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>That means business customers and the wealthy will still be their main clients. I think you're grossly overestimating the fallout from this. I am the aforeme

by tw04 3y ago

>That means business customers and the wealthy will still be their main clients. I think you're grossly overestimating the fallout from this. I am the aforementioned business customer. Literally the only way you'd ever hit the dollar amounts they're looking for is flying multiple times across the Atlantic paying full fare business class - which I don't do. But I do fly multiple times a month across the continental US. Previously I would book Delta regardless of price for both business and personal travel due to status. They've made it basically unobtainable unless you're paying full fare first class on every flight AND booking your cars and hotel through them. Going forward I'll just book the cheapest flight available and drop their card. They will be losing at minimum 10s of thousands a year in profit from my travel and card spend alone.

lotsofpulp 3y ago
Merchant credit card fees are at most 3%. I doubt airlines pocket a big portion of their branded cards’ fees as profit, and I would bet they get less than even 1%. The vast majority of the fee probably goes to the banks and card networks. Even assuming 1%, for an airline to lose $10,000 in profit, you would have to be spending $10,000 / 0.01 = $1M per year on that credit card. And if you are spending a minimum of $1M on your credit card per year, I doubt you are spending your time optimizing “miles” and “points”. I assume there are lots of smart people working at airlines that can work out which of their policies earn and lose money, especially now that all the competition is minimal except on the most popular routes.
- ScoobleDoodle 3y ago
  I imagine they meant the airline as a whole is losing out on the $10s of thousands due to lost loyalty resulting from removing convenience. Not just the 1%, but the whole spend is lost.
  - lotsofpulp 3y ago
    In that case, airlines have sub 5% profit margins, so $10,000 / 0.05 = $200k spend on flights before the airline comes close to earning $10k in profit.
    - listenallyall 3y ago
      Airlines have large fixed capital costs. The marginal profit of an individual ticket purchase is very high, certainly a lot higher than 5%.
      - lotsofpulp 3y ago
        That is true, but this also comes into play: > especially now that all the competition is minimal except on the most popular routes. I guess airlines are betting sufficient passengers have no better option, and I would bet that too. I cannot remember the last time I got to pick an airline without heavily inconveniencing myself and wasting tons of hours with extra stops. Even a busy airport like Newark, you are basically flying United for 90% of destinations if you want to get there in the shortest amount of time with the fewest stops.
        listenallyall 3y ago
        You're generalizing to the overall population, but "tw04" already said he was leaving the airline, so I guess he's determined that alternatives do exist and aren't that inconvenient.
    - brewdad 3y ago
      True but moreso than your average business, airlines are dependent on the revenues from the customers at the margins. In the short term, the plane needs to fly whether it's full or not. Even the lowest fare customer brings in more revenues than the added costs of flying them. It's the fixed costs that need to be spread across a plane full of passengers in order to make it all profitable. An airline like Delta will adjust but there will be pain for them in the short term and pain for customers in the medium and long term with fewer, more expensive flights. All of this assumes these changes actually lead to customers changing their behavior rather than simply saying they will.
    - tw04 3y ago
      Huh? Citation? Delta's profit margin last quarter was 12%, and that's a horrible way to calculate per-ticket profit. When I'm spending $1200 on a ticket to fly 500 miles round trip on a flight that's packed, they're making a LOT more than 12% on that ticket.
- calderwoodra 3y ago
  Typically 3 parties are paid by interchange: the bank (~50%), the brand (~50%), the processor (~$0.01).
- tw04 3y ago
  >Even assuming 1%, for an airline to lose $10,000 in profit, you would have to be spending $10,000 / 0.01 = $1M per year on that credit card. I think you missed the part where they're losing ALL of my business, including dozens of flights a year. >I assume there are lots of smart people working at airlines that can work out which of their policies earn and lose money, especially now that all the competition is minimal except on the most popular routes. I assume they think customers with lots of miles banked won't go through the effort of dropping them entirely. I think they're wrong. When you're losing customers that have million miler+ status, you've made a pretty poor decision.
  - lotsofpulp 3y ago
    I guess we will have to let it play out and see. I’ll take the bet that the same airlines that exist today will be there earning the same measly profit margins in 10 years (except JetBlue, which may not be around).
    - listenallyall 3y ago
      10 years ago there was USAirways and Continental, and Northwest a little before that. Reduced competition buoys the remaining survivors, but the history of bankruptcies in the industry certainly lends quite a bit of doubt towards your assumption.
      - lotsofpulp 3y ago
        The assumption is that as they become fewer, the ones that remain gain staying power. Which is why I excepted JetBlue since they could get sold or fail, I think they are hoping their Spirit purchase goes through. Crazy to think JetBlue wanting Spirit. I remember when JetBlue started, their goal was to provide a better experience than all the other airlines. It is really a cutthroat business. Virgin Airlines had to be folded into Alaska too.
        sharedbeans 3y ago
        I think in many cases they are just buying routes/gates. If the airports are maxed out in gates how is the company supposed to grow? And a company that doesn’t grow is a “bad” company, or at least management doesn’t get paid as well for high profitability/low growth it seems
chollida1 3y ago
> I think you're grossly overestimating the fallout from this. Really, I think if anything I might be underestimating the fallout from this in that I don't see it being an issue at all and I think most airlines will follow with the same changes in the future.
sokoloff 3y ago
SkyMiles MQDs (flight spend, basically) is only 12K/yr for Platinum and 20K/yr for Diamond now, rising to 18K/yr and 35K/yr next year. IMO, the current thresholds, despite being higher than last year, are still too low, resulting in over-crowded lounges and difficult upgrades for their most frequent fliers. Even next year's thresholds are not that high if you're crossing the continental US multiple times per month and are surely less than the flying you're doing on Delta if the loss of your business represents "10s of thousands a year in profit". Delta's gross margin percentage is roughly 25%. For them to lose just 2 10 thousands in profit on you, you'd be spending $80K with them and doing so would continue to easily qualify you for Diamond, whereupon you'd get more reliable upgrades and service from them due to fewer people making Diamond each year.
- ibejoeb 3y ago
  I'm a little torn. I've never had a problem with spend, but there have been years where I didn't hit my MQMs, and just to make status, I'd fly a trans-pacific. It's giant waste for everyone involved, so I'm glad to not have to do that anymore. I can spend $35k on flights, but I can also fly private for about the same amount, excluding most trans-oceanic. So I'm not sure what I'm going to do about next year. I'm not sure if it's really worth it. It's a weird calculus. To hit the number, it's basically buying a bunch of F/J fares. If I'm already doing that, I don't care about upgrades.
notyourwork 3y ago
Similar story here. Loyalty and affiliation with a single airline has dissolved for me.
singleshot_ 3y ago
Since I lost all my status during COVID I changed my approach: no frequent flyer programs, far fewer flights, and only ever book first class. No more worrying about upgrades, middle seats, air-ragers, and all it took was a little more money. Of course now sometimes I fly on airlines I’ve never heard of whereas previously, I had taken exclusively American for my last 200 or so legs. I think the effects of shaking up these programs will be to make consumers like me much, much less brand sensitive.

by tw04 3y ago

lotsofpulp 3y ago

Merchant credit card fees are at most 3%. I doubt airlines pocket a big portion of their branded cards’ fees as profit, and I would bet they get less than even 1%. The vast majority of the fee probably goes to the banks and card networks. Even assuming 1%, for an airline to lose $10,000 in profit, you would have to be spending $10,000 / 0.01 = $1M per year on that credit card. And if you are spending a minimum of $1M on your credit card per year, I doubt you are spending your time optimizing “miles” and “points”. I assume there are lots of smart people working at airlines that can work out which of their policies earn and lose money, especially now that all the competition is minimal except on the most popular routes.

ScoobleDoodle 3y ago
I imagine they meant the airline as a whole is losing out on the $10s of thousands due to lost loyalty resulting from removing convenience. Not just the 1%, but the whole spend is lost.
- lotsofpulp 3y ago
  In that case, airlines have sub 5% profit margins, so $10,000 / 0.05 = $200k spend on flights before the airline comes close to earning $10k in profit.
  - listenallyall 3y ago
    Airlines have large fixed capital costs. The marginal profit of an individual ticket purchase is very high, certainly a lot higher than 5%.
    - lotsofpulp 3y ago
      That is true, but this also comes into play: > especially now that all the competition is minimal except on the most popular routes. I guess airlines are betting sufficient passengers have no better option, and I would bet that too. I cannot remember the last time I got to pick an airline without heavily inconveniencing myself and wasting tons of hours with extra stops. Even a busy airport like Newark, you are basically flying United for 90% of destinations if you want to get there in the shortest amount of time with the fewest stops.
      - listenallyall 3y ago
        You're generalizing to the overall population, but "tw04" already said he was leaving the airline, so I guess he's determined that alternatives do exist and aren't that inconvenient.
  - brewdad 3y ago
    True but moreso than your average business, airlines are dependent on the revenues from the customers at the margins. In the short term, the plane needs to fly whether it's full or not. Even the lowest fare customer brings in more revenues than the added costs of flying them. It's the fixed costs that need to be spread across a plane full of passengers in order to make it all profitable. An airline like Delta will adjust but there will be pain for them in the short term and pain for customers in the medium and long term with fewer, more expensive flights. All of this assumes these changes actually lead to customers changing their behavior rather than simply saying they will.
  - tw04 3y ago
    Huh? Citation? Delta's profit margin last quarter was 12%, and that's a horrible way to calculate per-ticket profit. When I'm spending $1200 on a ticket to fly 500 miles round trip on a flight that's packed, they're making a LOT more than 12% on that ticket.
calderwoodra 3y ago
Typically 3 parties are paid by interchange: the bank (~50%), the brand (~50%), the processor (~$0.01).
tw04 3y ago
>Even assuming 1%, for an airline to lose $10,000 in profit, you would have to be spending $10,000 / 0.01 = $1M per year on that credit card. I think you missed the part where they're losing ALL of my business, including dozens of flights a year. >I assume there are lots of smart people working at airlines that can work out which of their policies earn and lose money, especially now that all the competition is minimal except on the most popular routes. I assume they think customers with lots of miles banked won't go through the effort of dropping them entirely. I think they're wrong. When you're losing customers that have million miler+ status, you've made a pretty poor decision.
- lotsofpulp 3y ago
  I guess we will have to let it play out and see. I’ll take the bet that the same airlines that exist today will be there earning the same measly profit margins in 10 years (except JetBlue, which may not be around).
  - listenallyall 3y ago
    10 years ago there was USAirways and Continental, and Northwest a little before that. Reduced competition buoys the remaining survivors, but the history of bankruptcies in the industry certainly lends quite a bit of doubt towards your assumption.
    - lotsofpulp 3y ago
      The assumption is that as they become fewer, the ones that remain gain staying power. Which is why I excepted JetBlue since they could get sold or fail, I think they are hoping their Spirit purchase goes through. Crazy to think JetBlue wanting Spirit. I remember when JetBlue started, their goal was to provide a better experience than all the other airlines. It is really a cutthroat business. Virgin Airlines had to be folded into Alaska too.
      - sharedbeans 3y ago
        I think in many cases they are just buying routes/gates. If the airports are maxed out in gates how is the company supposed to grow? And a company that doesn’t grow is a “bad” company, or at least management doesn’t get paid as well for high profitability/low growth it seems

chollida1 3y ago

> I think you're grossly overestimating the fallout from this. Really, I think if anything I might be underestimating the fallout from this in that I don't see it being an issue at all and I think most airlines will follow with the same changes in the future.

sokoloff 3y ago

SkyMiles MQDs (flight spend, basically) is only 12K/yr for Platinum and 20K/yr for Diamond now, rising to 18K/yr and 35K/yr next year. IMO, the current thresholds, despite being higher than last year, are still too low, resulting in over-crowded lounges and difficult upgrades for their most frequent fliers. Even next year's thresholds are not that high if you're crossing the continental US multiple times per month and are surely less than the flying you're doing on Delta if the loss of your business represents "10s of thousands a year in profit". Delta's gross margin percentage is roughly 25%. For them to lose just 2 10 thousands in profit on you, you'd be spending $80K with them and doing so would continue to easily qualify you for Diamond, whereupon you'd get more reliable upgrades and service from them due to fewer people making Diamond each year.

ibejoeb 3y ago
I'm a little torn. I've never had a problem with spend, but there have been years where I didn't hit my MQMs, and just to make status, I'd fly a trans-pacific. It's giant waste for everyone involved, so I'm glad to not have to do that anymore. I can spend $35k on flights, but I can also fly private for about the same amount, excluding most trans-oceanic. So I'm not sure what I'm going to do about next year. I'm not sure if it's really worth it. It's a weird calculus. To hit the number, it's basically buying a bunch of F/J fares. If I'm already doing that, I don't care about upgrades.

notyourwork 3y ago

Similar story here. Loyalty and affiliation with a single airline has dissolved for me.

singleshot_ 3y ago

Since I lost all my status during COVID I changed my approach: no frequent flyer programs, far fewer flights, and only ever book first class. No more worrying about upgrades, middle seats, air-ragers, and all it took was a little more money. Of course now sometimes I fly on airlines I’ve never heard of whereas previously, I had taken exclusively American for my last 200 or so legs. I think the effects of shaking up these programs will be to make consumers like me much, much less brand sensitive.