When Frequent Flyer Programs Are Worth More Than The Airlines That Own Them

The El Al Matmid club, one of the weaker frequent flyer programs in the world, has secured a $130 million loan and $244 million in total against the program in a deal which values the asset at $500 million. This deal grants their lender the right to purchase a 25% stake in the program as well.

Israeli flag-carrier El Al has signed a formal agreement for the sale of its frequent-flyer scheme, valued at $500 million, in order to provide additional liquidity to the airline.

The scheme and its assets are being sold to a subsidiary of the carrier, El Al Matmid Frequent Flyer.

El Al itself – including the loyalty program – has a market cap of less than US$180 million. One way of looking at this is that the airline, then, is worth a negative $320 million!

That’s not exactly fair. The airline is not completely separable from its loyalty program. No one would voluntarily choose to accumulate El Al Matmid points if the airline did not exist. Nonetheless it underscores the way the tail wags the dog in this industry.

During the pandemic the major U.S. airlines raised between $5 billion and $10 billion each against the future income streams of their loyalty programs.

  • In the Before Times American Airlines would regularly lose money flying (cost per seat mile greater than revenue per seat mile even including cargo) while eeking out a profit that could be accounted for entirely by AAdvantage.

  • They claim a 52% operating margin for the AAdvantage program which has been appraised at $18 to $30 billion.

At most companies marketing is an expense line. At airlines it’s a profit center. That’s because they’ve been able to rent their currency out to others – usually, primarily banks – to entice consumers to engage with those brands.

(HT: @drdoot)

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