Delta SkyDollars? United DollarsPlus? Stakeholders and competitors watch closely as two U.S. giants ditch distance-based awards

Delta SkyMiles members awoke to the biggest change everOn New Year’s Day, more than 90m Delta SkyMiles members awoke to the biggest change ever at a giant frequent flier program—a change essentially taking the “miles” out of SkyMiles. And Delta loyalists aren’t alone. In March, United’s MileagePlus members will experience similar changes. Future rewards will be granted primarily based on how much they spend, not how far they fly.

The moves mark a major shift, one that mimics what some U.S. low-cost carriers already do but breaks with the predominant practice among global legacy carriers (Qantas and Air New Zealand are two other exceptions). Delta and United will probably dole out fewer total miles, with a small minority of big-spending passengers poised to get more but everyone else destined to get fewer—the masses will have to hope Delta is right when it says miles will, at least, become easier to redeem, a reasonable possibility, considering fewer accrued miles will be chasing award seats.

If true, this would, from a frequent flier’s perspective, slow an ongoing trend of mileage devaluations on the redemption side—in other words, requiring more miles for the same award trip—even as accumulation becomes more difficult for most. And the world, to be sure, will be watching. After all, the biggest U.S. frequent flier programs dwarf all others—any one of the U.S. Big Three programs, for example, has more members than giant Lufthansa, Air France/KLM and British Airways/Iberia combined.

The big question: Did Delta and United finally implement a long-overdue change? Or might they have overplayed their hands?

The rationale behind the changes is clear enough. Most fundamental of all is the idea of rewarding spend, not frequency or distance of travel. The ability to make these bold changes, in turn, is enabled by a decade of consolidation, which has left U.S. travelers with fewer choices. In addition, with flights fuller and fares higher than ever, the opportunity cost of a “free” seat is now rather high. That’s because of revenue displacement, considering what that seat might have sold for on the open market, or revenue dilution if the award traveler would have otherwise purchased a ticket if the award seat were unavailable. A decade ago, loyalty programs were the most (or sometimes only) profitable part of U.S. legacy airlines—SkyMiles was adding $500m to Delta’s bottom line even as the airline itself struggled to stay afloat. The programs subsidized the airlines and in Delta’s case probably saved the airline, thanks to all the miles American Express pre-purchased to award its cardholders. Now, although the programs…

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