Is it a new, lower elite tier that passengers can just buy outright? Or a threat to the co-branded credit card cash cow that drives so much of the airline’s profits? Or just another way to get passengers to pay up for services at a margin far beyond their hard costs? Probably a bit of all three and then some. Welcome to the new SkyMiles Select offering from Delta Air Lines.
SkyMiles Select is a $59 package that infrequent passengers can purchase to ease their travel experience. It includes eight alcoholic beverages, access to the “Main Cabin 1” boarding group and a “limited edition bag tag.” The company pins the value over $100 based on $9 per drink and $15 each way for priority boarding on a single round trip journey during the year. Fly more than that and the value is even higher. As is the opportunity to use the drink vouchers in a more responsible manner.
The drink vouchers are a decent value on their own. But SkyMiles Select’s real value to Delta comes from selling an affordable package that delivers the same boarding priority as the co-branded credit cards and available for a lower fee and without a credit check. It is still the seventh of ten boarding groups, so the value will vary depending on the specific flight. But it opens up that subscription model to yet another sliver of the SkyMiles population, a group that might feel they don’t fly Delta enough to justify paying the credit card annual fee.
Delta executives remain keen on the credit card relationship, noting that 2019 expects to deliver another year of record acquisitions. Moreover, as a customer increases their share of travel with Delta they’re much more likely to sign up for the card. The SkyMiles Select program should help that funnel. Once a consumer has purchased priority boarding for the year they are more inclined to book that next trip with Delta instead of the competition, possibly even paying a small premium to take advantage of the sunk cost of their better travel experience thanks to priority boarding. If Delta can convert even just a few passengers through that funnel the profitability of this program will be massive. And that’s on top of the fact that the hard costs are near nil to begin with.
Yes, the company has to account for the eight drinks, assuming the subscriber fully consumes that benefit. But there’s already a decent margin on that part of the business and the inevitable breakage that will be seen from members not drinking all eight further contributes to the profitability. The hard cost for priority boarding is nil, though there is a small opportunity cost from the passenger not purchasing it as a one-off. The math is far more likely to work in Delta’s favor on that front.
Delta is not alone in selling benefits via an annual subscription model. United Airlines has a similar plan for access to its Economy Plus seating or waived checked baggage fees, for example. Similar to the SkyMiles Select, those benefits could also be realized through elite status with the loyalty program. And the similarity in helping drive share of wallet also plays into the program, though with United’s the significantly higher price point to start makes it more popular among passengers already pushing a decent chunk of travel to the airline.
In both cases, the idea of a relatively affordable way to buy in to the benefits that more frequent passengers secure through elite status is a compelling play for a decently sized segment of the traveling public. As the cost and complexity of realizing those traditional status milestones slowly slip away from the casual – but not entirely infrequent – traveler these subscriptions deliver similar benefits at a far more bearable price. And without the time commitment of taking a mileage run.
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