Airlines Eye Selling Miles For Cash

Cash is the buffer that can help companies grapple with the drop in consumer demand, the ripple effects of disrupted supply chains and disappearing top lines as the coronavirus pandemic continues.

Cash is what can keep the lights on and the staff paid.

And in some case companies have had to tap into new ways of raising cash (beyond, for example, waiting for stimulus or bailout funds) by leveraging assets that, in turn, tie into a resurgence in consumer spending and traveling — in short, business as usual.

Whenever that might be.

As The Wall Street Journal reported Monday (April 13), airlines have been raising money from just about every asset they hold — and now “they are considering selling miles,” the financial publication said.

Miles, of course, are a form of loyalty, a way to keep individuals and businesses tethered to a particular airline and to keep certain cards “top of wallet.”

Now, airlines including United Airlines Holdings and Delta Airlines are in discussions with their credit card partners JPMorgan Chase and America Express, with a goal toward raising cash — by selling those miles to the banks for less than might otherwise had been seen … in a normal operating environment.

But we are certainly not in a normal operating environment. Just last month, Delta said it was burning through about $50 million in cash daily amid the coronavirus crisis, and that second quarter revenues would be down 80 percent year over year as travel has plummeted.

In term of mechanics, the banks buy the miles and the miles are issued for rewards for credit card spend. The airlines make a profit on the sales, because the issuers pay the airlines more to get those miles to offer them to consumers than it costs the airlines when the consumers actually redeem those miles. And if the miles expire unredeemed, the benefit is even greater for the airline’s profits.

That buying — where the banks spend to have those miles in reserve and ready for issuance — would typically be spread out far into the future.

Now, the Journal reports, the banks would buy those miles in bulk and add a discount, without waiting for cardholders to accrue points. For the airlines, it seems getting cash now is worth more than waiting for the future. The cash is considerable — consider the fact that, as Joseph DeNardi, a Stifel analyst covering the airline sector, wrote earlier in the month that Delta got $4 billion last year for miles, and United got more than $3 billion last year from JPMorgan for miles.

For the airlines, the move would follow actions that included mortgaging planes and even air routes and tapping their lenders for billions of dollars.

Selling the airline miles and mortgaging off other assets may be preferable to — if it’s possible to avoid it — offering up equity stakes to raise cash. As reported, the $2.2 trillion stimulus package passed by Congress last month has carved out $50 billion in grants and direct loans to airlines. Of that $50 billion, the Journal reported this past weekend, 30 percent must be repaid, and the airlines would have to offer warrants on 10 percent of the loan amounts, which could then be converted to shares.