United Airlines to mortgage MileagePlus for coronavirus funds, anticipates no impact to members
United Airlines thinks it has the cash it needs to navigate the rest of the coronavirus pandemic without further impacts on customers with a new $5 billion mortgage of the MileagePlus loyalty program.
The deal coupled with an expected $4.5 billion loan from the federal government's CARES Act coronavirus aid package would give the Chicago-based carrier around $17 billion in liquidity — or cash — by the end of September, senior United executives said Monday. They believe funds would be enough navigate the crisis and a multi-year recovery that's expected before the industry returns to 2019 passenger numbers.
“It is quite a large war chest to get us through a second wave, or third wave of COVID if that happens," they said. "$17 billion should see us through until there’s a vaccine or demand has recovered.”
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The United executives emphasized that the transaction would "bring no changes" to how customers use MileagePlus. The airline also maintains control of the program, ceding none to lenders. The loan, in essence, leverages the loyalty program's nearly $22 billion value and $5.3 billion in annual revenue to raise liquidity to carry United through the crisis.
Other airlines have sold miles or points to credit card partners to raise funds. For example, JetBlue Airways raised $150 million through an advance sale of TrueBlue points to Barclays in March.
Others, like American Airlines' AAdvantage program, have said they plan to use their loyalty program as collateral for a potential CARES Act loan.
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Ample cash is seen as key for airlines to weather the COVID-19 crisis. Revenue all but disappeared during the early days of the pandemic as more people cancelled flights than bought new tickets. That has begun to reverse, but numbers remain low.
Data from trade group Airlines for America (A4A) shows that U.S. air passenger bookings remained down 80% year-over-year during the week ending June 7.
All of the major airline bankruptcies that have occurred since the coronavirus outbreak have been attributed to the lack of revenue. Carriers have had to continue paying bills, for example on aircraft, even as revenue virtually disappeared and customers demanded refunds for cancelled flights. Restructurings including United partner Avianca as well as fellow South American carrier LATAM Airlines have occurred under such a scenario.
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United continues to see monthly improvements. The number of travelers on flights continues to rise with the carrier expecting to fill around 55% of seats in July even as it plans a double-digit increase in the number of flights compared to June. During the month United plans to fly roughly 30% of what it flew in July 2019.
Most of the added flights are U.S. domestic ones with many going to destinations popular with leisure travelers, for example the Rocky Mountains in Colorado or beaches in Florida.
Returning travelers also means United is losing money at a slower pace. The carrier expects its cash burn -- or the amount it losses on a daily basis -- to drop to $40 million a day by the end of June and $30 million a day by the end of September.
Related: What aircraft could U.S. airlines send to the boneyard after the crisis?