How Loyalty Programs Are Saving US Airlines

In recent months, we’ve seen four major US airlines putting up their frequent flier programs as collateral against huge cash injections. Many have been surprised at the incredible valuations placed on these schemes, often worth more than the airlines themselves. With passenger demand still low and the harsh winter coming, which airline will be next to pledge its loyalty scheme as collateral?

American Airlines, CARES Funding, Service Suspension
American is one of the airlines that has used its frequent flier scheme to unlock access to cash. Photo: American Airlines

Frequent flier programs are worth more than the airlines themselves

It might sound crazy, but in these uncertain times, nothing comes as a huge surprise anymore. Airlines, particularly the big players in the US, are discovering the true value of their loyalty programs. In many cases, they are actually worth more than the airline itself.

According to analysis by the Financial Times, Delta’s loyalty program is worth $26 billion, while the airline itself is worth $19 billion. United Airlines’ MileagePlus is valued at $20 billion, while the airline is worth a measly $10 billion. And the world’s largest airline by fleet size, American Airlines, can thank its passengers for its $24 billion valuation of AAdvantage, four times the value of the airline itself, which analysis pegs at just $6 billion.

Airbus A220, Recovery, Perfect Aircraft
Delta’s SkyMiles program is the most valuable in the world. Photo: Getty Images

These high-value programs have been a saving grace in the face of 2020 and all the trials it has brought. Consumers don’t stop spending money just because they can’t travel, and the way these schemes are set up means airlines are still getting support from their loyal passengers. That co-branded credit card in your wallet could well be saving your favorite airline from financial destruction.

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Saving the airlines

In recent weeks, we’ve seen no fewer than four US carriers putting their loyalty programs up as collateral for huge levels of new debt to help them stay afloat through the current crisis. American Airlines, United, Spirit and Delta have all leveraged the value of their frequent flier schemes to access funding support.

Delta’s deal with its SkyMiles program saw it backing $9 billion in new debt. United pledged MileagePlus to access $5 billion from the banks. American’s AAdvantage saw it unlocking $4.75 billion from the US government. Spirit Airlines, which has a more modest $1.9 billion valuation of its two loyalty schemes – the $9 fare club and Free Spirit – raised $600 million.

With such a vast amount of leverage contained within these innocuous frequent flier programs, we may not have yet seen the last of airlines hocking their loyalty schemes for cash. Other airlines have highly valuable collateral in their own schemes, such as Southwest’s ‘Rapid Rewards’, valued at $8 billion and IAG’s Avios at $5.1 billion. So who’s next?

Southwest Airlines, Demand Increases, Grounded Fleet
Southwest has not yet turned to its frequent flier scheme for support, but could in the future. Photo: Southwest Airlines

JetBlue’ actively looking’ at its loyalty program

Speaking at the recent World Aviation Festival, JetBlue’s Chief Operations Officer and President, Joanna Geraghty, admitted that the airline is looking at the potential to pledge its TrueBlue loyalty program to unlock future capital. Already the airline has pledged aircraft, equipment and trademarks associated with its brand as collateral. The next step could be its frequent flier scheme. Geraghty said,

“We’re also looking at our loyalty program. The loyalty program has tremendous value. We haven’t yet gone down that path, but we’re actively looking at that.”

JetBlue is actively looking at TrueBlue for leverage. Photo: JetBlue

The considerable value of loyalty programs might come as a surprise to passengers, but for airlines and banks, there’s no doubt about their valuation. Geraghty continued,

“I don’t think the public recognizes the value of loyalty programs, but Wall Street absolutely recognizes it. It’s something that comes up in nearly every one of our earnings calls … so I do think the value is appreciated among the sector.”

Are you surprised by the valuation of airline loyalty programs? Let us know your thoughts in the comments.