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Airline customers love to complain that miles aren’t worth what they used to be — and in almost all cases, that’s true, thanks to some impressive recent inflation — but travelers still love airline credit cards, Delta Air Lines executives said Thursday.
During its second quarter earnings call, the airline said it’s on-track for its fourth consecutive record year of new credit card acquisitions through its partnership with American Express. The company has been Delta’s credit card issuer since 1996, with the sides re-upping their deal most recently in 2014.
“We are the leading growth vehicle in their co-brand portfolios by a large margin,” Ed Bastian, Delta’s CEO, told analysts.
It may sound surprising. For one, there’s a dizzying number of airline branded credit cards available, and some carriers, like American Airlines, even have deals with more than one card issuer. For another, savvy travelers know airline programs are not as generous as they once were. In nearly all cases, a mile earned today is worth far less than one earned five years ago.
There’s good reason for the inflation. While it’s often tougher for casual travelers on cheap tickets to earn miles from flying, many card issuers give tens or hundreds of thousands of extra miles and points to consumers they consider big spenders. Popular high-end cards, such as the Chase Sapphire Reserve and American Express Platinum, not only give out extra points for sign-up bonuses, but also award them for spending on special categories like restaurants, hotels and air travel. Consumers can convert the points to airline miles.
With more miles being created, airlines have subtly (and in some cases not-so-subtly) raised the number of miles required for free travel.
“It feels like over the past few years the strategy at airlines is to effectively devalue the currency so you need more miles to buy a ticket,” Joseph DeNardi, an analyst at Stifel, said while asking a question on Delta’s earnings call. “That’s obviously beneficial to the airlines, but it doesn’t make the currency more demanded by consumers.”
But Delta executives said demand for cards remains strong. In a release, the airline noted that “other revenue” — a category that includes SkyMiles — increased roughly 5 percent, year-over-year, for the second quarter. And they told analysts the American Express deal is on track to produce $300 million in incremental value this year.
“Consumers are enjoying the products and services and they’re continuing to apply at record numbers,” Delta’s president Glen Hauenstein said.
Delta executives didn’t say break down how they calculated the incremental value number, but in a report released after the call, DeNardi suggested the airline likely has been selling miles to American Express at higher rates.
As for requiring more miles for popular redemptions, Delta executives defended the practice, noting the airline is on track to give away more free tickets this year than ever. And Hauenstein said the airline’s changes to redemption policies have not hurt co-branded card demand.
“There are incredible value propositions for customers out there who acquire and use our cards, and we have no interest to degrade the total value proposition,” he said. “We may adjust on the margin the valuation of peak seats versus off peak seats. But the value that we are creating seems to be greater and greater, and I think that’s being recognized in the marketplace.”
Hauenstein said Delta is trying to create new options for customers to use miles for products other than plane tickets. It has tried allowing travelers to use miles for Dom Perignon champagne and other high-end drinks in the Delta Sky Club, as well as permitting them to use miles for upgrades to first class and premium economy.
Now, it’s considering allow passengers to use miles to defray costs for unaccompanied minor fees or pet fees. Delta, Hauenstein said, “really wants to make that currency come alive to our customer base.”
Making it easier for customers to redeem miles would also help the airline remove some liabilities from its books.
“We really don’t want people to save them forever,”Hauenstein said.