Investors Could Soon Trade Frequent Flyer Miles

Investors may soon be trading parts of frequent flyer programs, and that’s probably not great news for consumers…

Airline loyalty programs are worth billions

Frequent flyer programs are often the most valuable assets that airlines have. While these programs were initially founded — as the name suggests — as a way of generating loyalty, they’ve grown into beasts of their own, and have made their way into our everyday lives.

Analysts suggest that the combined value of the top 100 airline loyalty programs is around $200 billion, so that’s pretty remarkable.

These programs have proven a real lifeline to some airlines during the pandemic. We’ve seen several major US airlines leverage frequent flyer programs to raise billions in liquidity, which makes perfect sense in a bind.

Well, we could soon see airlines leveraging frequent flyer programs even during normal times.



Airlines have already leveraged loyalty programs to raise liquidity

New system for raising capital with loyalty programs

JPMorgan Chase & Affinity Capital Exchange (ACE) have announced plans to work together to provide issuers of loyalty programs the ability to augment secured debt financing by developing a new class of loyalty points.

ACE is a fintech company in the loyalty finance space, and JPMorgan Chase is also involved in the loyalty program world through its many multi-billion dollar agreements with airlines, hotels, and more.

With this plan:

  • Airlines and hotels would more easily be able to use the value of their loyalty programs to raise capital from lenders, institutional investors, and operating partners
  • Rather than just leveraging programs for emergency financing, they’d be able to make programs a recurring, renewable source of liquidity
  • Loyalty programs could use ACE’s platform to pledge a part of their loyalty program as collateral, rather than the whole thing
  • Split off pieces of loyalty programs would be referred to as “Reserve Points,” and then could be traded by institutional investors
  • They would essentially be turning loyalty programs into an asset class, giving a wider array of investors access to loyalty programs



Airlines could leverage parts of their loyalty programs

What would this mean for loyalty program members?

It sure seems to me like this would be bad news for consumers, at a minimum indirectly. While it doesn’t have to directly alter the value proposition of a program, it seems highly likely that it will:

  • I can appreciate that loyalty programs are valuable assets, but directly commoditizing individual aspects of them is unlikely to be positive for consumers
  • This system would do little to incentivize members to actually be loyal to the airline, so would likely lead to even more devaluations long term for frequent flyers
  • In general airlines being even more leveraged can’t be good for consumers

So yeah, I’m curious to see if this gets off the ground and what airlines bite. I certainly could be wrong, but I’m skeptical…



Long term this would almost certainly be bad for news for consumers

Bottom line

While I think it makes perfect sense for airlines to leverage frequent flyer programs in an emergency, I’m not thrilled at the prospect of frequent flyers being traded by investors the same way as corn futures.

With this plan, airlines would be able to pledge parts of their loyalty program to raise funding, and then investors could trade them.

What do you make of all of this?