Navigating Loyalty Liabilities: How Delta Can Offload SkyMiles Redemption Costs to Partner Vendors via Blockchain Technology

TL;DR

1. Liability Accumulation in Loyalty Programs: Delta Air Lines is grappling with increasing liabilities due to unredeemed points in its SkyMiles Program, a challenge amplified by changes in program terms that have left customers dissatisfied. This issue is industry-wide, with major U.S. airlines holding $27.5 billion in loyalty program liabilities by the end of 2020.

2. Potential Blockchain Solution: Delta could alleviate this financial strain by creating a blockchain-based marketplace, "SkyMarket," enabling B2B points distribution. In this space, vendors tokenize their services as NFTs, allowing SkyMiles members to trade points for various perks, ensuring transparent and secure transactions, and reducing Delta's liabilities.

3. Revenue Sharing and Enhanced Customer Experience: Implementing SkyMarket could lead to a win-win scenario through referral agreements and revenue-sharing with vendors, generating additional income for Delta. Moreover, this approach enhances customer satisfaction by diversifying and securing redemption options, potentially restoring trust in the SkyMiles program.

Airlines are facing a turbulent atmosphere of accumulating liabilities due to their lucrative loyalty programs. In particular, Delta Air Lines finds itself in a bind with its SkyMiles Program. The unredeemed loyalty points, resembling IOUs, are piling up as liabilities on Delta's balance sheet. 

The recent uproar over the SkyMiles program highlighted the dilemma Delta faces. The elevated spending requirements for achieving Diamond Medallion status (from $20,000 to $35,000) has left loyal customers disgruntled. Delta's CEO, Ed Bastian, acknowledged the oversight and hinted at upcoming modifications to restore customer trust. However, the core issue remains: the soaring liabilities from the unredeemed loyalty points.

#The Liability Landscape

The liability issue isn't unique to Delta. The end of 2020 saw the five major U.S. airline loyalty programs harboring $27.5 billion in liabilities, a stark rise from the previous year. The financial strain from the pandemic has even led airlines to use these programs as loan collateral, further spotlighting the financial risks involved. 

Balancing points issuance with demand for flights can be a delicate and complex process. Driven by the desire to incentivize customers, airlines may lose track of growing liabilities until they find the redemption costs under current terms are too steep, threatening long term profits. To mitigate this, they alter the rules, which naturally upsets customers and erodes trust in the loyalty program.

Despite these concerns, Delta’s partnerships with companies like Airbnb, Lyft, Instacart, and American Express are diversifying the ways SkyMiles members can earn points, extending beyond flight purchases. While this strategy enhances customer engagement, it also exacerbates the liability of unredeemed points on Delta's balance sheet. Balancing this expansion with efficient liability management is crucial to maintain the financial sustainability and appeal of the SkyMiles Program.

#Leveraging Web3 to Offload Loyalty Program Costs

To mitigate the accumulating liabilities and sustain customer trust, airlines like Delta could explore partnerships with complimentary vendors in the travel and leisure sector. By creating a marketplace for B2B points distribution, Delta can offload some of the costs associated with redeeming loyalty points. Utilizing web3 technologies, like blockchain, airlines can facilitate a transparent, efficient platform where vendors can tokenize their perks as NFTs (Non-Fungible Tokens), allowing loyalty points holders to trade their points for a range of benefits. Let’s dive into how this theoretical marketplace, which we will call "SkyMarket" could work:

1. Tokenization of Perks:

   • Vendors in the travel and leisure sector could tokenize their services or perks as Non-Fungible Tokens (NFTs). For instance, a hotel could tokenize a two-night stay, a museum could tokenize entry tickets, and a concert venue could tokenize VIP passes.

   • Each tokenized perk can be assigned a value in SkyMiles points, allowing for a standardized and transparent valuation.

2. Creation of SkyMarket:

   • Delta could create a digital marketplace named SkyMarket on a blockchain platform. This marketplace would list all the tokenized perks from various vendors, allowing SkyMiles points holders to browse and redeem points for desired perks.

   • The blockchain's immutable and transparent nature ensures that all transactions are secure, traceable, and free from fraudulent activities.

3. Real-Time Redemption and Verification:

   • Once a SkyMiles member selects a perk, the blockchain could facilitate real-time verification and redemption of points.

   • The transaction would be recorded on the blockchain, providing a clear audit trail and ensuring the integrity of the redemption process.

4. Reduced Liabilities and Enhanced Partnerships:

   • By offloading the redemption of perks to various vendors, Delta can significantly reduce its liabilities from unredeemed loyalty points.

   • This model can also foster partnerships with a wide range of vendors, expanding the ecosystem of perks available to SkyMiles members and enhancing the appeal of the loyalty program.

5. Scalability and Future Growth:

   • The blockchain-based SkyMarket is scalable, allowing for the addition of more vendors and a wider range of tokenized perks as the platform grows.

   • It also opens the door for potential collaborations with other airlines' loyalty programs, creating a robust, industry-wide loyalty points ecosystem.

6. Customer-Centric Benefits:

   • The SkyMarket can offer a more diverse and attractive range of perks, enhancing customer satisfaction and loyalty.

   • Furthermore, the transparency and security of blockchain provide a trustworthy platform for customers, reinforcing their confidence in the SkyMiles program.

#Revenue Sharing Through Referral Agreements: A Win-Win Scenario

Leveraging the proposed SkyMarket platform, Delta has the potential to further monetize its SkyMiles program through referral agreements with vendor partners. By establishing a revenue-sharing model, Delta could earn a share of the revenue generated from new customers who initially redeem their SkyMiles points for vendor perks and continue to engage with these vendors for additional services. Through these measures, Delta not only alleviates the financial liabilities of the SkyMiles program but also cultivates a thriving ecosystem where customers, vendors, and the airline itself stand to benefit.

Ultimately, by embracing blockchain technology, Delta can revolutionize its SkyMiles program, turning the tide on liabilities and setting a new course toward a more financially sustainable and customer-centric loyalty program model.