Delta Air Lines has revealed a lot of details on its SkyMiles frequent flier program. The airline is using the program to raise $6.5 billion to bolster its liquidity. In a presentation to investors viewed by Simple Flying, the company revealed a lot about the loyalty program, which generates billions of dollars in revenue for Delta.
SkyMiles earns Delta a lot of money
First and foremost, Delta makes a lot of money from SkyMiles. Originally launched back in 1981, the program today has over 100 million members and, last year, generated around $6.1 billion from selling miles.
SkyMiles essentially sells miles to Delta Air Lines and other SkyTeam partners to give to customers that fly with them. On the non-flying side, American Express (Amex), the issuer of Delta’s co-branded credit card, pays for miles with every $1 spent on SkyMiles Amex cards.
Other partners include Hilton and Lyft, which give out miles to members in some instances. All in all, these sales generated $6.1 billion in 2019. As for redemptions, SkyMiles pays Delta for an award seat using miles, which costs about $3.6 billion.
The largest SkyMiles partner is American Express. The two companies have held a partnership since 1996 and have a credit card contract through 2029. Delta Air Lines represented about 8% of Amex billings and 22% of cardmember loans in 2019.
In return, Amex contributed about $4.1 billion to Delta. This was up from the $3.4 billion in 2018, and vastly higher than the $1.2 billion the company contributed to the airline in 2009. Sales directly to individual SkyMiles members was a very small slice of the cash sales the program earned.
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SkyMiles works to help keep passengers loyal
Frequent flier programs drive airline loyalty, and SkyMiles has worked for Delta. In 2019, a whopping 60% of Delta’s ticket revenue came from SkyMiles members. In addition, the ticket revenue premium was about 1.5x for medallion members when compared to non-SkyMiles members. What that means is that Delta’s elite members spent more on air travel in 2019 than non-elite, non-SkyMiles members. Even more, the average tenure for Medallion members is an impressive 16 years.
Delta’s strategy with SkyMiles is to attract younger travelers, which gives the airline a lifetime pipeline of premium revenue. From 2015 to 2019, Delta’s acquisitions, that is new SkyMiles members, have grown 138% from 2015 to 2019.
So, for customers to take advantage of the program, they have to keep flying Delta or its partners. Or else, they have to spend on co-branded credit cards. Plus, elite status also helps push travelers to spend with Delta and earn some additional perks.
Moreover, it appears that Delta’s SkyMiles members are very happy with the airline. For one, the carrier realized a 45% increase in Medallion Member net promoter scores from 2016 to 2019.
People are using the SkyMiles at Delta
Miles can be used for a variety of purposes. But, 97% of redemptions in 2019 of SkyMiles were on Delta. This gives the airline incredible flexibility. It can manage costs by modifying its inventory levels and value.
SkyMiles are dynamic in price. That means the program can adjust redemption value (in terms of the number of miles needed) based on demand on a given day. So, taking into consideration demand strength or weakness in the marketplace, seasonality, and other factors, the program can regulate the value of these miles, which are, in essence, like a currency.
SkyMiles remains resilient
While the airline industry undergoes its worst crisis in years, leading Delta to raise $6.5 billion against the SkyMiles program, SkyMiles has remained resilient because customers are still spending money on co-branded credit cards, meaning they are still earning miles. And Amex sales have continued and have not declined at the same rate as air travel demand.
In the first half of 2020, American Express continues to be the largest purchaser of SkyMiles, with fewer purchases coming from the airline itself. Though current sales in the first half of 2020 remain at $2.5 billion.
Who are these SkyMiles members?
Delta’s SkyMiles members are almost evenly split into three different age categories. Travelers younger than 34 years of age make up 30% of Delta’s SkyMiles members. Passengers 55+ make up 33%. And, finally, passengers from 35-54 make up 37% of the airline’s frequent flier membership.
Of the members, 46% had a program tenure of under four years, meaning a significant number of newly acquired SkyMiles members in the recent past. The next largest share, quite impressively, at 39% are those who have been with the program for over ten years, signifying a large percentage of customers who have maintained loyalty with the airline. The final 15% is made of people who have been SkyMiles members for the last five to ten years.
In terms of income, 21% of members earned less than $50,000 a year. 34%, the largest share, earned $51,000 to $99,000 in a year, 22% earned $100,000 to $149,000 in a year, and 23% earned over $150,000 in a year.
Where are these SkyMiles members from?
A whopping 68% of SkyMiles members live in non-hub cities, which is not that surprising given Delta’s wide breadth of operations across the United States. Much of Delta’s operations revolve around transporting passengers around the world via its hubs.
In terms of hubs, 8% of SkyMiles members lived in the New York City-area (NYC), followed by 6% of out Atlanta (ATL), 5% in Los Angeles (LAX), 4% in Minneapolis (MSP), 3% in Detroit (DTW), and 2% each in Salt Lake City (SLC), Seattle (SEA), and Boston (BOS). In some cities, like Detroit and Minneapolis, Delta’s SkyMiles members only came to the airline after the merger with Northwest Airlines.
What do you make of these fascinating SkyMiles details? Did any of the statistics surprise or interest you? Let us know in the comments!