Frequent Flyer Miles Are The Only Reason United And American Haven’t Filed Bankruptcy

How important are airline frequent flyer programs? United, Delta, and American Airlines have each mortgaged their frequent flyer programs for between $6.5 billion and $9 billion apiece. Stifel analyst Joe DeNardi says that without the ability to attract this cash, both American Airlines and United Airlines would be in bankruptcy.

Speaking on a panel at the Loyalty Summit online conference on Wednesday, DeNardi made this bold claim – but one that’s backed squarely by the numbers around cash burn and how much airlines have raised.

I think American would either have filed [bankruptcy] or their shareholders would have been diluted far more than they already have if they weren’t able to finance the program…United’s in the same camp, and then Delta’s probably in the same camp. Southwest could probably make it through, they probably will make it through without financing them.

I think in American’s case their loyalty program has kept them out of bankruptcy, that’s obvious. United is probably in that camp also.

Investors willing to lend money to airlines in exchange for a piece of the future revenue streams from their frequent flyer programs showed great confidence in the ability of these programs to continue attracting customers and driving spend on their credit card products.

In order to do this airlines need to continue to offer an attractive value proposition to consumers who are interested in receiving free travel as a rebate for their spend. DeNardi points out that the programs have great opportunity to continue to expand, reaching more consumers, and fighting aggressively for wallet share. But there’s risk, he warns, and the risk is that loyalty program managers could screw up their businesses.

The greater risk is mismanagement of the programs over time which erodes the demand consumers have to earn this currency rather than running out of addressable market.

If loyalty programs devalue their programs, and push consumers away, so that other card products are more attractive – such as Chase’s Ultimate Rewards cards or American Express’ Membership Rewards cards – then they’ll be killing off the golden goose. The securitization of loyalty programs includes contractual language not to do that but it’s weak and doesn’t really stop airlines from shooting themselves in the foot.

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. Possibly a better photo would be a bale of Zimbabwean or Venezuelan bills, which are worth about as much as a pile of Delta miles.

  2. This is old news, the same can be said for DL and others too (don’t kid yourself). Back in the early 2000’s the airlines were in the same boat, maybe worse since the feds weren’t helping. This too shall pass in the next 12 – 18 months and profitability will return.

  3. Why do you have this fixation on using stock images of bundles of £20 notes instead of bundles of US dollar bills, United and American are US based airlines.
    Try using a stock image that relates to your story

  4. What ‘advantage’ does my 590 K miles held in reserve, as a MM…Offer me, as these miles and others, are being used as Collateral ?

  5. @ Alistair

    You’d be surprised at how often the $ sign appears in English newspapers when even reporting on something that’s local. Both AA and UA fly from LHR, and, from some of the fares, this is where they make their money.

  6. @Airfarer

    Trust me, that is also a pet peeve. It all comes down to the context of the article.

    I’ve long given up on the grocer’s apostrophe and using”due” in a prepositional phrase!

  7. What will really be the kick in the pants will be when the airlines in conjunction witj the IATA make passengers pay to get a COVID test before boarding for a international flight.
    QANTAS already has in place you must be negative. This will be common in all future transportation.

    You will either comply or not travel. I think yours and mine FF are getting more worthless by the day

  8. Wait.

    DeNardi is the guy that has been harping on “airlines need to spin off FF programs” for years.

    So, what if UA / DL / AA had followed his advice?

    Serious question.

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