The cover story of the July, 2005 Inside Flyer is on airlines spinning off their frequent flyer programs in public offerings.

David Rowell thinks United could be worth $15 billion. Randy Petersen says “greater than $2.5 billion.”

According to the piece, airlines sell $3 billion worth of miles annually. United’s spinoff of Mileage Plus into a wholely-owned subsidiary in 2002 was a $1.4 billion transaction. Mileage is clearly a big business:

In 2003, ULS accounted for 5 percent of UAL’s 2003 revenues. In 2004, United recognized more than $400 million in revenues related to ULS, which would not reflect the entire business revenue of ULS for that year. In 2000, revenue for third-party mileage sales reached $220 million during the first six months alone.



But American AAdvantage is clearly the king of frequent flyer programs, with annual revenue related to third-party sales of miles exceeding $1 billion annually.

Airlines sell miles, and buy seats redeemed with those miles (or merchandise, etc.) at a discount, earning money on the spread.

Randy thinks a spinoff would make miles safer, since a loyalty program could simply buy seats from another carrier if the one to which they’re linked goes under. And since the largest programs redeem millions of free seats each year, they should have the buying clout to negotiate sufficiently discounted tickets (likely maintaining heavy restrictions) that they could remain profitable.