Delta Agreed Not To Devalue SkyMiles As Part Of Mortgaging The Program

Delta raised $9 billion, backed by its SkyMiles program. They broke SkyMiles into three new separate Cayman Islands companies: SkyMiles Holdings, SkyMiles IP, and SkyMiles IP Finance. The full sausage of the deal has been filed in an SEC 8-K.

I found this one clause interesting:

Delta and SMIP are also prohibited from substantially reducing the SkyMiles program business or modifying the terms of the SkyMiles program in a manner that would reasonably be expected to materially impair repayment of the SkyMiles Financing obligations (described as a “Payment Material Adverse Effect” in the Indenture and the New Credit Facility), and Delta and its subsidiaries are prohibited from changing the policies and procedures of the SkyMiles program in a manner that would reasonably be expected to have a Payment Material Adverse Effect or operating a competing loyalty program.

Lenders want to make sure they’re paid back. That means they want to ensure customers will keep spending on Delta credit cards, and keep buying miles. In order for that to happen, the SkyMiles program has to remain attractive to members.

However the limits placed on what Delta can too only preclude their making changes that would “reasonably be expected to materially impair repayment” and anything that Delta does to change the program is going to be something they – in their reasonable business judgment – will increase the program’s cashflow, even if it’s at the expense of members.

Of course the limits here aren’t just on devaluing the program, there’s also a non-compete clause. Delta can’t start a competing program, move customers over to it, and no longer have the SkyMiles income stream that’s dedicate to repayment.

Clauses like this aren’t unique. Credit card companies have clauses in their agreements to limit devaluation but in practice those are usually vague, and there are usually strong incentives not to exercise them (as a nuclear option). There have been some recent agreements, over the past couple of years, that are tighter however.

In the past credit card issuers have been involved in program change discussions. There have been some changes softened because of issuer demands, although the amount of influence here has varied by airline and bank (post-losing Costco American Express’ leverage over Delta was not strong).

I don’t expect the language in the note to protect consumers, although the long-term interests of consumers and lenders may actually align.

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. Sky Pesos are already a devaluation nightmare. They rape flyers with some very high mileage awards. I’ve seen them jack up awards overnight to whatever level they want. I avoid Delta like the Corona Virus.

  2. Since DL doesn’t publish an award chart, and consistently prices award flights at insanely high prices, this clause is basically unenforceable. SkyPesos will continue to offer the lowest value of any major FF currency.

  3. That’s like Venezuela agreeing not to devalue the Bolivar.
    It would require a negative exchange rate.

  4. With Delta Airlines they are so Greedy, you are lucky if they don’t anesthetize you on the plane and remove one of your kidneys.

  5. A nuclear option, at best.

    But this post is a good launching point for discussing the likely conflicts between stakeholders when the virus subsides. The airlines will need cash, a lot of it, and opening up award availability rubs the other way. IMHO, banks are already awash with miles of dubious appeal and value, as recent SUB levels suggest. And I think it will be years before we see load factors where they were in 2019. If so, the cash-paying flyer may get decent enough prices to shun the watered down miles and just take cash back. Which many do already.

  6. A a minimum, SkyMiles are worth 1 cent per mile. It seems like clauses like this will prevent Delta from devaluing to something like 0.5 cents per mile.

  7. @ Doug – totally agreed. Although United has aspirations of beating them. I personally am betting on United. Anything Delta does they can do worse.

  8. For several years now, the only value has in first/business travel with foreign partners, and Skyteam is so weak that there wasn’t even much value there. I started to post my DL flying miles to foreign partners. I still have 1,000,000 SkyMiles to burn through, unfortunately, and I may never earn another SkyPeso for the rest of my life.

  9. Delta raised the Milage necessary for a business class round trip award To Italy from SFO for September 2021 from 150,000 Miles on 10/25/20 to 190,000 miles on 10/26/20. I would call a 25% increase in miles required a material Change. Do they get lender approval?

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