The same Spirit Airlines that is likely to be acquired by JetBlue Airways is seeking another $600 million in new debt. Even more interesting is that Spirit Airlines is using its loyalty programs - Free Spirit and Spirit Saver$ Club - to secure that debt as collateral.
This comes against a backdrop of Spirit reducing routes but also investing in new seating and pilot training. Nonetheless, for an airline that seeks regulatory approval to be bought by JetBlue, Spirit Airlines is making big moves.
What is Free Spirit and Spirit Saver$ Club?
Free Spirit is a program that allows passengers to earn up to 12 points for each dollar spent with Spirit Airlines. One can sign up for free on the Spirit Airlines website. Once one acquires 1,000 or more points, the points can be redeemed for part of the cost of flights. As of November 11, one needs at least 2,500 points to cover the full cost of a flight.
However, if you earn at least 2,000 points, you can earn silver status. This means you win certain benefits such as free seat selection at check-in, shortcut boarding and security with complimentary same-day standby, overweight checked-baggage fees waived, and a waiver of redemption fees.
Free Spirit members can also, at 5,000 points, get upgraded to Gold. A gold upgrade gets perks such as receiving free "Flight Flex" (which is more flexible travel including a complimentary change, though a fare difference may apply), a free carry-on, a free first checked bag, free seat selection at booking– including exit rows– and a free inflight beverage and snack.
Read more about Free Spirit.
There’s also the Spirit Saver$ Club, which according to Spirit grants,
“Exclusive access to some of the lowest fares available, as well as discounted prices on bags, seats, and other options such as shortcuts thru security, shortcut boarding, and flight flex.”
As of November 11, 2022, costs for the subscription service start at $69.95 for a year.
Spirit Airlines also offers branded credit cards. Using these branded credit cards means points towards Spirit Airlines rewards. As of November 11, there is an offer of 60,000 Bonus Points + $100 Companion Flight Voucher for taking out a “Free Spirit” MasterCard.
Finally, there is a points pooling option available. This way, up to eight Spirit Airlines customers can pool together their points to add into and withdraw from as necessary.
Using customer loyalty to secure debt
Spirit Airlines is literally using customer loyalty programs to secure debt. Originally, the amount was $500 million, but a subsequent airline filing of November 10 says the amount is now $600 million.
According to the original November 9 filing, the debt will be “secured” with the airline’s “Co-branded credit card programs and Spirit Saver$ Club program and intellectual property utilized in connection with the loyalty program." Independently appraised at a value of $2.6 billion-plus and the brand intellectual property appraised at $1.6 billion, it's a valuable commodity that Spirit can leverage. It helps that the airline believes these programs will bring in over $150 million in 2022, almost $200 million in 2023, and approximately $250 million in 2024.
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The debt is intended to pay down $155 million of debt and have more cash on hand with an uncertain 2023. According to Airline Weekly, this is after Spirit Airlines took out $850 million in loyalty program-secured debt in September 2020.
Precedents from other airlines
What Spirit Airlines is doing has precedent. Airlines in the United States, such as American Airlines, Delta Air Lines, and United Airlines, all used their loyalty programs as collateral for loans to persevere during the worst of the COVID-19 pandemic downturn. Alaska Airlines and Southwest Airlines also have mentioned the strength of theirs in investor updates. JetBlue has done neither.
Nonetheless, it's clear that airlines gain revenue from loyalty programs to reward loyal fliers. Now airlines are getting more than money from those programs also, like loan guarantees.
Do you think airline loyalty programs provide a mutually cooperative relationship between passengers and airlines? Let us know in the comments.
Sources: Airline Weekly, November 9, 2022 Spirit Airlines 8-K Filing, November 10, 2022 Spirit Airlines 8-K Filing,