American Will Pledge The AAdvantage Program To The Federal Government Within 6 Weeks

During the American Airlines earnings call the airline revealed they had the AAdvantage program appraised and hinted at a $30 billion value, something CEO Doug Parker had previous scoffed at.

It turns out that appraisals provided a range for the loyalty program, and during the Wolfe Research conference this morning American confirmed that $30 billion was the top end of that range.

Airline CFO Derek Kerr offered that the appraised value of the program is between $18 and $30 billion. And he confirmed that the program is expected to be used as collateral for a federally subsidized CARES Act loan. The “deal is not done yet with the government, [but we] fully expect it to be [by the] end of the second quarter.”

However that will still leave the airline with the ability “to do other things” whether “prepaid miles or other forms of liquidity” in a deal with co-brand credit card issuers Citibank and Barclays who have been “willing to help us as we go forward.”

Asked by analyst Hunter Keay how lending against the program works given that “if American goes away what do you have with the loyalty program other than a list of names?” the airline responded that the airline isn’t going away and the list of names alone is “massively valuable” and that no matter way “this program survives in anything you do it’s the biggest asset we have in the company.”

American’s “number one priority is to get the government loan done [because it is] the most efficient financing out there today.” That is expected to mean pledging AAdvantage to the federal government, which the Department of the Treasury laid out as a possibility in early April.

Cross-talk at the end of the question and answer session turned to American executives realizing that they hadn’t previously disclosed details about the appraisal of the AAdvantage program.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. Hey Gary – I pitched this to the Bask team, but would be great to get your muscle behind it too. Wouldn’t it be a good deal for all involved (AA, Bask and the saver) if the AA miles earned with Bask also earn elite miles in addition to redeemable miles (similar to the credit card offer through year-end)?

  2. Can you explain more what this means for customers with AA miles in their portfolio? Thanks.

  3. So the government now gets all the personal information I gave to American if the loan goes unpaid?
    I would think there’s info in there to which the government might otherwise be legally barred for obtaining… Any attorneys want to opine on 4th amendment issues?

  4. Do you have another post which explains how a ff program has such a high value?

  5. “Any attorneys want to opine on 4th amendment issues?” I’m not about to do all the research to confirm it but I would not be surprised if the terms and conditions of using the AA included language that allows AA to do this. Also, I’m not sure what information you are giving to AA that the government doesn’t already know via other means at least for American citizens. Government is going to know your date of birth, your passport info, global entry info, government is going to have a record somewhere of what flights you have taken, government is going to know your official address, etc. The government likely has far more information about you than AA could ever dream of.

  6. Giving the government your ff details means they can then set a value of the miles in your account then with the stroke of a pen term them income and tax you!!

  7. We pay taxes on the miles when we use them!! American should not be using them as collateral! If I lose one mile I will pissed.

  8. Are you a blogger? Journalist? Something in between? your articles leave much to be desired after your (self proclaimed) excellent headlines…..

  9. Strange! I would think that FF Miles are a liability to the airline, a debt that may be collected in the future. How can they twist it around to call it an asset? (Unless we are about to get taxed on them?) I can’t think of anything good from this news, except maybe it would put the Government in line to keep American flying and so we can still use our miles.

  10. @Geoff- Bank that gives AA miles as a reward for keeping money with them. As they are one of the only banks that do this, seems unlikely for them to sweeten the offer.

    You value a frequent flier program on an EBITDA basis, just like any other company. The frequent flier program sells points to card issuers, hotel chains, car rental companies, etc. Then they have a cost of redemption on their primary carrier (and partner airlines), expenses associated with administering and marketing the program, etc. There is probably also a transfer cost associated with the airlines giving away points to their fliers that are accrued in the program, but that’s an internal cost and I’m not sure how that works.

    But to have a valuation of $16 – 30B, AAdvantage must generate hundreds of millions of dollars in profit a year. That’s a nice amount!

  11. Hi Gary! Can you provide a link to the article or transcript or recording from the Wolf Research conference mentioned above?

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