Delta Airlines has cemented its status as the network U.S. carrier with the worst frequent-flier program, further devaluing its long-cheapened SkyMiles. The leadership of the program or the airline — or perhaps both — doesn’t seem to understand what the loyalty business in 2011 is about. It may be time for a new team at the top.
For more than a year, Delta failed to publish an award redemption chart for most of the world, resulting in lack of transparency about how many miles were really needed for an award ticket.
When it finally unveiled a chart this week, the mileage rates on many routes were increased significantly. Many loyal SkyMiles members felt cheated and disrespected, calling Delta’s move a “stunt” in comments posted on FlyerTalk, the largest online travel community.
If you wondered why Delta announced last week the elimination of miles’ expiration, my guess is that it tried to soften the blow of what was coming — and to claim that it cares about its customers. In reality, almost everything SkyMiles has done in recent years has been decidedly customer-unfriendly. I’m not an active SkyMiles member and have no dog in this flight, but I’ve been appalled enough to write about it.
In comparison to its two largest competitors, American and United, Delta’s upgrade and award policies are the most restrictive and inflexible. Its system-wide upgrade certificates are only valid on tickets booked in Y, B and M class, and are not transferable. American’s upgrades can be used on just about any fare and gifted to other people. United’s certificates exclude only the lowest booking classes and can also be transferred.
In 2008, Delta devalued its miles by adding a third award tier, in an attempt to mask its very poor award availability at the lowest level. A year later, it devalued its elite status when it introduced a fourth tier, Diamond, on top of Silver, Gold and Platinum. If that’s not bad enough, Delta also charges some fees that are hard to justify, such as $50 for booking an award originating outside the United States.
The main reason frequent-flier programs exist is not to make customers happy, but to make money — and most of them do. I’ve never considered that a problem. A successful business deserves all the rewards it can get. My problem has been with the way airlines have been trying to make money through their so-called loyalty businesses. For decades, they have had an utterly peculiar philosophy, which can be best described at a “screw the customer” approach, which I explain with a misguided view of what the loyalty business is about.
Fortunately, a few airline executives recently saw the light, and things are starting to change. I’ve written several times about what Graham Atkinson did when he was president of United Mileage Plus for less than two years, beginning in the fall of 2008. He understood the essence of customer loyalty and showed that what’s good for the company doesn’t necessarily have to be bad for customers. While he wasn’t able to end StarNet blocking, he actually listened to customers and reversed decisions based on their feedback.
American’s AAdvantage program also has progressive leadership that rewards top fliers appropriately and has tried to make it easier for members to use their miles. There is still a lot to be desired, but it’s on the right track.
Delta, on the other hand, has been stuck in the 20th century. It seems it’s working hard to perfect the “screw the customer” approach.
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US Airways has denied recent suspicion that it has begun to block award seats made available by its Star Alliance partners for mileage redemption by members of its Dividend Miles program — a practice pioneered by United Airlines, which I first exposed in 2008.
The airline has been silent on the issue since reports about apparent blocking surfaced last fall. Many travelers said they found award inventory on various Star carriers, using one or more of the publicly available sources — the websites of All Nippon Airways, Continental Airlines and Air Canada — but US Airways agents were unable to see those available seats.
To some of us, that looked very much like StarNet blocking — manipulating the alliance’s award “middleware,” which provides access to any Star partner’s inventory on a first-come-first-served basis, to avoid paying other carriers for seats booked on their flights. The patterns resembled those on United, with the most filtering applied to Business and First Class cabins, though some fliers stumbled on coach seats as well. The most affected availability appeared to be on Lufthansa, but also on Swiss, United and others.
In addition, it made financial sense for US Airways to be limiting access to premium partner awards. In the last couple of years, it has in effect been printing miles with lightening speed, as a result of extraordinary promotions it has had, including selling miles at 100-percent bonus. Many Dividend Miles members bought miles and redeemed them for Business and First Class on partner flights, which likely weighed heavily on US Airways’ budget.
Several travel bloggers wrote about the issue, including Gary Leff on “View from the Wing” and Ben Schlappig on “One Mile at a Times.” Leff was more inclined to give the airline the benefit of the doubt, suggesting the problem might have been caused by technical glitches, as well as US Airways agents’ ignorance that some of their partners have First Class in addition to Business.
I’m not a big Dividend Miles fan, though I did help my sister buy miles for a trip to Europe with her family last summer, so it took me some time to look into the issue. I finally got around to it and alerted a US Airways contact at its Phoenix headquarters who has been very helpful in the past — Valerie Wunder, associate manager of media relations. She asked the powers that be and gave me the following response:
“We don’t block award inventory on other airlines, nor do we do the inverse — other Star partners block us from seeing their inventory to maximize their revenues.”
Probably the most frequent difficulty Dividend Miles members have been experiencing has to do with intercontinental First Class awards on Lufthansa, Swiss and others, so I asked Wunder if US Airways may be trying to restrict access to those specific seats.
“We have no restrictions on redemptions, regardless of class,” she said.
However, she offered no explanation for the problem. The mystery continues.
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Don’t be afraid — this is the message I have for travelers who may be concerned about losing the ability for comparison-shopping because of the war between American Airlines and online travel agencies. The longtime Global Distribution Systems (GDS) model is about to change, and many people stand to lose lots of money. That’s why they are trying to scare you.
For decades, the GDS model has been the norm for distributing airline data and booking flights, which has given the three main GDS companies in the world — Sabre, Amadeus and Travelport — enormous power.
You might have heard that American was on Sabre and United on Apollo, which is now part of Traveport. That means that the respective GDS hosts the airline’s data and controls its content, delivery, display, and most of its sales. The airline gives the GDS its data in parts, but it’s the GDS that in effect manufactures the airline’s product.
When an airline is so much dependent on a GDS, it ends up paying a high price. With all the money the industry has been losing in recent years, it was no surprise that airline executives began looking for ways to lower distribution costs.
In the meantime, technology companies like Farelogix and Datalex were hard at work trying to build channels through which airlines could distribute and sell their products directly to buyers — a capability that would free them from the grip of their GDS and significantly reduce costs.
In late January, I visited Farelogix’s main office in Miami to learn more about the company’s game-changing products. Jim Davidson, the president and CEO, told me that a dozen airlines now use a “Direct Connect” channel, including American, United, US Airways, Air Canada, Lufthansa, Emirates and Singapore Airlines. So far, that direct channel has been implemented on the carriers’ websites and in their reservations departments.
However, that’s not where the majority of airline tickets are sold. According to Farelogix, about 60 percent of the roughly 1 billion tickets issued worldwide each year are sold through indirect channels, and virtually all of them use a GDS. The average GDS fee paid by the airlines is about $12 per ticket, or more than $7 billion a year in distribution costs, Davidson said. In contrast, Farelogix’s “Direct Connect” offers a carrier the opportunity to spend only between $2 and $3 per ticket, saving about 80 percent of the current costs.
Does it then surprise anyone that American wants to expand usage of its direct channel to third-party providers, such as traditional and online travel agencies? The direct model offers more benefits than cost-saving. It allows the carrier to control the search results when you look for a flight, and to display extra products like priority check-in and boarding, which bring in hundreds of millions of dollars in annual ancillary revenue.
“American’s approach will allow travel agencies the freedom to communicate reservation data directly with the airline, in the same way that many agencies work with hotel and car rental companies today,” the carrier said about “Direct Connect” on its website in December 2010. It advised customers to use sites like Kayak, which shows flight data but doesn’t have booking capabilities, to compare fares and then book a ticket on the carrier’s website.
The biggest irony in this saga so far has been the January announcement by Sabre, the GDS American created more than four decades ago and the host of its data until recently, that it intended to drop American data from its offering later in the year. Litigation followed, but later the two companies agreed to cool it off and negotiate.
Farelogix’s Davidson predicted that the future standard will probably be a hybrid model, because the GDS system is not going anywhere, and airlines need that system’s capability to reach the vast and lucrative business market.
But the carriers don’t need to outsource the “manufacturing of their products” to a GDS anymore, Davidson said. They can host their own data, do all the packaging, and deliver their final product to the GDS, which can just display and sell it. Farelogix calls “Direct Connect” an airline’s “merchandising engine.” The carriers will still have to pay GDS fees, but they would be much smaller than $12 per ticket, because the GDS function would be much more limited.
Orbitz and Expedia are resisting American’s attempts to move to a direct channel, which have proven successful with Priceline and other sites, due to financial considerations. Although not publicly known, the revenue they get from their GDS kickbacks is most likely higher than what American has offered them for flight displays and bookings through “Direct Connect.”
Why are the GDS companies resisting the direct model? Obviously, because they would lose billions of dollars in revenues. In fact, “Direct Connect” can be easily integrated into a GDS, Davidson said, with some airlines taking advantage of all current GDS functionalities, and others using only the ones they need. Not only have the GDS companies rejected that, but they have began penalizing travel agencies and other providers that use direct channels in addition to their GDS. In turn, American has started imposing fees on GDS bookings.
The GDS companies and other supporters of the current system have been crying fowl about American’s demands, accusing the airline of trying to suppress data transparency and make comparison-shopping more difficult for consumers.
But is that a fair criticism? If you examine the direct model closely and see how it works, which I’ve done, you might disagree with the status-quo advocates. Integrating “Direct Connect” properly with or in a GDS would do nothing to prevent comparison-shopping. Actually, there would be an added benefit for travelers, because they would be able to see not only airfares but any extra fees and charges, as well as products like preferred seating and priority boarding.
There is only one thing about “Direct Connect” that concerns me a bit. In October, I wrote about airlines finding new ways to overcharge unsuspecting fliers by using sophisticated software designed to increase prices based on customers’ “willingness to pay.” One of the direct model’s features is that it allows carriers to display search results based on “who’s asking,” as Farelogix puts it. I fear that when they have full control of their product-making and distribution, the airlines might come up with even more ways to “maximize revenue.”
If that happens, we’ll have to become more knowledgeable and sophisticated travelers to make sure we aren’t taken for a ride.
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President Obama is very smart and highly intelligent man who knew more about the world than most presidential candidates do before taking office. So why did he appoint a political ambassador whose tenure has been nothing short of a disgrace, just because she was a significant contributor to his election campaign?
There are some excellent political appointees, but Cynthia Stroum, ambassador to Luxembourg, wasn’t one of them. She was forced to resign last week, following a scathing report of her management style and the damage she did to her embassy by the State Department’s Office of the Inspector General (OIG).
I’ve covered the department for a decade and have rarely seen such a categorical, pointed and harsh document. Obama has every reason to be embarrassed.
“Most employees describe the ambassador as aggressive, bullying, hostile and intimidating, which has resulted in an extremely difficult, unhappy, and uncertain work environment,” the OIG report said after a two-month investigation last fall. “The bulk of the mission’s internal problems are linked to her leadership deficiencies, the most damaging of which is an abusive management style.”
Since Stroum assumed her post in December 2009, “most of the senior staff, including two deputy chiefs of mission (DCM) and two section chiefs, has either curtailed or volunteered for service in Kabul and Baghdad. Other U.S. staff members have also departed early,” the OIG said. “Of the seven permanent and temporary staff who served” as DCM, “only one has remained for longer than 6 months.”
Many ambassadors and their wives indulge in costly renovations of their residences, but Stroum apparently went too far. The OIG “believes that too many of the limited resources of this embassy have been allocated to issues related to her personal support,” the report said.
During a six-week period in 2010, an embassy employee spent 80 to 90 percent of his time searching for a temporary residence for Stroum. “In late summer, he and several other staff members, as well as the management officer, spent several days locating and purchasing an umbrella” for the ambassador’s new patio, it said.
Most career diplomats — and many others — think the practice of awarding campaign donors with ambassadorships, which began in the Kennedy administration, should be ended. The infamous WikiLeaks cables showed the general public how complex and intricate the work of U.S. diplomats is. Why do people think that anyone can do it? Would you let someone operate on you if they don’t have the necessary medical training?
In July 2009, I broke a story that the White House, unaware of historic norms, had been on track to give more than the usual 30 percent of ambassadorial posts to political appointees until objections from career diplomats forced it to reconsider. Overall, that number still holds, but according to a list of ambassadors maintained by the American Foreign Service Association (AFSA), so far Obama has appointed 60 percent career and 40 percent political ambassadors.
Although campaign fund-raising is not a sufficient qualification for being a U.S. ambassador, there is a case to be made that political appointees are useful from time to time. I’ve met several good ones over the years, including Howard Baker, a former Republican senator and White House chief of staff under President Reagan, who was President George W. Bush’s ambassador to Japan.
Even Foreign Service officers say that they need an outsider’s point of view and a fresh perspective on things every once in a while. Someone with Baker’s political skills, stature and connections in Washington can actually be a huge asset to an embassy and the country where he serves.
On the other hand, Stroum wasn’t quite qualified for the job — even in tiny Luxembourg — but it seems the White House didn’t much care about that. She is by no means the only one. Bush’s ambassador to Trinidad and Tobago, Roy L. Austin, was the subject of two OIG reports. Before his appointment, Austin was a sociology professor at Pennsylvania State University — but his best achievement was that he befriended Bush when both studied at Yale University. He changed five DCMs during his tenure, but amazingly he survived all the eight years of the Bush administration.
So while I don’t expect political ambassadors to disappear, the White House should take their appointment much more seriously and consider their knowledge and skills before they start acting like kings and queens around the world.
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I’m no expert in hotel management, but it seems reasonable to expect that, when a Wyndham property becomes a Sheraton, there would be a transition period — even just one day — during which the hotel would be closed to make various changes. That didn’t happen in Miami, and hundreds of guests are still being disserviced as a result every day.
I stayed at the Sheraton Miami Airport last week and was stunned how easily a hotel can get away with charging high rates but failing to provide basic necessities, such as heat. I’m all for letting the market determine prices, except that guests book rooms at the Sheraton not knowing they will be cold and their TV won’t work.
I realize it’s warm in Miami this time of year, and the temperature reached the low 70s the day I checked in at the Sheraton — but at night it fell to about 50F. For me, that’s cold. Moreover, most U.S. hotels are obsessed with air-conditioning, and my rooms are often frigidly cold when I arrive. I expected to be warm in Miami — if I wanted cold, I would have stayed in DC.
The heating capability of my air-conditioner in Miami was disabled, and the only thing I could do was to at least turn off the cold, but not much had changed three hours later. The temperature outside dropped, and cold air from the hallway was coming in through the unusually wide gaps under my door and on the side.
I had work to do but wasn’t being very productive, so I thought I’d watch a little TV to take my mind off the cold. Another surprise: Most channels on the fancy flat TV didn’t work. I approached the desk to call guest services and realized there was no phone on it. There was one on the nightstand.
By the way, I was in one of the hotel’s best rooms, according to the clerk who checked me in. I’d used my Starwood points to reserve an upgraded room, even though I should have received a free upgrade as a Platinum Starwood member.
I went down to the front desk and alerted the same clerk about the phoneless desk, thinking it was probably an oversight. I couldn’t remember the last time I’d stayed at a hotel of that category that didn’t have a phone on the desk. I’d been at the Hampton Inn at the Miami airport the night before, and that much cheaper property had two phones in the room. Obviously, it’s not a big deal, but there are certain standards hotels are required to respect to maintain their category.
The clerk said he’d never heard of any hotel room having two phones. Minutes later, an engineer who came to my room told me a different story. The hotel had been a Wyndham property until Dec. 15, 2010, when it became a Sheraton overnight. The new management decided it would keep it open and save money by fixing things over the following few months with guests in the building.
There had been desk phones, in addition to those on nightstands, but the new masters got rid of them — it wasn’t clear if they will be replaced. The TV problems were due to some work being done as part of the transition.
As for the temperature, the engineer said the heating equipment in most rooms had been dilapidated for years, but the previous management decided not to fix it. Moreover, they also ordered all portable heaters disposed of. Only 14 of the hotel’s 405 rooms still had a heating capability, and I was eventually moved to one of them. I lost the upgrade I’d paid for, but that was no longer important.
Perhaps the Sheraton’s new management could have been less greedy and closed the hotel for a few days until all problems got taken care of. It would have lost some revenue, but it would have been the proper thing to do.
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