Delta Air Lines has revealed many details about its SkyMiles frequent flyer program. The airline is using the program to raise $ 6.5 billion to boost its liquidity. In a presentation to investors seen by Simple Flying, the company revealed a lot about the loyalty program that generates billions of dollars in revenue for Delta.
SkyMiles makes Delta a lot of money
First of all, Delta makes a lot of money on SkyMiles. The program was originally launched back in 1981 and today has over 100 million members and last year generated about $ 6.1 billion by selling miles.
SkyMiles essentially sells miles to Delta Air Lines and other SkyTeam partners to give to customers who fly with them. On the non-flying side, American Express (Amex), the issuer of Delta’s co-branded credit cards, pays miles for every $ 1 spent on SkyMiles Amex cards. Other partners include Hilton and Lyft, which in some cases give miles to members. In total, these sales generated 6.1 billion. $ 2019. In terms of redemptions, SkyMiles Delta is paying for an allotment seat using miles that cost about $ 3.6 billion. Dollar.
The largest SkyMiles partner is American Express. The two companies have had a partnership since 1996 and have a credit card contract until 2029. Delta Air Lines represented approx. 8% of Amex invoicing and 22% of card loans in 2019.
In return, Amex contributed about $ 4.1 billion to Delta. This increased from the $ 3.4 billion in 2018 and far higher than the $ 1.2 billion that the company contributed to the airline in 2009. Sales directly to individual SkyMiles members were a very small portion of the cash sales the program received.
SkyMiles works to keep passengers loyal
Frequent pilot programs promote loyalty with airlines, and SkyMiles has worked for Delta. In 2019, as much as 60% of Delta’s ticket revenue came from SkyMiles members. In addition, the ticket revenue premium was approx. 1.5x for medallion members compared to non-SkyMiles members. What this means is that Delta’s elite members spent more on air travel in 2019 than non-elite, non-SkyMiles members. Even more, the average hiring for Medallion members is an impressive 16 years.
Delta’s strategy with SkyMiles is to attract younger travelers, giving the airline a lifetime pipeline with premium revenue. From 2015 to 2019, Delta’s acquisitions, ie. new SkyMiles members, growing by 138% from 2015 to 2019.
So in order for customers to benefit from the program, they must continue to fly Delta or its partners. Otherwise, they have to spend on co-branded credit cards. Plus, elite status also helps push travelers to spend with Delta and earn some extra perks.
In addition, Delta’s SkyMiles members appear to be very happy with the airline. First, the airline realized a 45% increase in Medallion member net promoter scores from 2016 to 2019.
People use SkyMiles at Delta
Miles can be used for a variety of purposes. But 97% of the redemptions in SkyMiles in 2019 were on Delta. This gives the airline incredible flexibility. It can control costs by changing its inventory levels and value.
SkyMiles are dynamic in price. This means that the program can adjust the redemption value (in terms of the required number of miles) based on demand on a given day. So, taking into account the strength or weakness of demand in the market, seasonality and other factors, the program can regulate the value of these miles, which is essentially like a currency.
SkyMiles remains resilient
While the aviation industry is going through its worst crisis in years, leading Delta to raise $ 6.5 billion against the SkyMiles program, SkyMiles remains resilient because customers still spend money on co-branded credit cards, meaning they still earn miles . And Amex sales have continued and have not fallen at the same rate as demand for air travel.
In the first half of 2020, American Express remains the largest buyer of SkyMiles, with fewer purchases from the airline itself. Although 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 divided into three different age categories. Travelers under the age of 34 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 airline membership.
46% of the members had a program period of less than four years, which means a significant number of newly acquired SkyMiles members in recent times. The second largest share, quite impressive, at 39% are those who have been in the program for over ten years, meaning a large percentage of customers who have maintained loyalty with the airline. The last 15% is made up 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 do these SkyMiles members come from?
As many as 68% of SkyMiles members live in non-hub cities, which is not surprising given Delta’s wide range of operations across the United States. Much of Delta’s activities revolve around transporting passengers around the world via its hub.
In terms of hubs, 8% of SkyMiles members lived in the New York City (NYC) area, followed by 6% of all of 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, such as Detroit and Minneapolis, Delta’s SkyMiles members first joined 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!