Watching wave after wave of Delta jets landing and taking off at Atlanta’s Hartsfield Airport, you might not suspect that the airline’s financial health is bound up with the performance of something only remotely related to flying.
Specifically, it’s the suite of credit cards issued by American Express and linked to Delta’s SkyMiles program.
Delta generates around $1 billion a year from the sale of frequent flyer miles to companies that partner in the SkyMiles program. And by far the largest purchaser of those miles is American Express, which uses the miles as sign-up bonuses to attract new cardholders, and then awards them for purchases charged to its cards.
It’s a lucrative relationship for both Delta and American Express.
The sale of frequent flyer miles is a highly profitable side business for Delta. And for American Express, frequent flyers are a very desirable demographic—big spenders with low default rates.
It is therefore in the best interest of both Delta and American Express to get cards into the hands of as many consumers as possible, and to encourage as much card usage as possible.
Earlier this week, American Express and Delta announced a new card benefit clearly designed to expand the cardholder base.
Beginning June 1, Delta customers who hold a Gold, Platinum, or Reserve SkyMiles credit card will be exempt from the first checked bag fee when flying Delta and Delta Express. The fee will also be waived for up to eight companions traveling together on the same reservation with the cardholder. (Elite members of the SkyMiles program are already exempt from this fee, so this is moot for them.)
The Reserve, Platinum, and Gold cards come with annual fees of $450, $150, and $95 (waived for the first year), respectively.
Deal or No Deal
The math here is pretty straightforward. It takes two round-trips with one bag checked on each flight to run up $100 in bag fees. So holders of the Gold card, with its $95 annual fee, would be ahead of the game if they fly just twice a year.
For Delta customers who check bags, this creates a compelling argument for acquiring a Gold card, especially given the card’s current “no annual fee” offer during the first year.
For the other cards, with higher annual fees that are not waived, you’ll have to add up their respective benefits, including the new fee waiver, to determine whether you can justify the higher costs.
The cost-benefit analysis aside, it’s worth noting that such relationships establish a troubling dynamic in which the best interests of consumers may be jeopardized.
It’s not hard to imagine Delta executives discussing which services they could charge fees for, which could then be waived for American Express cardholders. Flyers would be forced to either pay the fees, or sign up for a SkyMiles credit card to avoid them—either of which would cost consumers and benefit Delta.
I’m not suggesting that Delta and American Express actually engage in such nastiness, but the perverse incentive to do so certainly exists.
Reader Reality Check
If you’re already a SkyMiles credit card holder, is the fee waiver a meaningful benefit to you?
And if you’re not a SkyMiles credit card holder, is this new benefit worth enough to get you to sign up for a new Delta credit card?