Delta announced that they’ve split out the SkyMiles frequent flyer program into a new structure, ‘SMIP’ in order to take out a $6.5 billion mortgage on the program. The associated SEC filings are a treasure trove of data about the program.
In 2019, revenue from the SkyMiles program and its more than 100 million members looks like this:
- $3.9 billion from American Express
- $1.9 billion from Delta (portion of ticket sales to program members for miles earned)
- $100 million in sales to ’40+’ partners
- $161 million in mileage sales to members
The airline claims $2.4 billion net cash, which strikes me as low but they’re the ones determining their own costs. Only 3% of redemptions are for things other than air travel. Cash paid for redemptions grew 12.4% in 2019, that outpaced the 10.7% increase in miles redeemed – so Delta charged itself more for awards.
Delta even wants investors to know they can always devalue the program, “In 2019, 97% of redemptions were on Delta allowing the flexibiltiy to manage costs by modifying inventory levels and value.” They add, “SkyMiles can adjust the redemption value of mile based on demand on any given day, for example, by reducing the redemption value on a peak demand day prior to a holiday.”
Since members haven’t been redeeming much this year, the SkyMiles program costs have gone down and net revenue has grown since American Express revenue hasn’t dropped as much as ticket sales. Delta represents 8% of American Express billings, and 22% of its loans.
Some interesting demographic facts about the program:
- SkyMiles members contributed 60% of Delta ticket revenue, elites pay a 1.5x premium vs non-members
- Elites have been members of the program an average of 16 years
- In contrast to United which says 48% of their members live in the airline’s hubs, Delta reports that 68% of SkyMiles members live in non-hubs. The distribution of members by hubs: 6% in Atlanta, 4% Minneapolis, 8% New York, 5% LAX, 3% Detroit, 2% Salt Lake City, 2% Boston, 2% Seattle.
Delta and United are raising money in private markets against their loyalty programs. American Airlines is using its AAdvantage program to securitize a subsidized government CARES Act loan. These moves underscore that the frequent flyer programs remain one of the most attractive assets held by airlines, even during the pandemic. Raising money on the programs though means disclosing much more information than they’re using to offering.