Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



How Does Delta Air Lines Win As United Continental Copies Its Policies?

In a constantly changing world of airline policies, it's important to remember that airlines are not just switching things up to agitate travelers. Each policy change centers on plans to create more profit, whether by growing revenues or cutting costs.

The latest type of change hitting the industry is a shake-up of traditional frequent flyer programs. When Delta Air Lines (NYSE: DAL  ) made the first move in February to redefine how miles are awarded, I noted that investors and travelers should watch to see if the policy change spreads to United Continental Holdings (NYSE: UAL  ) and American Airlines Group (NASDAQ: AAL  ) . Now that United Continental has joined the change, it's time to look at how this will affect the industry as a whole.

Time for change
Until this year's announcements, the big three legacy carriers have stuck with the traditional way of awarding frequent flyer miles based on the number of miles traveled. Although it would seem like a longer flight would cost more and should come with more rewards miles, this price comparison is often not true.

Unlike many other industries where customers are charged by the unit, airline ticket prices are determined by complex formulas that only have distance flown as one of many factors. From the airline's perspective, the best gauge of the value of a purchase is ticket price, not miles flown.

In February, Delta Air Lines became the first of the big three legacy carriers to move to a miles per dollar spent setup. Now, Delta customers will earn between five and 11 SkyMiles per dollar spent, varying by member status level. United Continental has now joined Delta, and also offers between five and 11 MileagePlus miles by dollar spent, again, varying by status level.

In fact, both airlines have the same miles per dollar earned at their corresponding status levels, as seen in the table below.

Status Level Miles Earned per Dollar Spent

Delta General Member

United Member


Delta Silver Medallion

United Premier Silver


Delta Gold Medallion

United Premier Gold


Delta Platinum Medallion

United Premier Platinum


Delta Diamond Medallion

United Premier 1K


Why change the program?
As previously discussed, dollars spent is more accurate in terms of customer expenditure and airline costs than is the traditional miles flown metric. Under the old system, leisure and budget travelers could pick up a lot of miles on the cheap by finding the lowest fares on long distance flights, while high-paying travelers flying short distances would not earn the same rewards.

By changing the program, airlines are shifting their rewards programs to target the higher-paying travelers who make up a greatly disproportionate share of revenue. At the same time, airlines are encouraging customer loyalty even more by tying the number of miles earned per dollar spent directly to airline status level.

Policy spread
When Delta Air Lines announced the changes in February, it became the first to test the waters on customer reactions to such changes. Customers did not flee Delta, and now, United Continental has joined in using the same logic as Delta for the changes.

This is not the first time frequent-flyer-related policies have spread from Delta to United Continental. Delta was also the first to institute a minimum spending requirement for its lowest level status program, a move which was quickly copied by United Continental.

With the changes now taking hold at two of the three big legacy carriers, it would not be surprising to see American Airlines Group get on board in the future. Although the company is still working on the integration of US Airways and American Airlines, such a change could be rolled out as part of the integration of the airlines' rewards programs, or as a separate change after the integration is complete.

Frequent changes for frequent flyers
Traditional frequent flyer programs have relied on a metric based on miles flown for determining rewards. However, as airlines seek to attract the biggest spenders and further reward customer loyalty, carriers are switching to a dollars spent measurement for reward miles earned.

By copying Delta's plan, United Continental has further assured Delta that the policy will not cost it too many customers, while at the same time, increasing the likelihood that American Airlines Group will take a similar approach, as well. While I don't know when, or if, American Airlines Group will make this decision, changes to frequent flyer programs are moving rapidly, making them something both investors and travelers should keep an eye on.

Warren Buffett's worst auto nightmare (Hint: It's not Tesla)
A major technological shift is happening in the automotive industry. Most people are skeptical about its impact. Warren Buffett isn't one of them. He recently called it a "real threat" to one of his favorite businesses. An executive at Ford called the technology "fantastic." The beauty for investors is that there is an easy way to invest in this megatrend. Click here to access our exclusive report on this stock.

Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2994133, ~/Articles/ArticleHandler.aspx, 8/31/2015 1:14:32 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Alexander MacLennan

Alexander MacLennan is a Fool contributor covering Industrials, Airlines, and Financial companies. He is always ready for a good growth or turnaround story and tries to find them before the market does.

Today's Market

updated 2 days ago Sponsored by:
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 1.21 0.06%
NASD 4,828.33 15.62 0.32%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/28/2015 4:00 PM
AAL $38.62 Down -0.41 -1.05%
American Airlines… CAPS Rating: ***
DAL $43.94 Up +0.08 +0.18%
Delta Air Lines, I… CAPS Rating: ***
UAL $57.12 Up +3.76 +7.05%
United Continental… CAPS Rating: **