COVID-19

Delta’s putting its frequent flyer program up as collateral for a loan

Justin Ho Sep 14, 2020
Heard on: Marketplace
HTML EMBED:
COPY
A Delta Air Lines employee waits for passengers at an empty check-in counter at Ronald Reagan Washington National Airport in Arlington, Virginia. Andrew Caballero-Reynolds/AFP via Getty Images
COVID-19

Delta’s putting its frequent flyer program up as collateral for a loan

Justin Ho Sep 14, 2020
A Delta Air Lines employee waits for passengers at an empty check-in counter at Ronald Reagan Washington National Airport in Arlington, Virginia. Andrew Caballero-Reynolds/AFP via Getty Images
HTML EMBED:
COPY

Delta Air Lines will be borrowing $6.5 billion.

That’s not super surprising, given the state of the big air carriers in this pandemic economy. A Delta executive recently said the airline’s losing $27 million a day. But the interesting part of this deal is the asset that Delta’s putting up as collateral: its frequent flyer program.

Frequent flyer miles aren’t only meant to build customer loyalty. They’re also a product that airlines sell.

Samuel Engel, senior vice president with the consulting firm ICF, said the buyers are credit card companies.

“And the credit card companies in turn give those miles to consumers as a reward for using their credit cards,” he said.

Engel says miles are a money-making machine for airlines.

“At the beginning of this year, the programs of the four largest U.S. airlines together had been valued at $77 billion, if they were standalone businesses,” he said. 

Airlines can tap these programs to raise cash. One common method is to presell miles to banks to get cash upfront.

Henry Harteveldt, president of Atmosphere Research Group, said an airline can also spin off the entire program, as Air Canada did in 2005.

“No airline, though, until recently has leveraged its frequent flyer program as collateral against a loan,” Harteveldt said.

Earlier this year, United put up its loyalty program as collateral for a government loan. Harteveldt said it’s a creative way to raise cash “at a time when air travel demand, especially by their more profitable business flyers, has fallen off the cliff.”

Airlines have other creative ways to raise money. Scott Hamilton, managing director at the aviation consultancy Leeham Co., said it’s common for airlines to pledge their planes, and even their headquarters and airport gates, as collateral for loans.

“But the frequent flyer program is to me the most creative and the most visible sign of the desperation that the airlines are in,” Hamilton said.

The risk for airlines, Hamilton said, is taking on too much debt. That could make it harder for them to recover from the current slump.

COVID-19 Economy FAQs

What’s going on with extra COVID-19 unemployment benefits?

It’s been weeks since President Donald Trump signed an executive memorandum that was supposed to get the federal government back into the business of topping up unemployment benefits, to $400 a week. Few states, however, are currently paying even part of the benefit that the president promised. And, it looks like, in most states, the maximum additional benefit unemployment recipients will be able to get is $300.

What’s the latest on evictions?

For millions of Americans, things are looking grim. Unemployment is high, and pandemic eviction moratoriums have expired in states across the country. And as many people already know, eviction is something that can haunt a person’s life for years. For instance, getting evicted can make it hard to rent again. And that can lead to spiraling poverty.

Which retailers are requiring that people wear masks when shopping? And how are they enforcing those rules?

Walmart, Target, Lowe’s, CVS, Home Depot, Costco — they all have policies that say shoppers are required to wear a mask. When an employee confronts a customer who refuses, the interaction can spin out of control, so many of these retailers are telling their workers to not enforce these mandates. But, just having them will actually get more people to wear masks.

You can find answers to more questions on unemployment benefits and COVID-19 here.

As a nonprofit news organization, our future depends on listeners like you who believe in the power of public service journalism.

Your investment in Marketplace helps us remain paywall-free and ensures everyone has access to trustworthy, unbiased news and information, regardless of their ability to pay.

Donate today — in any amount — to become a Marketplace Investor. Now more than ever, your commitment makes a difference.