Latest / The Retention Marketing Podcast with Fexingo: Email, SMS, and Loyalty for Repeat Customers / How an Airlines Loyalty Program Changed the Industry
Transcript
- Lucas: So there's this moment in loyalty-program history that I think about a lot. It's 2015, and Delta Air Lines — quietly, without a huge press rollout — changes how you earn miles in SkyMiles. Luna: Right, they switched from miles flown to dollars spent. That was a huge deal at the time. Lucas: Huge. And retrospectively, it's one of the smartest retention moves in modern business. Before 2015, every major US airline rewarded you based on distance — fly 1,000 miles, earn 1,000 miles. Delta looked at that and said: 'That's a cost center, not a loyalty engine.' Luna: Because a cheap economy ticket from New York to Los Angeles earns the same miles as a first-class ticket on the same flight. Lucas: Exactly. And that made no business sense. Delta wanted to reward the people spending the most money — the business traveler buying a last-minute fare, the premium cabin passenger — not the leisure traveler who bought the cheapest ticket six months out. So they flipped the formula: now you earn five miles per dollar spent on the ticket price, not on distance. Luna: And the industry followed. United and American both copied it within a year. Lucas: They had to. Because what Delta proved is that a loyalty program can be more than a cost — it can be a profit center. Today, SkyMiles is worth something like $6 billion annually to Delta. That's more than the airline's actual flying operations generate in some years. Luna: Wait, how is a points program worth $6 billion? The miles themselves aren't cash. Lucas: No, but Delta sells miles to partners — mainly American Express. When you use a Delta-branded AmEx card, AmEx buys miles from Delta at a rate of roughly two cents per mile. Delta books that as revenue immediately. And the miles don't get redeemed for a seat until later — if ever. So Delta collects the cash upfront, and the liability is deferred. Luna: So it's a financing model. They're getting interest-free capital from their loyalty program. Luna: And that's before you factor in the actual customer retention benefit. Lucas: Exactly. The program does double duty: it earns Delta billions in direct revenue from AmEx, and it locks in repeat business. Studies show that once a traveler commits to earning status with one airline, they'll pay a premium — sometimes 20 to 30 percent more — to stick with that airline rather than switch. Luna: That's the switching cost. And Delta deliberately engineered that. Lucas: Right. They introduced a spend-based threshold for elite status too. So not only do you earn miles by spending, you also qualify for Gold or Platinum status based on how much you spend. That means the high-value traveler has a strong incentive to concentrate all their flying on Delta. Luna: And the casual flyer? The person who only flies twice a year? They get devalued. Lucas: Yes, and that was controversial. But Delta argued — and I think correctly — that a loyalty program should be designed to retain your most profitable customers, not to give everyone a free trip every few years. Your best customers are the ones you can't afford to lose. Luna: There's a parallel here for any subscription business. If you have a loyalty program, you should ask: who are my most valuable customers, and am I rewarding them disproportionately? Lucas: That's the core insight. A lot of companies run loyalty programs that are just polite discount clubs. Everyone gets 5 percent back, no matter how much they spend. That doesn't build retention — it builds a race to the bottom. Delta's move was a bet that tiered, spend-based rewards create genuine stickiness. Luna: And it worked. Their revenue from the SkyMiles program now accounts for a huge chunk of their profit. In their 2025 annual report, they disclosed that loyalty program revenue was over $8 billion. Lucas: That's staggering. And it's not just Delta. The entire airline loyalty industry has become a kind of shadow banking system. United's MileagePlus is valued at over $20 billion. American's AAdvantage is worth similar amounts. These programs are worth more than the airlines themselves in some cases. Luna: But there's a catch. When you make your loyalty program too profitable, you start to devalue the miles. You make it harder to redeem for the seats people actually want. Lucas: That's the tension. Delta has faced criticism for reducing award seat availability and raising the number of miles needed for popular routes. And that erodes trust. If customers feel the miles they earn are essentially worthless, they'll stop trying to earn them. Luna: So there's a balancing act: the program has to feel rewarding enough to drive behavior, but not so generous that it eats into profit. Lucas: Right. And that's where the smartest marketers in any industry focus. The loyalty program shouldn't be a giveaway. It should be a strategic tool that aligns customer behavior with your business goals. Delta's principle — reward spending, not distance — translates to any context. For a retail brand, that might mean rewarding basket size or frequency, not just any purchase. Luna: I've seen that work in practice. A DTC brand I follow revamped its loyalty program to give double points for purchases over $100, and they saw a 15 percent increase in average order value within three months. Lucas: That's exactly the kind of behavioral lever we're talking about. You're not just saying 'thank you' — you're nudging customers toward the behavior you want. And if you do it right, the program becomes an engine for profitable growth. Luna: One thing I wonder: did Delta ever face a backlash that threatened the program? Lucas: They did. In 2023, they made another change — they capped how many miles you could earn from credit card spending. That upset a lot of high-spending cardholders. But they walked it back partially after customer pushback. It shows that you can't just pull levers without considering the emotional contract you have with your customers. Luna: So the lesson is: design your program to reward value, but communicate changes carefully and keep the core value proposition intact. Lucas: Exactly. And the data from Delta's experience is clear: a well-designed loyalty program can be the most profitable part of your business. But it requires constant tuning. It's not set-and-forget. Luna: Speaking of things that require tuning — you know, if these conversations about loyalty and retention are useful to you, there's a low-key way to support the show. Lucas: Yeah, it's the buy me a coffee model. If today's episode sparked an idea you actually used, or if you just want to chip in, the link is buy me a coffee dot com slash fexingo. No pressure at all. Luna: It helps us keep the show ad-free and focused on substance. And we appreciate it. Lucas: So back to Delta. Another fascinating angle: the credit card partnership itself. Delta and AmEx have an exclusive deal that runs through 2029. And the economics are insane. AmEx pays Delta something like 2.5 cents per mile for co-brand card spending. That's a huge margin for Delta. Luna: And AmEx benefits too — it gets a sticky customer base that's hard to switch away from AmEx because of the miles. Lucas: Exactly. It's a symbiotic relationship. And it's become a model for other industries. Hotel chains, retailers, even ride-sharing companies have tried to replicate it. But few have succeeded at the scale of Delta. Luna: What's the one takeaway you'd want a marketer to walk away with from this episode? Lucas: It's this: your loyalty program is not a cost. It's a potential profit center. But to unlock that, you have to align the rewards with the behaviors that actually drive your business. Delta didn't just copy what everyone else was doing. They rethought the entire premise. Luna: And they weren't afraid to upset some customers to serve their best ones better. Lucas: Right. That's a hard decision for any brand. But if you don't make it, you're leaving money on the table — and your competitors will figure it out first.