Delta Airlines Fighting to stay afloat amid the decline in air travel during the coronavirus pandemic is turning to its popular loyalty program to take advantage of financial options.
Essentially, the Atlanta-based airline plans to mortgage its SkyMiles loyalty program up to $ 6.5 billion. Loyalty programs are lucrative assets for airlines that earn billions a year by selling frequent flyer miles to credit card partners who reward the miles for their spending. American Express, for example, paid Delta $ 4.1 billion for miles in 2019, according to filings with the Securities and Exchanges Commission.
The private funding deal comes as the Atlanta-based carrier continues to lose up to $ 27 million a day in cash amid an unprecedented drop in air travel due to COVID-19. The proceeds will be used to bolster the $ 15.7 billion in cash and short-term investments that Delta had at the end of June.
In a Press release, Delta announced the creation of a new company, SkyMiles IP Ltd., which will be based in the Cayman Islands to facilitate the new funding. The Atlanta Journal-Constitution reported that as a result of this new action, Delta would waive a new federal CARES Act loan.
In a 8-K deposit On Monday, Delta reported a 78% drop in miles redeemed in the first half of the year, leading to a 60% drop in passenger revenue. However, frequent travelers continued to use their Delta SkyMiles credit cards, and cash from sales to American Express only declined 5% year-on-year to $ 1.9 billion.
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|AXP||AMERICAN EXPRESS CO.||175.81||+4.30||+ 2.51%|
According to an investor presentation, Delta will purchase miles from the new SkyMiles affiliate for issuance to frequent flyers, and the affiliate will purchase seats from Delta when frequent flyers use miles to reserve their seats. Meanwhile, American Express and other SkyMiles partners will purchase miles from the affiliate for issuance to credit cardholders.
Delta received $ 5.4 billion under the CARES Act Payroll Support Program, which was repaid in installments until July. The airline also signed a letter of intent giving the option of an additional loan of $ 4.6 billion through the federal assistance program.
Delta is not alone in operating its loyalty program. In June, United Airlines was the first with a mortgage of its MileagePlus program up to $ 5 billion in debt.
While this move should give Delta a boost, it shouldn’t impact Sky Miles members or their redemption of miles for flights.