When Frequent Flyer Programs Are Worth More Than The Airlines That Own Them

The El Al Matmid club, one of the weaker frequent flyer programs in the world, has secured a $130 million loan and $244 million in total against the program in a deal which values the asset at $500 million. This deal grants their lender the right to purchase a 25% stake in the program as well.

Israeli flag-carrier El Al has signed a formal agreement for the sale of its frequent-flyer scheme, valued at $500 million, in order to provide additional liquidity to the airline.

The scheme and its assets are being sold to a subsidiary of the carrier, El Al Matmid Frequent Flyer.

El Al itself – including the loyalty program – has a market cap of less than US$180 million. One way of looking at this is that the airline, then, is worth a negative $320 million!

That’s not exactly fair. The airline is not completely separable from its loyalty program. No one would voluntarily choose to accumulate El Al Matmid points if the airline did not exist. Nonetheless it underscores the way the tail wags the dog in this industry.

During the pandemic the major U.S. airlines raised between $5 billion and $10 billion each against the future income streams of their loyalty programs.

At most companies marketing is an expense line. At airlines it’s a profit center. That’s because they’ve been able to rent their currency out to others – usually, primarily banks – to entice consumers to engage with those brands.

(HT: @drdoot)

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 InsideFlyer.com, 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. Haven’t had a use for my Matmid card and number for quite some time and then some.

    You couldn’t pay me to credit flights or any activity to the LY program.

  2. All smoke and mirrors, with a little BS thrown in for good measure.
    Of course, nothing beats the Delta sky pesos septic tank.

  3. It’s a bit like Barcelona raising money by selling a percentage of their future TV revenues. Like giving themselves a payday loan

  4. Gary,
    I am a bit surprised that you repeat such figures and confuse your readers: I am sure you know the difference between a company valuation (a multiple of future annual earnings) and a market capitalisation. Except for the fact that you both express in a $ figure, they have simply nothing in common and can therefore not be compared.
    This is not a comparison of apples and pears, but of apples and car tyres.

  5. Why do some people seem to rejoice when others are experiencing difficulties?

  6. @Ravindra – I don’t think you’re being fair here actually. Market cap is literally outstanding shares x share price, the amount the market says the company is worth if you were to see its equity.

    It’s totally fair to say the market is wrong, and you can look at price-to-sales, enterprise value-to-EBITDA, price-to-earnings, or what have you and make a projection about future share price.

    True it is apples-and-oranges to look at a broad market price and compare it to a valuation based on a private transaction. But that’s not “apples to car tires” funny as that may be. Nonetheless we can certainly compare *very rough orders of magnitude* here and that’s all I am doing and seems pretty fair as a thought exercise.

  7. @ Gary

    “and $244 million in total”

    According to the article cited, the total loans comprise 130 + 144 = 274 (millions dollars).

    Are we reading the source differently?

    Significantly, the difference is being paid through purchase of El Al shares by the subsidiary (USD 226 million).

    Ironically, this is where the conflation of market capitalisation of the airline and valuation of its subsidiary is taking place (and also in the option for one of the lenders to purchase Matmid shares rather than El Al shares).

    “The El Al Matmid club, one of the weaker frequent flyer programs in the world”

    Maybe or maybe not – depends upon your reference point. Given the small size of the airline’s fleet and the population of Israel, Matmid seems to sit well at a ranking of 45 in “On Point Loyalty’s” valuations of airlines loyalty schemes (2020), close to Etihad Guest and above Finnair Plus and VA Flying Club, at USD566 million, an estimate similar to that in the cited article (accepting that valuations methods differ).

    “At most companies marketing is an expense line. At airlines it’s a profit center. That’s because they’ve been able to rent their currency out to others – usually, primarily banks – to entice consumers to engage with those brands.”

    Absolutely – and your overall point is well made. But it would be an interesting “thought exercise” to ponder what combination of factors could make that system unstable…;)

  8. Respectfully, Gary, your articles are increasingly riddled with typos. It detracts from your offering and cheapens your site.

  9. @Gary, of course, I fully agree with everything you are saying. My point is just that you can’t compare a market valuation figure of company A (Matmid FFP) to the market capitalisation figure of company B (El Al) and then take some conclusions on that basis.
    As there is no market capitalisation figure available for the Matmid FFP, the only mean to understand the market valuation of 500 million $ for the Matmid FFP is to compare it to the market valuation of El Al, applying obviously the exact same methodology.
    I have no insights into how the 500 million were determined in first place, nor into any financials of El Al as such, but I guess the market valuation of El Al would be serveral billion $. 5, 10, 20? No clue, but certainly a figure that puts the 500 million into a better context!

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