Delta is about to make its problems worseJune 21, 2013: 10:35 AM ET
Changes to its frequent fliers program are roiling loyalists.
By Grant Martin
FORTUNE -- Delta Air Lines has grown rapidly over the past years with deep investments in the New York region, a new partnership with Virgin Atlantic, updated aircraft interiors and a slew of updates to their mileage program. The investments are essential in an ultra-competitive market already crowded with carriers, many with newer technologies like next-generation aircraft and fleet-wide inflight entertainment.
But they've also reduced the importance of the casual business traveler, leaving many loyal passengers out in the cold. Evidence of these changes is apparent in the gradual belt-tightening around SkyMiles, the mileage program that Delta (DAL) uses to entice frequent fliers back to the airline. With enough business dedicated to the carrier and its partners, SkyMiles members earn perks such as upgrades, access to shorter security lines and waved baggage fees. Those rewards are standard among all legacy carriers with slight variations; 25,000 miles flown per year on American Airlines, for example, earns a set of perks similar those earned flying United (UAL) or Delta.
Earning and using those perks is where Delta is making drastic changes, most visibly in the realm of redeeming earned miles for free travel. Though the airline heralds numerous changes widening the applicability of their mileage program, they've also reduced the volume of low-cost award seats available to consumers. In economic terms, they've flooded the market with currency but raised the price of toilet paper, and loyal passengers are furious.
Perhaps more significant, however, are changes to the SkyMiles program that alter the fundamental way by which perks are earned. On most legacy carriers, earning tiered multiples of miles over the course of the year results in equivalent rewards from the carrier. In contrast, this year, Delta updated their mileage program to include a fiscal requirement. Now, in addition to the miles earned, the consumer must spend a minimum amount of cash directly on the carrier to earn valuable perks.
To reach the top-tier of elite status, for example, loyal SkyMiles members now are required to both fly 125,000 miles and spend $12,500 on the carrier. "Adding a revenue component to the SkyMiles Medallion program ensures that our most valued customers receive the best program benefits and a more exclusive experience," Chris Kelly, head of Corporate Communications at Delta says.
But it's a move that is alienating some budget-conscious Delta loyalists, many of whom spend just enough time and money in the air each year to earn their perks. Matthew Stolen, a business traveler based in southeast Wisconsin who flies over 50,000 miles each year on Delta, is moving his business to American Airlines at the end of the year. "Even though the majority of my air travel is business-related, it is important for me to remain budget-conscious and purchase low airfares," he says. "With the amount that I pay for airfare on an annual basis, I would be unable to maintain my elite status."
Still, Delta continues to make changes to the SkyMiles program, many of which appear geared toward reducing the value of frequent fliers. Earlier this month, the airline announced that flying on a broad spectrum of partner carriers will no longer result in full benefits applicable to travel on Delta. Korean Air, a long-time Asian partner, has all but been eviscerated from the earning structure, giving many loyal Delta travelers scant reason to fly on the carrier.
With each reduction to their loyalty program, Delta seems to be separating the core of its targeted passenger base into two focused areas. At one end of the spectrum, the casual leisure traveler can be lured by competitive low fares and the superficial updates that Delta continues to produce. The high volume, wealthy traveler is at the other end of the targeted consumer base, where minimum annual spends are a triviality and the corporate credit card reigns.
What's missing from the equation are the middle-tier, thrifty business travelers who are loyal to the airline but book low-cost fares. These passengers rely on the perks of frequent travel for continued comfort and quality, and when presented with loyalty program changes that no longer meet those needs, they may take their business elsewhere.