Delta Air Lines continues to push forward on its upsell marketing efforts, with plans to include points-based transactions starting in 2018. The company mentioned that new product avenue during its 2017 year end earnings call, highlighting the $5.5bn pretax income for the year. Post-purchase upsells are a small part of that revenue so far – only $100mm in 2017 – but it is a new product and the carrier expects the number to increase dramatically in the coming years. The fleet will offer approximately 5% more premium seats in 2018 versus the prior year, helping to increase the sales potential. But the shift in how Delta tries to sell the product may prove more significant that the increased inventory.
The idea is simple: Sell someone a ticket today and entice them to upgrade to either Comfort+, Premium Select, First Class or DeltaOne at some point after the initial transaction. The upsell transactions are appealing to a variety of customer demographics. Business travelers locked in to corporate travel policies might choose to splurge on a trip, adding personal funds to the deal. Leisure travelers can use the split payment phases as a means to buy the better product over time without incurring the high interest rates of carrying a credit card balance.
Delta is hardly the only company pursuing such upsales; United Airlines arguably led the charge among US carriers for such. Indeed, Delta’s entry was somewhat late to the game. But it has big plans to grow, both for cash transactions and included the SkyMiles frequent flyer program in the effort.
Points payment for premium products
The cash side of the offer is easy to process. The points side opens up new opportunities for the company, options that other carriers do not generally have on offer today. During its investor day briefing in December 2017 the company reiterated that the wide variety of frequent flyer ticket redemption price points is an attractive part of the program. Yes, it means that some premium cabin long-haul seats now sell at exorbitant rates but it also means things like award flash sales and cheaper seats on shorter trips are easier to implement. Now Delta expects to add premium upsells to that mileage travel product portfolio.
Lacking any details on where the products will price it is hard to judge just how well received the new offering will be received. And it is not like mileage-based upgrades to a premium cabin are a new concept. Then again, with Delta now choosing to not publish award charts the range of prices could be just as broad as for regular mileage awards. No doubt some will be ridiculously high but likely the potential for deals will remain, too, just like with award travel.
One challenge of the new product is the more transparent translation of points value to dollars and cents. That transparency can ruin some of the allure of luxury travel at bargain prices but it also enables the smaller rewards that the less loyal tend to appreciate redeeming for. It makes the programs more accessible, even as it arguably decreases the top-end value.
Basic Economy isn’t so significant
Also mentioned during the call was the fact that the premium cabin upsells are worth way more money than the Basic Economy products. This implies that not only are passengers willing to pay a small amount for a bit of flexibility at the initial purchase but that separating the transactions into smaller chunks really does change the psychology around paying more for a better product on board.
We don’t think of Basic Economy as a huge driver of ancillary. It is the smallest contributor of the three.
That’s good news for the airlines and even potentially good for those passengers given that they end up in the nicer seats eventually.
In TATL our lowest fares will now have baggage fees and that will be a first for US carriers. We’re looking for that to drive some incremental revenue and to be more competitive on fares with the ULCCs.
That said, the introduction of Basic Economy fares in to the Transatlantic market this year will be an interesting test to watch. Given the significant ULCC and LCC expansion across the Atlantic in recent years there is definitely reason to adjust the products, which isn’t great news for the travelers who are enjoying their elite benefits on these cheap fares.