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This episode explores recent changes to the Delta SkyMiles Program and the member backlash that led Delta to make additional modifications.
Creators & Guests
What is Unintended Outcomes by Rethink Alignment?
Rethink Alignment
[00:00:00] Howard Fields: The Rethink Alignment team is back with another episode of Unintended Outcomes. Our ongoing discussion of the causal factors behind today's most surprising, positive, and negative business outcomes.
[00:00:19] In each episode, three Rethink Alignment partners apply our proprietary framework to relevant business scenarios, examining why and how companies' best-laid plans often produce unexpected results. We analyze these scenarios through the lens of eight adaptive elements examined from one of four strategic vantage points: as a Pre-mortem. Post-mortem. Project recovery, or an emerging challenge exploration.
[00:00:51] Our purpose is not to second guess the actions companies have taken. Instead, we use their results instructively to showcase the hidden interdependencies that often create misalignment in business. This helps you hone your ability to accurately conceptualize, anticipate, and respond quickly and effectively to the challenges you face.
[00:01:17] Now it looks like we're ready to go. So, let's join our partners.
[00:01:22] Luke Chilone: Hello everyone. This is Luke Chilone and I'll be your host for today's episode. Our topic today is about Delta Airlines and a recent news article, about an overhaul to the SkyMiles loyalty program that they've made, including changing how members qualify for elite status, tightening access to lounges, limiting or removing access for members who get access through a credit card point scheme that they kind of have.
[00:01:48] The backlash was so strong that the airline CEO announced a backtrack of some of those changes. And we thought that was a great topic for today. At Rethink Alignment, we use a framework of eight elements to reveal the root cause of misalignment of our clients. And when I read the news, I immediately thought about Customer and Marketplace, elements that we kind of look at.
[00:02:08] And I thought, wow, this is a pretty well-run airline. They get it right a very high percentage of the time. And how the heck did this happen? And Howard, what was your reaction when you saw it?
[00:02:19] Howard Fields: Well, my initial reaction, was, boy, what a, classic error. Like you, I'm a, I believe in Delta. Delta's my preferred airline.
[00:02:30] And generally over the years, I've seen them make a lot of right decisions. This one just seemed like a head scratcher, to me. But after I thought about it for a while, and as we've kind of kicked this around talking about this topic, I came to the conclusion that, you know, there's a lot of smart people that run Delta.
[00:02:48] So it's probably, it's probably worth, a teardown, if you will, of the things they might have considered, to come to the conclusion that they did and to have this backlash actually occur.
[00:03:01] Luke Chilone: Nathan, how about you? What were your initial thoughts?
[00:03:05] Nathan Gilliatt: Initial thoughts, it seems like they got what they wanted, but they got it harder than they wanted.
[00:03:09] They, I keep looking at this as kind of the talking about the capacity of the lounges, that it's essentially a product in addition to the travel that, that the brand is known for. And essentially, they've oversold it. They've, they've led a lot of customers to expect. these elite perks, and, and now they're oversold, and it doesn't feel so elite anymore.
[00:03:31] So they had to do something to cut back on the, the overuse. And so, all of a sudden, they get the reduction and people don't like that. Well, they don't even get it yet. This is all in the future, right? We're talking about 2025, and everyone's all very excited about what may be coming.
[00:03:50] Howard Fields: The backlash precedes the benefit, right?
[00:03:54] Luke Chilone: So we've mentioned, Customer, Marketplace, yeah, Customer, Marketplace, Product, you know, again, elements that we kind of look at, and Nathan, I'll, I'll stick with you. You know, ironically, this was driven by customer feedback, overcrowded lounges, all those, uh, things we, you know, begin by developing a crisp problem statement when we work with clients from their perspective.
[00:04:15] And that leads me to ask you, what problem does it appear that they were thinking? They were trying to solve, you know, they had an oversold product, but anything else come to mind?
[00:04:26] Nathan Gilliatt: Well, I think you get to the perception of elite. This idea that you get a better experience, you get the lounges, um, and you know, you, travel on points, you get upgrades, all of these things.
[00:04:39] You, you've,
[00:04:45] I'm coming back to the same point that it's essentially, they've during this low period, from, from the pandemic and the immediate aftermath, they made a lot of promises. That you can get these perks and now the bill is coming due, and they don't actually have the delivery capacity to deliver on all of those benefits that people in their minds have already purchased.
[00:05:06] So the problem is trying to resolve that supply demand mismatch.
[00:05:12] Luke Chilone: Howard.
[00:05:14] Howard Fields: Well, I kind of go back to the original design of what these airline, the airline clubs were all about. The way they used to talk about it was it was a place to relax and to be calm and it was serene, and you could get a bite to eat and have a place to do some work.
[00:05:34] Over the years, um, the crowding or the overcrowding that they have come to, you could see that coming. So, a little bit, I have to ask who was, who was minding the store, who was watching the numbers? Because I'm sure they were. They collect lots of data. They have a lot of good analytic tools.
[00:05:55] I, I just wonder, right, did they make a conscious decision to allow this to occur? Because if they did, it's a total mismatch with the promise that they made when they set these programs up. So now they have this problem of quote unquote overcrowding and you have to ask, okay, so what's the new goal?
[00:06:15] Is the new goal to go back to the original goal, or is it something else? And it looks like they made a very expedient decision to say we can reduce the overcrowding by raising the requirements to get in the door. but they didn't anticipate the kind of reaction or response that they got.
[00:06:36] Actually, it's more of a reaction than a response.
[00:06:39] Luke Chilone: Yeah, there's two, there's two things in, in your, in your thoughts there. One, you know, clearly, they have analytics. They probably know exactly right down to this; how many sneakers went into a lounge in Atlanta versus how many sneakers went into a lounge in Denver.
[00:06:55] And. What's going on in the marketplace is they now have to come up and define the problem again, right? And oh, oh, by the way, design a solution for it. So original problem, different solution, redefine the problem, come up with a solution to that. Do you think there were other viable options they were looking at here?
[00:07:14] Or like what just comes to mind when we kind of get to see this in retrospect?
[00:07:20] Howard Fields: Well, first thing I would say is, it's really hard to see this when you're in the middle of it. Right? And, you know, one of the things we talk about that we bring to a client scenario is we kind of come in with a fresh perspective.
[00:07:36] We're not steeped in all the corporate culture and the way they think through things. So, we often can look at things sideways and say, wait a minute, your problem is ill defined or, or you need to re-, just like you're saying, you need to redefine the problem. Are there other things they, they could have done than make this grand announcement?
[00:07:56] Well, sure, they could have asked customers how to resolve the problem. That's always the first place, I think, to start when you're, when you're going to, when the customer is going to have to adjust, best to bring them into the process early. And maybe they did. We don't have necessarily all the facts. Another thing would be to have offered maybe some offsetting perks to people who were now going to be disqualified from being able to go to the club. And that's a, you know, that's a financial decision. That's a, there's a lot of things that go into that, but it certainly, if they would have done that, my expectation is the reaction would not have been as loud as it has been.
[00:08:39] Another way to do this is to say, hey, we're going to try this in Orlando or we're going to try this in Atlanta. Or maybe a smaller airport and and implement it and have it affect a smaller number of, customers, and then gauge the reaction from that. So, you know, again, the second guessing or, the armchair quarterback here is a difficult role to play because we weren't in the room, and we didn't hear all the discussion that went on.
[00:09:06] But again, it certainly looks like those were options that could have been considered.
[00:09:11] Luke Chilone: Yeah, I know, Nathan, talking with you about this, I know you would have loved to get your hand on the data to say, like, like, what, like, what did they line up data wise, but you know, what other viable options, you know, just kind of blind, do you think they may have considered or should have considered or, you know, both?
[00:09:29] Nathan Gilliatt: I think I want to go back to, the question of the problem again. because the thing that comes to me is why do people value these programs? You know, we've talked about the lounges and the lounges have been oversubscribed. They've been crowded. They've had lines out the door, during the post pandemic travel boom.
[00:09:47] is it the lounges? Is it really the lounge as a product? I know people pay if they don't, if they haven't earned enough status to be in the lounge, they can pay a fee if they're up to a certain level to pay some cash and get in. So, the lounge itself is a product. Is it just a shortage of that product relative to demand or is there something else going on?
[00:10:07] You know, because the airline travel experience is famously not as fun as it used to be. are there other reasons that people are in these programs and want the status? So, if you understood, and maybe they do, if you understood the motivation for being in these, is it you get better seats? Is it, what other perks do you get?
[00:10:28] Are, are there other ways that, this is kind of Howard's thing, are there other ways that you can compensate people? For not being at the right level to get the lounge access. If the lounge capacity is your original problem. and I was really struck by the, the comments articles about the importance of their credit card business, aiming for 10 billion dollars in revenue in a few years from credit cards, which I mean, even for big airline is a lot of money.
[00:10:57] So, you know, you've got interlocking businesses, kind of. Facetiously ask whether they're really an airline or a bank, based on an article in the Atlantic, they said their airlines are more like banks these days. I don't think they're really like banks or they've gotten into the banking business.
[00:11:14] But they are airlines. That's where the perks are. The people are using their credit cards for the travel perks. but the money aspect is confused by the credit card business, but the motivation is great.
[00:11:27] Luke Chilone: Great point. Yeah. Great point. We, we, you know, in our framework, we talk about incentive, and I think where we start with Incentive, we talk about what is the corporate incentive for things, but there's an element of the incentive for customers here also.
[00:11:40] Nathan Gilliatt: Yes.
[00:11:40] What are they actually incenting and what's actually kind of happening now. You know, they deserve credit because they said, “Hey, we might, we might've got this wrong. Right?” More evidence that they're a very well-run company in every possible measure and everything doesn't go right every single day.
[00:11:55] We all kind of know that. But what the benefit of hindsight. Do you think their end-to-end view. I'm sure they took an end-to-end view until Howard's point and may have been, you know, a little bit of a group think to it. But on their end-to-end view, do you think they omitted something or do you think they just did an underweight overweight, uh, you know, calculation and made a decision based on that?
[00:12:17] And now what happens? What do you think? It's one of those two or some other thing I didn't think of Nathan.
[00:12:23] Nathan Gilliatt: The more I look at this, the more I think this is fundamentally turning out to be a communication problem that people were taken aback. There's, it's a trend that perks are not as rich as they used to be across the industry, not just with Delta, and people who have scraped their way into, you know, the word elite’s being thrown around a lot.
[00:12:44] And it's fun to think you're elite. But I look at, the airline side of this is, you know, what does the seller think elite is? Their best customers, their most, their biggest revenue customers, the most profitable customers. And meanwhile, we've got this program that's told people they're elite if they can game the system to get the right medallion.
[00:13:04] It seems like this is a re rationalization of, of that and the people who are winning under the current system. I mean, it's... If, if an asset, if a product is oversold, allocating it to customers is a zero-sum game, at least until you can increase supply. And so, in the short term, people are going to be unhappy.
[00:13:25] So to some extent, maybe this is just failure to, to anticipate, and head off the communications challenge. I think they made the decision they had to make until they can reconsider capacity.
[00:13:39] Luke Chilone: Yeah. Your, your, your comments also, you know, kind of take us back to that little problem statement. Was their goal to redefine SkyMiles or was their goal, was the problem to get crowding down or to do something on the credit card, you know, uh, fees that they kind of get?
[00:13:55] I'm not quite sure. Howard, what do you think?
[00:13:58] Nathan Gilliatt: And where is that credit card revenue growth down their priority list? Because these all interact.
[00:14:03] Luke Chilone: Yeah. Did they, did they, did they omit something? Did they just make a call? They weighted things a bunch of different ways because there's just not one factor here.
[00:14:13] Howard Fields: I think the problem became acute. And it was definitely, definitely so this summer. So, I think there was a strong motivation to act. And they're probably, when you get right down to it, not a lot of perfect solutions. There's no perfect solution here at the end of the day. As Nathan says, if you're going to reallocate your supply, that means some people win and some people lose.
[00:14:40] I'm a big believer that whatever system you put in place, people figure out how to game it to some degree. Delta has taken a little bit of that off the table because now it's really about money spent and for them that makes it much more, uh, the ROI calculation, much easier to do, Then some of the, some of the customer experience kind of benefits, which everybody always struggles to, to value.
[00:15:05] So I mean, I could, I could see how this discussion could play in, in many different ways. I don't think they expected the kind of reaction they got. And so, I'm forced to ask the question, was that a Conscious decision or not, that's the crux of this.
[00:15:29] Did they miss something, or did they set the probabilities? I'd love to have, I'd love to talk to somebody who was in the room, you know, I always wanted to go to fantasy comedy writer school because I always wanted to be in the room when the discussion was happening. It's the same thing in business, right?
[00:15:44] You want it, you want to, if you’re people like us who analyze these things, you want to be there and say, but wait a minute, what about yada, yada, yada. And so, I, I don't, I don't know. Again, kudos to them for, you know, pulling the ripcord and saying, “All right, we clearly made a mistake.” And I think, as you pointed out earlier, Luke, there's always going to be mistakes, right?
[00:16:10] They're, they made a mistake. They're transparent about it. and they're saying to the customers, we're going to fix it. And so now they get, it's great. They get another chance to retain the customers. And, and handle this the right way. So, I, I give him high marks for that, but as to what the real cause here was, I don't know, I don't know that we'll ever be able to get at that.
[00:16:31] Luke Chilone: Of course not.
[00:16:32] And, you know, there was something in the middle of what you were saying. It was, we could probably do an hour just talking about what did they expect to happen? Did they expect 10 percent of their customers to complain? Did they expect people to give up their credit card? Like what is it? And maybe, you know, to Nathan's point.
[00:16:47] They're, they have this grand plan to triple the lounge capacity over the next N years, but it takes years to triple the lounge capacity. So, what do you do in the interim? Right? Like there's no answer, but there's trade off trade off trade off trade off. And of course, where we started this whole thing was at the Marketplace, right?
[00:17:03] Who's the marketplace, right? Is it the airports? Is it the customers? Is it the airplanes? Is it the lounges? But the marketplace gave us a little bit of evidence or a little bit of nugget to talk about here also. And it's that. Hey, we're, I won't name the airline, but we're going to offer you a status match initiative, Howard, whatever status you have over there, you bring yourself over here and we're going to take care of you, those evil people at Delta.
[00:17:31] What, you know, what are your thoughts on the competitive move, Howard? And, you know, which elements do you believe the competitor might have said, oh, let me try to capitalize on this.
[00:17:41] Howard Fields: Well, a couple a couple of points. We keep talking about the supply problem here. Let's be honest about what the supply problem is. There’s only so much square footage at an airport near the gates to build these things.
[00:17:53] Luke Chilone: Yeah
[00:17:53] Howard Fields: So, really for Delta, it's not like oh, we'll just go lease more space or for any other airline to say, “Oh great, this is an opportunity for us to set up a bunch of clubs and take customers. That's really not a viable a viable solution here. So yes, a competitor could do that.
[00:18:14] But as a businessperson, what I would say is if you don't have the revenue and you spend the money on the perks of… Either, you've got to acquire the customer, you know, as a, uh, as a new relationship that you're going to build over time, or you're going to take a profit hit. So, it's not so simple to say, well, a competitor can just kind of jump in.
[00:18:39] I also think, again, given Delta's reputation, I don't think you can paint them as an evil empire. This wasn't a corporate greed kind of scenario. It was a problem that needed to be fixed. So, I competitively, yes, they could do some things, but it's going to cost them money to do it.
[00:19:00] Luke Chilone: Before we go to you, Nathan, you know, uh, it's, you know, it's interesting, you know, maybe we should call up that competitor airline and say, look, we can help you with an end-to-end look at this because there's like, you don't even fly that route.
[00:19:11] Like, why would you try it on that route? Like, you know, there's, there's some things going on and I just think we've, the three of us have been in those discussions so many times. Where you have to trade something off, and at some point, you know, you're two and a half hours in, and a decision needs to be made, so you make the best decision possible, but Uh, Nathan, what's your comments on the competitive move or, you know, just your, uh, as we're kind of trying to wrap up here a little bit.
[00:19:34] Nathan Gilliatt: The competitive moves seem like, so the competitive response is taking advantage of, of Delta's pain today.
[00:19:41] I noticed that, that also, this follows some similar changes at American. So, so this be recalibrating what makes you elite qualifying for perks is something the industry is going to have to deal with. So, on some level, this is the noise about, you know, one of the majors taking the obvious step that everybody is going to have to deal with because of the same dynamics.
[00:20:03] Looking at things through the customer lens, I just was thinking, you know, this has not been customer and it's been customer response so far, but it's been, it's been reaction. It hasn't been customer action hasn't been purchases. It hasn't been, you know, economic activity so far, it's been emotional activity.
[00:20:24] And so I do kind of wonder, is this, is this a blowback that, that you could expect and just soldier through, uh, when it comes time to book your travel when, so the customer is quoted in the, in the press about letting his, letting his airline branded card lapse at the end of the year. Okay, you say that let's see what happens.
[00:20:46] You know, sometimes you have to go through that initial, public blowback, where people invent their emotions and, and maybe they won't act on them. I don't know how you place the bets, but, you know, there is a difference between being outraged and taking action.
[00:21:05] Howard Fields: You know, there's another point here.
[00:21:06] You asked about this from a competitive standpoint, Luke. It would be interesting to look at Delta's view of how competitors would respond, right? Because many of their competitors have other problems right now. And Delta may have said, okay, this is going to be a problem, but it's, you know, it's, it's gonna be offset by, it's gonna be offsetting against their problems.
[00:21:29] So net net, to your point, Nathan, we don't lose revenue paying customers. I mean, it's a, yeah, yeah.
[00:21:41] Nathan Gilliatt: It's a big competitive industry. Just, just make what seems like a minor decision and, you know, you're talking about billions in revenue. It's just, it's a different world.
[00:21:50] Luke Chilone: Yeah, but the Marketplace and the Competitive, are typically elements that we have to deal with.
[00:21:56] And, you know, even just. One observation, you know, being in the airport, one airline says zone 1, zone 2, zone 3, the other one says zone A, zone B, zone C. They made a decision to do that. They placed a bet. They said, we are going to differentiate ourselves somehow this way. You don't, you're not number one, you're, you're B, or whatever the heck it is.
[00:22:18] When you get there, no matter what airline you fly, they start saying, if you're in one of these 61 clubs, you get to be in zone one. If you're in one of these 49 clubs, oh, by the way, if you happen to be, you know, have a stroller with you or something like that, you could come in first. You know, it's, it's, it's a, it's a reorientation to me of something that I think you guys, said in the, in the beginning is that this has been building for a long time.
[00:22:42] Yeah.
[00:22:42] Right. The air travel capacity. Was building before the pandemic hit and you know, there was a bunch of stuff that people had to do with ordering airlines, but now we're kind of back. Now they're building again and there's up and down seasons, but there's only so much capacity. And I think that's why there's so many elements to this.
[00:23:02] It’s why we even post all of this happening and thought it would be something good to talk about today. So, thank you for your comments and we're gonna thank you for joining us and we'll be back soon with another discussion on another newsworthy topic.
[00:23:16] Howard Fields: Thanks for joining us for this episode of Unintended Outcomes. This program is produced by Rethink Alignment, an advisory firm dedicated to helping clients unlock superior business performance.
[00:23:30] If you'd like to apply our approach to your business, contact us at info@rethinkalignment.com or visit us@therethinkalignment.com website or the Rethink Alignment company page on LinkedIn. You can also find each episode posted on the Rethink Alignment YouTube channel.
[00:23:50] If you found this discussion insightful, please take a moment to share it with your friends. And we'd welcome your thoughts and comments on how to make future episodes more valuable. We'll see you next time with more unintended outcomes.