Premium products, loyalty continue to drive Delta’s growth

Delta Air Lines closed out 2019 much the way it started the year. Revenue is up and costs are mostly under control. Perhaps most important, however, is that the company is seeing gains in premium revenue and the SkyMiles loyalty program. More than half the company’s revenue comes from non-economy class ticket sales, and the share is growing. So are net promoter scores (now “regularly in the 50s”) and the company’s investment in its product.

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The premium push

For Delta it is not just that premium revenue is growing. The carrier noted in today’s earnings call that the growth “outpaced our expectations” and continues to increase. Moreover, passengers buying the premium products are more likely to buy again. Bastian suggests that 70% of those buying up continue to do so on future trips. That especially good news given the increased margins involved.

Lots of loyalty

With more first class seats going to paying passengers the carrier’s Medallion tier frequent fliers feel a bit of a pinch on their “unlimited free upgrades” benefit. Even if that leaves them frustrated it is not resulting in them leaving Delta or shifting too much spend elsewhere, at least not that shows up on the carrier’s balance sheet. Moreover, Delta’s shift in how it prices rewards and how it enables more purchases with points makes for more happy SkyMiles members.

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At mid-year Delta reported a half million upgrades secured through its pay-with-points option. At the end of the year the number topped 1.2 million. That’s a relatively steady pace, even while not being a massive number of seats considering the carrier’s overall fleet size. But it is significant when looking at the points redeemed (somewhere around 15 billion SkyMiles) and the impact on passenger satisfaction.

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Getting passengers comfortable paying with points should further Delta’s goals around the FlyDelta app and other markets moving forward. The carrier added the option to pay for bag fees with points recently and, as noted in the CES Keynote by CEO Ed Bastian, deeper integration with ride-hailing service Lyft is on the horizon. That is expected to include an option to pay with points as well. Bastian also noted in Tuesday’s call that he expects hotels and other travel-related services to find their way into the FlyDelta app in the near future, “We absolutely do see ourselves becoming an extended travel platform.”

Delta already sells 52% of its tickets directly and saw a 35% boost YoY in mobile (i.e. app-based) revenue for 2019. Getting more consumers tied to the app as their primary travel coordination center will further improve those numbers.

The SkyMiles/American Express co-brand relationship also continues to deliver significant revenue growth to the carrier. Delta notes that it saw a record 6 million new members join SkyMiles in 2019 and that a record 1.1 million members opened a new AmEx account tied to the program. That’s a huge revenue boost and also furthers the draw of the program.

Questionable eco-friendly claims

When pressed on the companies overall fuel efficiency and expectations for where improvements can be realized Delta noted that its slower fleet renewal last decade gives it an advantage on that front today. Each new plane delivers a 25% improvement in fuel consumption according to the company, a significant improvement. But suggesting that only judging the performance going forward, rather than being penalized for choosing to continue operations of older, less efficient planes in recent years, does a poor job of evaluating the bigger picture around the company’s efforts on this front.