Another Reason Airline Stocks Are For Trading, Not Owning

Summer’s over, and investors who stuck with airlines are probably feeling pretty good. After all the stocks, pumped up by cheaper jet fuel than in years past, are in the black.

But don’t get too attached to charts like these.

DAL Chart

DAL data by YCharts

YCharts’ Dee Gill outlined some reasons why airlines are dicey investments. And here’s one more to add to the list: they are blatantly antagonizing customers.

Delta (DAL), like the other airlines, gives its customers miles to be redeemed for free or discounted travel. As it says, “Our SkyMiles® frequent flyer program is designed to retain and increase traveler loyalty by offering incentives to travel on Delta. The SkyMiles program allows program members to earn mileage for travel awards by flying on Delta, Delta's regional carriers and other participating airlines.” It says that last year, program members redeemed more than 275 billion miles and that 8.2% of revenue miles flown on Delta were from award travel.

But while it gives out the miles, it doesn’t actually want people to use them, of course. It has a term for that, “breakage,” which it tracks closely. At the end of last year, it figured that the aggregate deferred revenue balance associated with miles was $4.5 billion. That’s up from the end of 2007, when the aggregate deferred revenue balance of miles was $3.3 billion.

DAL Revenue TTM Chart

DAL Revenue TTM data by YCharts

But Delta would rather people pay full price for the privilege of getting ignored by flight attendants and having the airline lose luggage. The New York Times reports that the airline is cracking down on start-ups trying to help customers manage their airlines miles. Delta’s been sending scary cease and desist letters to sites like MileWise and AwardWallet, which are a bit like for airlines. Customers give the travel sites their usernames and passwords for mileage programs, and in return the sites help them track the balances and expiration dates in once place. That way they can use their miles most effectively – something Delta obviously doesn’t want.

This is the kind of behavior that turns off customers, and it gets away with this only because its competitors are just as bad. In July, some lucky United (UAL) passengers were stranded for more than four hours on the tarmac, an incident regulators are now investigating. United, incidentally, also has a surprisingly familiar statistic for award travel – last year, awards represented 8.2% of total revenue passenger miles, and only 5.6% at Continental. Its combined deferred revenue balance for miles $5.7 billion.

But colluding and generally opposing transparency only works for so long. Consumers do have other options (hello, Amtrak). It’s something for investors to keep in mind.

From the editors of YCharts.YCharts Pro Investor Service includes professional stock charts, stock ratings and portfolio strategies.



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