Much ink has been spilled across the blogosphere about Delta’s massive changes and this time feels significantly different than past Delta devaluations.

Delta used to be idolized by everyone

Consolidation within the US aviation industry resulted in three large international airlines (Delta, American, United), one large mostly domestic airline (Southwest), and two smaller or niche carriers vying for fifth place (Alaska, JetBlue). For the sake of argument, let’s ignore the ultra-low cost carriers (Spirit, Frontier, Allegiant) as their business model is completely different.

Delta had a meaningful advantage over other airlines prior to the COVID-19 pandemic. They were more on-time than other carriers, had friendlier crew, focused a bit more on the customer experience (like having monitors at every seat), and invested in their lounges with marginally better food and beverage options. That created a halo-effect around its product and allowed it to earn a revenue premium over what other airlines offered. Pre-pandemic, I think it’s fair to say it was viewed as a premium airline.

That view wasn’t just what customers thought—even Delta’s competitors believed it too. Both American and United went along for the ride and blindly followed whenever Delta made changes. when Delta announced it would no longer award miles based on distance flown and instead by how much the flight cost (back in 2014), United (2014) and American (2015) copied the exact same structure. When Delta announced it would move away from fixed award prices (starting in 2016), it was only a matter of time for United (2019) and American (2023) to follow. Delta even introduced basic economy in limited routes back in 2012, and sure enough American (2017), United (2016), Alaska (2018), and JetBlue (2019) all followed.

Delta tends to be the innovator and the other competitors just copy Delta’s initiatives. Historically that has tended to work in Delta’s favor. It allowed for customers to not have much choice in the matter when trying to avoid punitive changes, but it also meant the competition kept handicapping itself. The other carriers didn’t have that perception of being a premium airline, and it just resulted in a missed opportunity to gain ground.

The $3B gamble

Delta was also one of the first airlines to recognize the value in credit card partnerships. For at least a decade, Delta has allowed customers an alternative path to earning status other than butt-in-seat flying: spending on the all-mighty credit card. Doing so has resulted in becoming an important partner to American Express. After American Express lost the Costco business to Citi and Visa, American Express needed to ensure it retained the Delta business and thus overpaid for the privilege. Perhaps Delta was in the right place at the right time, but that deal clearly shifted Delta’s focus to how to maximize that credit card revenue.

During the COVID-19 pandemic, there wasn’t much flying going on. Most business travel ceased and so it needed to urgently acquire money. It sold a considerable number of miles to American Express with the hopes of signing on new credit card holders. Delta also introduced bonus MQMs for meeting spending thresholds to keep people interested in their elite status and also just to keep spending on their Delta credit cards. The promise of future travel in comfort. Coming out of the pandemic, Delta further doubled down on credit cards, offering a discount on award prices if you have one of their credit cards.

Delta has told its investors that it expects between $6 billion and $7 billion in 2023 and that it’s on track to get to $10 billion in the future. I wouldn’t doubt it eventually gets there simply due to inflation, but someone at the company must have been feeling some pressure to make an immediate move to get to $10 billion as quickly as possible.

Delta decided to blow up its elite program in such a way that it makes it “simpler” by removing other metrics and focusing only on dollars. In their email sent to members about the changes, they state:

We have heard your feedback about the complexity of the SkyMiles Program and for the first time since 2015, we are making changes to simplify the way you qualify for Medallion Status while also rewarding you with more ways to earn Status.

I’ve never given them that feedback and was happy enough before under the old metrics. And the way they spin the news to say I asked for this is change is annoying at best. Instead, looking at the evidence, it seems clear the change is geared towards wanting more credit card revenue. How else can it explain that Delta moved the goal posts by up to double the previous values?

Delta isn’t even shy about wanting more money from customers. In the examples it gives on its website on how three fictional humans earn status, each of them is expected to spend between $36,000 and $96,000 on their premium credit cards. The fact of the matter is Delta is demanding those who earn status via flying better also run up huge bills on their credit cards.

They’re expecting customers to come along for the ride because they’ve done so in the past. Perhaps they’re also hoping competitors do the same because that’s what they have always done. So they’re risking the nearly $7 billion they’re earning now in the hopes of inflating it to $10 billion in the near term.

But what the current Delta leadership doesn’t realize is the competitors have caught up to Delta (mostly because Delta hasn’t been as reliable as prior to the pandemic). That halo effect doesn’t exist today the way it did in the past.

The industry doesn’t believe in Delta

I think the week since the news came out of Delta’s changes to its elite program has been telling. First, American Airlines launches an almost-too-perfectly-timed promotion aimed at Hyatt Globalists to give them automatic Platinum Pro status the day after the Delta news was released. American then double-downed on the messaging by telling Ben at One Mile at a Time that AA status is easier to earn than Delta’s status, an important sign that AA expects it to continue to be easier than Delta into the near future. American recently moved to its Loyalty Points system and it would be a massive blow to loyalty if they changed up the system so soon after it was introduced. There is a question if American feels it needs to do more to specifically target Delta flyers, as the challenge only helps those Delta flyers who are also Hyatt elites (a subset of a subset).

Now, on the heels of the Delta elite shakeup, Alaska Airlines senses weakness among the ranks and has offered an opportunity for Delta elites to trade up to a higher status with Alaska. The extra opportunity comes in if you also sign up for an Alaska credit card since, you know, Delta elites are trained to spend, spend, spend. Alaska and Delta have been in a bitter battle for control of the Seattle market, so it doesn’t surprise me that Alaska wants to woo some elites over.

Days after Alaska’s attempt, JetBlue has also entered the fray, offering a similar challenge to what Alaska is doing but also issuing upgrade instruments to their excellent Mint class to Delta flyers and even helicopter rides for Delta’s top tier elites. JetBlue and Alaska have had a fierce rivalry dating back to Alaska’s purchase of Virgin America, so perhaps it’s not surprising that JetBlue would follow Alaska’s lead, but still it’s another blow to Delta retaining their elite members.

Will Delta react?

It’s still early, but the initial vibe from competitors doesn’t seem to be suggesting they’re going to follow Delta’s lead anytime soon. I’m curious if others will offer additional ways to entice disgruntled Delta elites. Yes, United and Southwest have a standard status match program available, but it will be interesting to see if they offer increased incentives for Delta elites similar to what Alaska and JetBlue have done.

Indeed, the most telling thing that could happen is if Delta decides to delay implementation of these changes. I honestly don’t expect them to do this as it would signal to the market that they completely messed up. Instead, I expect Delta to wait until after they get initial data on how well the money is coming in from credit cards in Q1 2024 and then if necessary offer up some bonus promotions that offer MQD on an accelerated basis.

But in this timeline, Delta is going to go nearly a whole year without reacting to the current market conditions and by then it will be too late if customers leave Delta as they claim they will do online. But they unfortunately backed themselves into this corner on their own. The cards today earn MQM and so there is no MQM promotion they can give for the cards to help boost 2023 credit card usage without materially changing the MQM-to-MQD conversion rate. They’re also not in a position to start awarding MQD early (and besides, there is no such thing as MQD rollover). The most they could do is offer bonus Skymiles for using the cards, and I expect them to do this. After all, what is the point of chasing MQMs via credit card spend for the rest of the year? Delta is quickly losing the narrative of the changes they made (if you can truly argue there was one in the first place).

I don’t think this is going to be all doom and gloom for Delta. There is a subset of the Delta elite ranks who wants to weed out the elites with large MQM balances from when Delta kept extending status during the pandemic. Those individuals will keep moving forward at the same pattern as before. There are also individuals who are hub-captive, forced to fly Delta because they live where there is little competition. And of course there is a lot of noise online from flyers but it’s unclear how many will truly give up flying Delta or if these are empty threats in an attempt to roll back changes.

They very clearly dug themselves a hole with the changes they made and the lack of offering any sort of increased benefit to elites. I think they will still achieve the desired $10 billion in American Express revenue but it’s still a long-term goal as they outlined and it might take them longer to get there than they would have under the old system but I also expect Delta to never admit they made a mistake.