Delta Using Frequent Flyer Program as Collateral for New Debt

Delta Air Lines will use its loyalty program to back $6.5 billion in new debt, joining American and United as carriers that have secured loans by utilizing its frequent flyer programs as collateral.

Domestic airlines have been decimated by the coronavirus pandemic, with some still losing as much as $25 million a day.

The airline plans to sell senior secured notes and enter into a new term loan, both backed by its SkyMiles program according to CNBC. SkyMiles will lend the net proceeds of the bond offering to Delta, although a portion will go to a reserve account. Delta said last week that it had about $16 billion in cash at the end of June and that it was burning around $27 million a day.

Loyalty programs aren’t what they used to be, but are still a lucrative revenue source for airlines. The carriers have been able to use the frequent flyer programs even during the pandemic, as many co-branded loyalty cards are linked to things like gas purchases, groceries and more.

Delta said cash from the sale of miles to its credit card partner American Express fell by less than five percent to $1.9 billion in the first half of the year even though total miles redeemed fell by 78 percent in the first half of the year.

According to CNBC, the partnership with American Express generated $4.1 billion for Delta last year, up from $1.2 billion a decade ago, the airline said.

Demand for air travel is still off by about 70 percent compared to last year as most airlines wait to see if Congress will approve an extension to the CARES Act stimulus package. Delta said Monday it expects its capacity to be down 60 percent in September compared with the same month last year.