Delta to mortgage SkyMiles program for up to $6.5 billion to help weather coronavirus hit
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The private financing deal comes as the Atlanta-based carrier continues to lose as much as $27 million a day in cash amid an unprecedented drop in air travel due to COVID-19. Proceeds will be used to bolster the $15.7 billion in cash and short-term investments that Delta had at the end of June.
The transaction is not expected to have any impact on SkyMiles members or their earnings, redemptions and other activities. In its presentation to investors, Delta repeatedly called the program “core” to its business.
The SkyMiles deal comes as U.S. airlines prepare for what is likely to be a tough winter with most business travel still all but grounded. Flyer numbers remain at roughly 30% of 2019 levels and airlines are preparing for significant staff furloughs on Oct. 1, barring an eleventh-hour extension of protections in the federal coronavirus aid package, or CARES Act.
“There are encouraging signs on the horizon… [but] this is going to be choppy,” Delta chief financial officer Paul Jacobson said about the recovery on Sept. 9.
Leveraging lucrative frequent flyer programs for cash is the latest trend among carriers as they seek to raise funds. United Airlines was first with a mortgage of its MileagePlus program for up to $5 billion in debt in June; a deal that Jacobson gave United kudos for in July. Spirit Airlines has since closed a similar transaction and American Airlines plans to use its AAdvantage program as collateral for a federal CARES Act loan.
Delta CFO Jacobson just gave United kudos for its MileagePlus securitization. https://t.co/3CzLjttSAt
— Edward Russell (@byerussell) July 14, 2020
Funds from these frequent flyer program mortgages add much-needed cash to airlines’ balance sheets. As of Oct. 13, major U.S. airlines had enough cash to pay their bills for as much as 26 months — or well into 2022 — or as little as 11 months, according to the analysis of the industry by analysts at Raymond James. Delta had enough to cover expenses until next September.
SkyMiles is a money-maker for Delta. The program brought in $6.1 billion in revenue — $2.4 billion after expenses — in 2019, the securities filing shows. And direct revenue is not the only benefit; Delta noted that top-tier Medallion members spend roughly one-and-a-half times that of standard members at the airline.
More than 100 million people are SkyMiles members. Travelers between 35 and 54 years old make up a plurality of 37% of members, while flyers under 34 years old are the second largest group at 33%.
The New York City area has the largest concentration of Delta flyers with 8% of SkyMiles members. This compares to just 6% in its Atlanta base while 68% of members live do not live near any of the airline’s eight domestic hubs.
Featured image by Drew Angerer/Getty Images.
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