaining round trip this year and I purchased FC as I had it in my budget (I never have paid for an UG, never will). I regret purchasing the flights on DL now and should have taken the AA option from another airport and saved a few bucks and still sat up front.

    2016 will be a rough year but in the end at least I know Delta does not have my back as a DM so I can act accordingly. It’s going to be fun to use my huge pile of SkyMiles for some great international travel only at level 1 and 2.

    I do feel for AMEX. I can’t stop thinking that DL is shoving AMEX around the conference room at this point. AMEX can’t afford to lose more customers after losing Costco. Although I am sure lots of people will pick up the co branded card I will be considering closing my personal Reserve and my wife’s Reserve. That on the heels of closing my business Reserve a couple weeks ago. AMEX will see the same spend from me just on another card.

  3. I’m always conflicted on this. As a company, Delta’s only obligation is to make a profit for its shareholders. Plain and simple. I don’t fault them for trying to sell empty seats — it’s in their interest. What I do, however, fault them for is questionable marketing that sets expectations for their products and classes of service that are almost always never fulfilled. Moreover, the less than forthcoming changes to the loyalty program treat its long-standing customers unfairly. Don’t get me wrong. I don’t expect the car dealer to give me an unsold Cadillac car for the the price of the low-end Chevy car that I’ve always bought. However, if the car dealer is going to offer some sort of program like that then they need to be honest and fair. I’m not accusing Delta of being dishonest, but I’m certainly accuse of them of being unfair and perhaps even unethical. That’s especially the case when it’s revealed that non-Diamonds have received super-low upgrade offers at check-in, as Delta’s bean counters know the occasional flyer is much, much more likely to fork over a couple hundred bucks for a marginally better product.

  4. This is the end of Delta’s loyalty program. If you have to pay to get benefits then there is no reason to be loyal. I will fly Delta when it is convenient to me but not because I will get a status that will differentiate me from the rest of the crowd. My loyalty to Delta ends on 12/31.

  5. We should realize that if Delta wants more Delta Amex cardholders, devaluation is the best way to achieve that. As costs in miles climb, people think “oh, I dont have enough miles for that award ticket so I’ll just get a Delta Amex and earn more…”

  6. Rene,
    Did you see this quote from Hauenstein regarding medallions and rewarding loyalty?
    “What we would like people to do in the next few years is to pick the airline and the product that works best for them.”
    It’s clear that is their intention as I had already made the decision to stop being loyal to delta. For 2016 I am going to buy the cheapest first class fares with the most convenient airlines rather than stick with Delta. For years I have gone out of my way (paid more, taken less convenient flights) in order to keep status with Delta in spite of decreasing rewards. I’m not sure how that strategy helps Delta. And it goes against their goal to increase AMEX cards (I am dropping one and possibly both Reserves for our household). Wasn’t that a big middle finger to their loyal fliers?

  7. I agree with most of your points, but disagree with your assumptions about C+ expectations. These seats are marketed to economy flyers (like me) who are (reluctantly) willing to fork over more $ for those 4-5″. Drinks and snacks are a nice bonus, but not a big part of what we’re paying for. I have no expectations of ANY change in the level of service, and I doubt most of my fellow C+ travelers do either.
    Now, if any of you B or F flyers were thinking of it as “F light” you should know better. It’s absolutely still economy. Think of it as “economy 1977.” Only no one expects you to dress well. ; )

  8. @mbh – I did not say I expect C+ service as talked about (I know better) but the mass public who is “sold” this “experience” will. Agree?

  9. @mbh: Except that Delta sells comfort-plus as a more exclusive experience than main cabin/economy-class. They promote more snacks, more drinks and so forth. I flew comfort-plus back from AMS the other day. I have a difficult time justifying business-class for a daytime flight of 7 or 8 hours. The difference between my experience and that of the person in a regular seat two rows behind me was a cheap amenity kit and more legroom. The added legroom made it tolerable, but not if I was stuck in the middle seat in a row with three or four seats. As food food and drinks, nothing. Just two beverage services; once with the lunch and once with the snack before landing. Flight attendants never once came around to see if I wanted more drinks.

  10. 5+ years as DL Diamond. Just made AA platinum last week. Haven’t flown DL metal in 5 weeks. Tired of paying higher fares (MUCH higher than AA usually) so I can be #5 on an UG list with 1 seat open. Why pay more? There is no longer a reason. Every GUC/RUC I’ve ever tried to use was like pulling teeth. I have NO problem with DL wanting higher profit and higher stock prices. But there’s a way to do that while building loyal customers. Glen Hauenstein is sadly the Emporer wearing no clothes. But by the time anyone realizes he’s ruined/gutted DLs loyalty program, he will already be retired with his huge bonuses. He’s very good at delivering to the bottom line. Oh, and his lifetime Delta One seats for he and all of his close friends (that’s not a lie, it’s the truth). I hope I’m around for the laughter next time the economy crashes and DL scurries to rebuild a true loyalty program.

  11. Spot on Rene!!! I read every line, thank you for attending and digesting. I just made diamond for the first time ever with delta, im suddenly deflated!! Yuck

  12. Thank you for the write-up Rene. I feel it was spot-on. Myself, I gave up my Delta loyalty earlier this year once I hit Gold (I very rarely fly any business trips any longer). Now I will have Gold for next year, but the only value I hope to get out of it is a possible exit row seat when booking a ticket far enough in advance. And any booking on Delta will strictly be if it is the least expensive or the most direct route.

    As far as my SkyPesos, I am burning the last ones on some business class tickets to China this coming summer (140k each) so at least I got to feel somewhat good about my last award redemption on Delta.

    Keep up the great work.

  13. I am just nauseated by all this “business speak”. All those years of promises for exotic vacations internationally with miles and now.they turn on us. I have paid personally for 98% of my million plus miles and many years of Plat then diamond. Even after all of this I am flying today to say bye to many gate agents and FAs. To me Delta corporate borders on dishonest. But even though Delta stated 10-11 tears ago that they had too many ff miles built up that they had to honor and we’re wanting to get rid of the program. So what did they do? Agressively promoted that sky miles would never expire. And then there is the time the Delta exec in the elevator to the skyclub in ATL made fun of me for having an NWA sticker on my bag …

  14. Maybe I’ve missed the ads, because my only awareness of C+ is the pop up when I buy my ticket, and all its promising is legroom, snacks and a drink. Why would that lead anyone to expect F (or even B) class service? Is there an ad campaign I’ve missed?
    For most flights I take, the difference in E and C+ is MUCH less than the leap to F.

  15. What’s in for me? The fact that Delta had more 100% completion days than rest of the industry combined. If you want to get from point A to Poin B mostly on time you fly Delta otherwise you risk cancelled flights. I am really hoping others catch up!

  16. Yeah, former platinum, diamond and still a 1M miler. I’m done with Delta. 80k miles this year, but not even enough spend for silver. Thanks for the info on the best credit cards, I’m going credit card happy – not Delta focused — for 2016. Our 20 year relationship is OVER

  17. First, I get that most elite flyers are used to high levels of service, awards, upgrades, etc. The airlines conditioned you for that. However, at some point the airlines had to realize they had created a monster. Note the comment made a reader above about Delta having “too many ff miles built up that they had to honor.” At the end of the day, as noted by FNT Delta Diamond, Delta exists to make a profit. If they can sell those seats, I can’t fault them. If the use of SkyMiles – which, though hardly an elite flyer, I have used over the years – is low margin, they are incented to encourage SkyMiles members to select high margin uses. Yes, you are certainly reasonable to seek out high value uses that are low margin to Delta – even at my non-elite level, I seek to maximize the value of the relatively few points I have. But that is the beauty of the free market – the back and forth jockeying to split the benefits of a transaction between buyer and seller.

    I can’t help but say that there sounds like a lot of entitlement in the post and the comments. I get the frustration, but I do wonder if it is these types of perspectives that have lead many in the airline and hospitality industries to question whether some elite customers are more trouble than they are worth. I don’t say that to question one’s right to avail oneself of all advantages of whatever loyalty program to which you belong – I would do likewise. I merely offer that as a third party observer of the stance that is implied. I am not a Delta employee nor shareholder but I am not an elite FF either. Just food for thought.

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