Wall Street Journal was reporting on Monday that both United Airlines and Delta Air Lines were considering repeating what they did back in the 2000s while going through multiple bankruptcy reorganizations.

United is in negotiating with its credit card partner JPMorgan Chase while Delta is planning to get cash from American Express for selling miles in advance.

American Express is buying more than $4B worth of miles from Delta yearly, and this was expected to double over the next few years. United sold more than $3B worth of miles to JPMorgan Chase in 2019.

Here’s an excerpt from the WSJ (access their piece here):

At this point, airlines are running out of assets against which they can borrow. That is where their credit-card partnerships could come into play.

They make money selling miles to the banks that issue their co-branded cards and from the fees banks earn when cardholders use them. What’s more, they benefit when the miles they sold aren’t redeemed.

When it renewed its co-brand partnership with AmEx last year, Delta said it expected its benefit from the relationship to double to nearly $7 billion annually by 2023, up from $3.4 billion in 2018. Delta accounts for about 20% of AmEx balances world-wide, making it AmEx’s largest co-brand account by a wide margin.

Conclusion

When airlines sell miles to their credit card partners in advance, they are essentially cannibalizing future revenue. It can make sense, however, if they have no other access to money at a reasonable price.

US-based airlines used their card partners to get quick access to cash after the September 11th and 2008 financial crisis.

The question also is whether there is an unlimited appetite among consumers for evermore devalued airline miles? Airlines control both the supply and demand, and hence this “currency” can be inflated at their whim. Also, it will be years before we are back to 2019 air activity.

I would argue that most consumers would be better served by using cashback cards and then turning money saved into paid airline tickets. Too many miles are chasing “free” redemption tickets.

Airlines and other loyalty programs are addicted to payments from credit card companies like it would be crack cocaine. It gives you a great feeling for a few seconds, but then the reality sets in – in no time.

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