United Back $5 Billion Loan with MileagePlus Program
United Airlines said on Monday it has secured a new loan up to $9.5 billion. This would bring its expected liquidity holdings to $17 billion by the end of the year.
What is interesting about this loan is that part of it, was a $5 billion private loan against its MileagePlus frequent flyer program. Senior executives described this arrangement as “innovative” during a media briefing. The program is structured in a wholly owned subsidiary, MileagePlus Holdings.
United will maintain full strategic and operational control over the frequent flyer program, Business Insider reports. Airlines sometime give up some of the decision-making power to the financial institutions backing the loans.
In the report, United also shared some more data about the program. MileagePlus brought in $1.8 billion in earnings last year before interest, taxes, depreciation and amortization. The program sold about $5.3 billion in miles in 2019, accounting for 12% of the airline’s overall revenue. The airline values MileagePlus at nearly $22 billion.
71% of the program’s revenue from selling miles to third parties such as credit card companies and other businesses. These companies pay as much as 2 cents per mile, United says. The other 29% comes from United that pays just over 1 cent per mile. These are miles the airlines uses to reward passengers who are MileagePlus members.
But money flows in the other direction as well, when MileagePlus members use miles for award flights. In this case MileagePlus Holdings pays United about 1 cent per mile.