Last month, Delta (NYSE:DAL) launched a new partnership with Lyft (Private:LYFT), the ride-sharing service, which allows Delta SkyMiles members to earn frequent flyer miles when they use Lyft:
Customers connect their Lyft account with their Delta SkyMiles frequent flyer account.
For every Lyft ride, customers earn 1 mile per dollar spent (excluding incidentals).
Until the end of August, customers earn 3 miles per dollar for rides to or from an airport.
Like other ride-sharing apps, Lyft already benefits from the ease of charging rides to a predefined credit card without the customer feeling the tangible pain of handing over cash, which can crimp spending. So a customer considering whether to take public transportation, a traditional taxi, or use a ride-sharing app will often opt for the app because the predefined credit card payment makes it a seamless process.
Beyond that, research proves that customers change their behavior when they earn miles as an incentive to purchase a product or service. Earning miles attracts new customers to sign up, makes existing customers increase their usage frequency, and drives all customers to spend more than they otherwise might.
In Lyft's case, the benefit of the partnership with Delta involves not just these effects but also the likelihood that riders who might otherwise have used a competitor (Uber (Private:UBER), Gett, Juno, etc.) will switch their business to Lyft wherever possible because they will earn miles.
How does Delta benefit? At first glance, one might have thought they would have preferred to work with Uber for this sort of partnership. Leaving aside whether Uber would have been willing to sign such a deal, three main reasons explain why working with Lyft in particular makes sense for Delta:
More than adequate domestic coverage: Uber's reach far exceeds Lyft: it currently operates in 600+ cities (including 200+ US domestic cities) across 80+ countries. But Lyft's domestic coverage is more than adequate since it expanded to 100 US cities recently. Gett has only about that number of cities across all the countries in which it operates, and the business model differs from place to place, which might have made it hard for Delta to build a unified, compelling partnership.
Steering clear of Uber's damaged brand: Uber's lengthening list of woes risked associating Delta with a damaged brand. When Delta announced the Lyft partnership, the world already knew about Uber's sexual harassment claims and problems with data privacy. Since then, Travis Kalanick's departure as CEO has highlighted Uber's fragility, and there have even been recent calls for Uber to be shut down.
Lyft's coolness factor: Lyft's whimsical pink moustaches and public perception that it is (relatively speaking) the "don't be evil" ride-sharing service matches Delta's desire to appeal to customers who appreciate aesthetics, with stylish typography, better food on the ground and in the air, and other peripheral aspects of the brand.
But the key value of the partnership for Delta is in the details. Connecting your Delta and Lyft accounts allows Delta to collect extensive data on all Lyft rides you take:
A few users, skittish of data sharing, may decide not to sign up. The vast majority will either ignore the fine print or won't mind sharing their ride data.
Building a rich picture of the customer using data
Imagine the following scenario:
Lyft drops you off at New York's La Guardia Airport (LGA) Terminal B around 10 am.
Lyft picks you up that same day, around 6 pm, from Boise, Idaho (BOI).
Remember that you agreed to share "details about rides you have taken, including location and route" with Delta. Here's how it can use those details to target its competitors.
Did you collect SkyMiles for your flight?
Delta knows that you care about collecting Delta SkyMiles because that motivation led you to sign up for the Lyft partnership. So if Delta does not see that any miles have accrued in your SkyMiles account from flights between New York and Idaho, it can assume that you did not fly on Delta.
Airport drop-off location
Delta's terminal at LGA is Terminal C. Since Delta knows that you were dropped off at LGA Terminal B, location alone confirms that it is unlikely you traveled on Delta.
I will discount two unlikely scenarios:
- It's possible that you could have been dropped off at Terminal B and then walked or taken a yellow taxi or a Lyft competitor ride-share to Terminal C: if you were traveling with someone else whose flight left from Terminal B, for example. You can't have taken Lyft between terminals because Delta would know if you'd taken three rather than two rides that day. But if you were actually flying on Delta from Terminal C, it seems far-fetched that you would not have collected Delta miles for your own flight.
- Perhaps you flew by private plane from LGA Terminal B? Aside from the fact that New York City's private plane fliers most often use Teterboro Airport, this is even more unlikely: if you had the money to do so, you probably would have taken a chauffeured car service to the airport. You're unlikely to be a Lyft user in this circumstance, and you probably don't care about collecting SkyMiles.
Location data from your drop-off airport alone, therefore, strengthens the case that you flew on a competitor airline which operates from LGA Terminal B.
Airport pickup location
Since Delta knows from pickup location data that you somehow ended up in Boise, it makes most sense that you flew on a competitor airline which publishes fares and sells tickets between La Guardia and Boise.
Which airline could that be? Published schedules show these flights leaving LGA between mid-morning and early afternoon to Boise that day:
- American leaving LGA at 10:30 am via DFW arriving BOI at 6:52 pm.
- Delta leaving LGA at 11:55 am via MSP arriving BOI at 9:52 pm.
- United leaving LGA at 12:00 pm via DEN arriving BOI at 5:29 pm.
- Alaska leaving LGA at 12:30 pm via ORD and SEA arriving BOI at 9:59 pm.
Ride timestamp data
We know that Delta knows the specific day on which you take a particular ride (because it posts with that datestamp to your Delta SkyMiles account). Terms and Conditions don't clarify whether Delta gets access to your exact ride time start and end data. But nothing in your agreement to connect your Lyft and Delta accounts explicitly excludes them: it merely says that you agree to share details "including location and route."
Let's assume for a moment that it does know exact ride stop and start times.
You were dropped off at LGA Terminal B around 10 am and picked up in BOI around 6p m.
Look back at the airline schedules I mentioned above:
- American leaving LGA at 10:30 am via DFW arriving BOI at 6:52 pm.
- Delta leaving LGA at 11:55 am via MSP arriving BOI at 9:52 pm.
- United leaving LGA at 12:00 pm via DEN arriving BOI at 5:29 pm.
- Alaska leaving LGA at 12:30 pm via ORD and SEA arriving BOI at 9:59 pm.
You started your Lyft ride in BOI at 6 pm. That means you cannot have flown on Alaska Airlines (NYSE:ALK) since that connection arrives around 10 pm.
It's possible you flew on American Airlines (NASDAQ:AAL): it leaves at 10:30 am, which is 30 minutes after your Lyft drop-off at LGA. Half an hour from door to plane, while just about possible, sounds unlikely: the TSA isn't that quick nowadays, and airlines often close the plane door 15 minutes before scheduled departure. American's flight from DFW-BOI is scheduled to take three hours and arrive at almost 7 pm. If Delta knows you ordered a Lyft pickup in BOI at 6 pm, it doesn't make sense that a three-hour block-time American Airlines flight from DFW could have arrived an hour early and given you enough time to order the Lyft.
That leaves only one option: you must have flown on United (NYSE:UAL). Arriving at LGA around 10 am gave you ample time before the 12 pm United flight. Upon arrival at BOI, you had over half an hour from United's published arrival time before you drove away from the airport in a Lyft, which was enough time to collect a checked bag and get your bearings.
"Business analytics and offer optimization"
The Delta/Lyft partnership's Terms and Conditions note the following:
Lyft, Delta and the third party hosted site may share your information for the purpose of tracking and processing your miles into your SkyMiles account or sending you targeted offers and may use anonymized, aggregated data for business analytics and offer optimization
Privacy researchers have shown that "anonymized, aggregated data" often fails to mask the identity of an individual: "It turns out that it may not even be possible for aggregate data to be anonymous, no matter hard one tries to make it so."
My example above about a flight from LGA-BOI proves the point that "the more connectable data points, the more valuable a set of data." It also shows "the surprising ease with which apparently anonymous data can be 'reidentified,' that is, combined in a manner that results in identifying individuals to a great degree of certainty."
How useful is this to Delta?
We know that Delta gets access to pickup and drop-off locations because you agreed that when you connected your Lyft and Delta accounts. Assuming that, how helpful are the other data points?
If Delta knows your specific ride timestamps, drop-off/pickup locations, and can associate them with your SkyMiles account: If Delta indeed has access to an individual user's specific ride times, it can start to create a profile of that user's flight purchasing decisions. Over many trips, whether for a single route or across a variety of routes, Delta will be able to build up a picture of when you fly with its competitors and which airlines you choose. If it can link that data to your specific SkyMiles account, Delta now knows that it's worth targeting you with specific sale fares or SkyMiles promotions for the LGA-BOI route you are currently flying with its competitors.
If Delta knows your specific drop-off and pickup locations and the day you travelled but not your drop-off and pickup times, and can associate them with your SkyMiles account: Even without timestamps, location data that is precise enough to distinguish between airport terminals, as described above, is enough on its own to point to the likelihood that you flew with one of Delta's competitors. For certain city pairs, it will be enough to prove the specific airline (This depends on the specific route and on whether a given airport has multiple terminals. For a route between points like LGA-ORD where there is strong competition and numerous nonstop flights, it may be too hard. But since the rash of mergers led the industry to consolidate around three major domestic airlines, American, Delta and United, there are fewer distinct airline choices flying between any two domestic airports, and the majority of domestic city pairs require at least one connecting flight since the three major airlines all use hubs to cut costs and offer more routing pairs. Even for a multiple-airport city pair like NYC-ORD, United flies mainly from its hub at EWR, Delta from JFK and LGA, and American almost entirely from LGA, so even for such a high-traffic route, drop-off/pickup location alone might identify the competitor airline.)
If Delta can see specific ride start and stop times per user, and the number of users who were dropped off at airport AAA and picked up at airport BBB, but not identify those users specifically or associate them with particular SkyMiles numbers: If 300 unique users per month match the drop-off and pickup patterns I described between LGA and BOI, maybe Delta needs to modify its flight times to compete with United? Or maybe it is pricing its tickets uncompetitively on that route?
If Delta can see the number of users who were dropped off at airport AAA and picked up at airport BBB, but not connect that data with the other drop-off/pickup locations those unique users have visited on other occasions, or associate them with particular SkyMiles numbers: Maybe city pair data shows that many Delta customers fly between cities where Delta does not operate? In that case, the airline might decide to start a new route entirely.
Conclusion
Previous airline partnerships where customers can earn miles have allowed an airline to collect data on what their flyers buy. This is not the case for co-branding partnerships with credit card companies (such as American and Citibank (NYSE:C) or Barclays (NYSE:BCS) or Delta and AmEx (NYSE:AXP)), which do not allow the airline to see statement-level data on a customer's purchases. But Rewards Network, for example, runs dining partnerships with many airlines. When the miles credit to the airline, the mileage statement shows the restaurant name where the diner ate and how much they spent. Airline shopping malls also dangle the benefit of miles as an incentive to make online purchases, and airlines benefit because they learn where customers shop.
No previous partnership has allowed an airline to come as close as this to figuring out when their own customers choose to fly on their competitors. The fact that the introductory SkyMiles earning rate for trips to and from airports is 3x any other rides (at least until the end of this summer) signals the importance of these rides to Delta in building up a picture of its customers' behavior and using the rich data it collects to strike at its competitors.
Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in DAL over the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I am long DAL competitors LUV and RYAAY, and also BCS (mentioned in the article) which has a credit card partnership with AAL.