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Delta subscribes to a “mortgage” on SkyMiles that often travels for $ 6.5 million



Delta Airlines struggling to stay afloat during declining air travel during the coronavirus pandemic is turning to its popular frequent flyer program to take advantage of financial options.

Basically, the Atlanta-based airline plans to mortgage its SkyMiles loyalty program for up to $ 6.5 billion. Frequent traveler programs are lucrative assets for airlines that earn billions a year by selling miles of frequent flyers to credit card partners who offer miles as a reward for spending. American Express, for example, paid Delta $ 4.1

billion per mile in 2019, according to reports submitted to the Securities and Exchange Commission.

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The private financing deal comes as the Atlanta-based company continues to lose up to $ 27 million a day in cash, amid an unprecedented drop in air travel due to COVID-19. Revenue will be used to bolster the $ 15.7 billion in cash and short-term investments Delta had at the end of June.

In a press release, Delta said it was forming a new company, SkyMiles IP Ltd., which will be headquartered in the Cayman Islands to facilitate the new funding. The Atlanta Journal-Constitution reported that as a result of this new action, Delta would move to a new CARES Act loan from the federal government.

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The measure will provide immediate and much-needed relief as the airline continues to burn $ 27 million in cash a day as travel demand remains weak due to the coronavirus pandemic.

On Monday, in an 8K presentation, Delta reported a 78% drop in miles amortized during the first half of the year, causing a 60% drop in passenger revenue. However, frequent travelers continued to use their Delta SkyMiles credit cards, and cash from sales on American Express decreased by only 5% year-on-year, to $ 1.9 billion.

Ticker Security Last Exchange Change%
DE DELTA AIR LINES INC. 34.57 +1.06 + 3.16%
AXP AMERICAN EXPRESS COMPANY 105.98 -0.70 -0.66%

According to an investor presentation, Delta will buy miles from the new SkyMiles subsidiary to issue to frequent travelers and the subsidiary will buy Delta seats when frequent travelers use miles to reserve their seats. Meanwhile, American Express and other SkyMiles partners will buy affiliate miles to issue to credit card holders.

Delta received $ 5.4 billion through the CARES Payroll Support Program, which was repaid in installments through July. The airline also signed a letter of intent giving the option of an additional $ 4.6 billion loan through the federal aid program.

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Delta is not the only one using its frequent flyer program. In June, United Airlines obtained the first mortgage from its MileagePlus program for a debt of up to $ 5 billion.

While the move should provide a boost to Delta, it should not affect Sky Miles members or their amortization of flight mileage.

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