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The Two Faces of Delta

The Two Faces of Delta

Delta was in the news twice this week. And the two stories would seem to be of two very different companies.

Good News for Some

First, Delta yesterday announced that it would return $1 billion to investors by paying shareholders a dividend and buying back its own stock. The airline hasn’t paid a dividend in a decade, and will be the only full-service airline to do so when it begins the 6-cents-a-share payouts on September 10.

Nice, if you own Delta stock, which has increased in value 57 percent so far this year.

Bad News for Others

For members of Delta’s SkyMiles loyalty program, the news was decidedly less cheering.

For the second consecutive year, Delta was ranked last among U.S. airlines in the IdeaWorks study of award availability, released today. The report found Delta frequent-flyer award seats available in only 36.4 percent of its attempted test bookings.

Two Faces, One Conundrum

If you’re an idealist, who would like to believe that companies do well by doing good, the two stories are a conundrum. How can Delta’s outsized profitability be reconciled with its shabby treatment of its best customers? In an ideal world, shouldn’t there be a financial penalty for underserving loyal consumers?

I can suggest only a partial resolution to the paradox: If Delta treated SkyMiles members better, its share price would be even higher, and those dividend payments would be even bigger.

Reader Reality Check

How do you account for Delta’s financial success even as it squeezes its most loyal customers?

Other Posts of Interest

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  • sju36

    In a highly competitive environment, that would have a much greater likelihood of being the case.

    But when you have four, err, three legacy carriers dominating the domestic business-travel market, passengers don’t have anywhere else to go and the “competitors” can essentially collude on pricing, fees (see: $200 change fee), and restrictions without any conspiracy or antitrust violation.

    So the question of whether an airline can boost profits by cutting serving quality its conditional. In the current competitive context, the answer appears to be, “Yes.”

  • John Doe

    Change fees are not taxable. Neither are baggage fees. Expect a lot more fees unless the IRS changes the rules.

  • TomF

    I think people who pay attention to loyalty programs fly DL in spite of SkyMiles, not because of it. DL service and operational metrics are way ahead of United. Frontline morale is better. DL emphasizes mainline service while UA reverts more and more to RJs. And while SkyMiles are pretty worthless, DL treats elites well otherwise, while UA is indifferent to them. It all demonstrates that in a three-player oligarchy such as we have now in the States, you don’t have to be excellent on every front to win. It also shows that an airline with good service and a bad FF program beats one with bad service but an OK FF program.

  • BubbaJoe123

    “How can Delta’s outsized profitability be reconciled with its shabby treatment of its best customers? In an ideal world, shouldn’t there be a financial penalty for underserving loyal consumers?”

    “Best” customer equals most profitable customer. You’re assuming that just because someone is a high mileage flyer, that makes them a highly profitable customer. It ain’t necessarily so.

  • Nick Aster

    Really? That’s very interesting. Makes a sad amount of sense!

  • malbarda

    It is an easy solve: DL is running a very tight ship with high load factors and therefor limited “free” (mileage) seats. Every seat “given away” in miles equals one less seat sold. So as a shareholder one should applaud DL’s stinginess. It is clearly working. As a Diamond Million Miler (me) I’m liking American more and more.

  • BurbankBurner

    I still have some Skypesos remaining in my account. I have tried for years to book a flight at the entry level award ticket price and have NEVER been successful. I cannot count the times I have tried but it numbers in the dozens. And I have tried to go to non vacation airports. I have written Delta many times and I always get the old “we only have so many seats, blah, blah, blah.” So I never fly Delta even though I fly often during the year. I usually don’t even check with them anymore. And I haven’t put one mile on Skypesos for five years.

  • ChrisCooke

    Not true! All of those fees, and any others dreamed up, are considered income under IRS guidelines.

    Chris Cooke
    Tax Attorney

  • BubbaJoe123

    John is both right and wrong. They’re taxable from a corporate income tax perspective. They’re NOT taxable from a Dept of Transportation aviation tax perspective.

  • Mordock

    The vast majority of flyers pick the cheapest flight. FF falls out only as a side benefit by accident based on routes flown. I am in my 3rd year as a USAir Silver, freaked me out when I first got it. The free bag check means they have a $50 advantage over other airlines now, so as long as they stay cheap enough then I will be able to maintain it.

  • Allegro761

    Correct and requires Congressional action not the IRS.