Are airline loyalty programs worth more than the actual airlines?

Some analysis suggests airline loyalty programs are more valuable than the actual airlines. The truth is not that simple.

Passenger jet descending in evening sky

Photo credit: Getty Images / SEAN GLADWELL

Airline loyalty programs — incentives (like free miles) given to travelers — are a massive business.

The top 100 loyalty programs could be worth as much as $200B. And during the pandemic, they’ve become a lifeline for ailing airlines.

To wit: Delta (SkyMiles) and United (MileagePlus) secured respective loans of $6.5B and $5B against their loyalty programs to face off a quarantine cash crunch.

Airlines have a ‘negative’ worth without loyalty programs

According to a Financial Times analysis, loyalty programs are worth ~$26B to Delta — more than the airline’s current market value of $20B.

The same holds for America Airlines ($24B vs $6.6B) and United ($20B vs $10.5B).

Without their loyalty program, tech writer Byrne Hobart notes, Delta’s physical airline operation (planes, landing slots, brand) is worth less than zero — in this case, negative $6B.

However, the valuation exercise is not that straightforward

As Hobart explains, you can’t just simply separate the loyalty programs from the airlines.

Customers are loyal to programs because of the capacity and network of destinations they offer. An airline can’t willy-nilly cut ticketing options because of a belief that loyalty programs hold all the value.

It’s a package deal.

“An airline without its highly profitable loyalty program is a company that faces high labor costs, volatile fuel prices, and a rapidly changing demand environment,” says Hobart.

“With loyalty programs,” he says, “that’s offset by a high-margin, high-growth side business.”

(You can find more of Hobart’s great analysis at his newsletter, The Diff)

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