Delta to Use SkyMiles Program to Back $6.5 Billion in Debt
Delta Air Lines announced today that it will borrow $6.5 billion backed by its frequent-flyer program, SkyMiles. Other airlines such as American and United Airlines has already used their loyalty programs to back loans during the coronavirus crisis. United has used its MileagePlus program for a $5 billion loan and American Airlines plans to use its AAdvantage program for a $5 billion federal loan.
WSJ reports that Delta Air Lines’ plan involves selling senior secured notes to enter into a new term loan, both backed by its SkyMiles program. SkyMiles will lend the net proceeds of the bond offering to Delta, with a portion going to a reserve account.
Frequent flier programs are a valuable asset for airlines, even now that travel demand is down. While travelers might not be getting on planes as much, or using their miles during the pandemic, they still generate revenue when they use co-branded credit cards for purchases. Delta revealed an interesting piece of information. It said that cash from the sale of miles to its credit card partner American Express fell by less than 5% to $1.9 billion in the first half of the year. Total miles redeemed, meanwhile, fell by 78% in the first half of the year.
Delta said recently that it had about $16 billion in cash at the end of June and that it was burning around $27 million a day. Travel demand has improved recently but it is still far off 2019’s pace. Over the Labor Day weekend, we saw a new high for passengers going through TSA checkpoints. But even at close to 1 million people flying, it was just about 44% compared to the same day last year.
Delta’s numbers are similar. The airline expects its capacity to be down 60% in September compared with the same month last year. International travel as been hit the hardest due to travel restrictions and it is expected to be down 80% for Delta. Domestic travel demand is expected to be half of last year.