American Feels No Regret on Taking Loan Against AAdvantage

Executives for American Airlines say they are not “sorry” for seeking out a loan against their AAdvantage loyalty program. Leadership for the Fort Worth-based airline discussed the state of loyalty and re-introducing the 737 MAX into their fleet during their presentation at the Cowen 2020 Global Transportation and Sustainable Mobility Conference.

Just as United Airlines took out a loan financed by their loyalty program and user data, leaders for American Airlines say they are not “sorry” they did the same thing, saying they can take on debt debt at a lower interest rate than working with the government. The AAdvantage program was one of many topics discussed by leaders during their presentation at the Cowen 2020 Global Transportation and Sustainable Mobility Conference.

“We Are Not Sorry At All We Did This.”

On the topic of the loan against AAdvantage, moderator Helane Becker from Cowen & Co. asked American president Robert Isom, chief revenue officer Vasu Raja and executive vice president and CFO Derek Kerr about financing a loan using the loyalty program. When Becker asked if they wished they could raise more money from AAdvantage under different circumstances (unrelated to COVID-19), the leaders said they had no regrets.

“We are not sorry at all that we did this,” Isom said during the conference. “Our loan will be LIBOR plus 350 is the government loan…It’s a much better for that liquidity to be a LIBOR plus 350 than it is at 3%, 3.5%, 4% than is an 8%, cut the interest expense by half.”

When talking about the shift in loyalty patterns to leisure travelers instead of business travelers, the leaders said they can use flyer data to determine how they should shift their network throughout the COVID-19 pandemic. However, the challenge lies in providing value to both the business customer and the leisure customer once the pandemic comes to an end.

“[The] airline is flexible as possible and more we can understand the customer, the more the airline network will change,” Raja said about the loyalty program. “And more of the loyalty program will change such that we can get a disproportionate share of wallet of the actual customer, and that will enable us to go serve both a leisure-oriented travel pattern and a business-oriented travel pattern.”

Part of that flexibility comes from their recent partnerships, including Alaska Airlines’ transition into the Oneworld alliance, as well as their new partnership with JetBlue. Because American may become “a relatively smaller airline” on the other side of the pandemic, their goal is to combine status with network partners to reward both business travelers and frequent leisure flyers.

“Our partners networks are strong and major, major population and major business travel, and the more we can really deliver a seamless level of benefit, right?” Raja said about AAdvantage. ”I think we’re if you’re an executive flying on American Airlines, you can get an upgrade across our global network. The more we can do that, the more we’ll be responsive to that customers as they come back.”

American Predicts 737 MAX Will Be “The Safest Aircraft That is Flying” When Re-Introduced

On the topic of the troubled Boeing 737 MAX, executives for American say that it will be a key player in their goals to reduce their carbon footprint and offer sustainable travel solutions. The airline is working with Boeing on the delivery of their 737 MAX airframes in storage, and hope that they can play a big part in reducing emissions overall.

“Part of that solution is having the 737 around and the new variance 737 MAX when it is back flying, it’s going to meet fuel efficiency targets,” Isom said when asked about their plans for the MAX. “It will be the safest aircraft that is flying and it will be used very well in American fleet.”

Derek Kerr added that American is working to get all of their 18 737 MAX aircraft currently in storage fully financed, and working to defer delivery of the airframes out to 2022 at the latest. The CFO expects to have an update by their next earnings report.