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Airlines

American Values AAdvantage Up To $31.5 Billion

American Values AAdvantage Up To $31.5 Billion
Joe Cortez

American Airlines claims their frequent flyer program is valued in the billions of dollars, and could be held as collateral for a loan. The airline says an independent appraisal suggests American AAdvantage could be worth as much as $31.5 billion.

Another airline is betting on the strength of their frequent flyer program, using it to secure a loan under the CARES Act. American Airlines claims the AAdvantage program is worth up to $31.5 billion, disclosed in a filing with the U.S. Securities and Exchange Commission (SEC).

AAdvantage “Third-Party Appraisal” Estimated Between $19.5 and $31.5 Billion

After the airline opened a round of fundraising, they are now borrowing a play from United Airlines by offering their frequent flyer program up for a CARES Act loan. However, the Fort Worth-based carrier claims their loyalty program, which may include mileage sales and flyer data, holds a potential value upwards of $19 billion.

“It is our current intention to pledge our domestic AAdvantage loyalty program assets as security for this [the CARES Act] loan,” the airline claims in a prospectus supplement filed with the SEC pursuant to rule 424(b)(5).  “The most recent third-party appraisal has estimated the value of these assets to be between $19.5 billion and $31.5 billion, a significant portion of which will be pledged as collateral to support the CARES Act loan.

“Based on this appraisal, we believe there is sufficient collateral to support the CARES Act loan and potentially additional financings, subject to compliance with the ultimate terms and conditions of the CARES Act loan.”

AAdvantage Valuation Comes with Warnings

However, the airline comes short of justifying why the program could be worth upwards of $30 billion in the filing. Instead, the carrier says their loyalty program is one of their competitive factors in the marketplace, and faces “significant and increasing competition” from other carriers.

“Competition among loyalty programs is intense regarding the rewards, fees, required usage, and other terms and conditions of these programs,” the filed prospectus supplement reads. “These competitive factors affect our ability to attract and retain customers, increase usage of our loyalty program and maximize the revenue generated by our loyalty program.”

Finally, American says that changes in the AAdvantage program is one of the ways they intend to increase revenue. As is customary, the company notes: “As time goes on, we expect that it will be more difficult to identify and implement additional initiatives.” Accordingly, any attempt to drive business forward may not be successful.

“We have recently instituted, and intend to institute in the future, changes to our business model designed to increase revenues and offset costs,” the company wrote in the prospectus addendum. “These measures include further segmentation of the classes of services we offer, such as Premium Economy service and Basic Economy service, enhancements to our AAdvantage loyalty program, charging separately for services that had previously been included within the price of a ticket, increasing other pre-existing fees, reconfiguration of our aircraft cabins, and efforts to optimize our network including by focusing growth on a limited number of large hubs.”

American Airlines employees at MIA, Tuesday, August 29, 2017. Photo by Brandon Wade

Is AAdvantage Worth the Appraised Estimate?

Although the CARES Act requires additional loans to airlines be secured by collateral, analysts are skeptical that the frequent flyer program could be worth up to $31 billion. An article published by The Motley Fool notes that while the sale of miles through co-branded credit cards is a lucrative business, the real value sits in the user data collected by American through AAdvantage.

“As a theoretical stand-alone entity, the only asset belonging exclusively to AAdvantage is data: a list of customers’ names, contact information, flight history, and perhaps also purchase histories for credit card holders,” writer Adam Levine-Weinberg writes for The Motley Fool. “That’s certainly worth something, but nowhere near $19.5 billion, let alone $31.5 billion.”

Noting the spinoff and subsequent purchase of Air Canada’s Aeroplan program, the writer opines that there is some inherent value in the AAdvantage program. But if American were to go bankrupt and out of business, the miles issued through the program would offer zero value. Considering American lost $2.2 billion in the first quarter of 2020, Levine-Weinberg concludes that AAdvantage may not be worth the airline’s valuation.

“In short, American Airlines is not producing enough cash under steady-state conditions for the entire business to be worth anywhere near $31.5 billion,” writes Levine-Weinberg. “Moreover, it could be several years before profitability returns to pre-pandemic levels.”

What is your take on the American AAdvantage valuation? Share your thoughts on the FlyerTalk Forums!

Featured photo courtesy: American Airlines

View Comments (14)

14 Comments

  1. hedoman

    June 24, 2020 at 11:57 am

    Yeah….sure….OK…..19 billion USD. And no liabilities. In today’s world, we’ll believe and buy anything.

  2. fotographer

    June 25, 2020 at 3:22 am

    in that case.. my miles must be worth $100000000

  3. toomanybooks

    June 25, 2020 at 6:12 am

    Yes, and RT flight to Asia is “worth” $10000.

    Fantasy.

  4. RobertClouse

    June 25, 2020 at 6:16 am

    Is this another Credit Default swap? What more can American charge for that is included in the price of a ticket that they already do not?

    Seems this house of cards Parker was touting that would never lose money again isn’t standing up well.

  5. kc1174

    June 25, 2020 at 6:36 am

    They’re basing the value of AAdvantage on what? How much each mile gets a customer? The air fare is just a made up number, and award wise, AA miles are all over the place nowadays. There’s no logic to it.

    Also, $19 billion in AAdvantage = 15,000 Avios plus $10.80.

  6. Intrepid

    June 25, 2020 at 6:57 am

    The only credible estimate or appraisal of the AAdvantage program is a proprietary secret of Citi bank.
    its highly unlikely that Citi will share it with another financial enterprise.

  7. POatParker

    June 25, 2020 at 8:41 am

    JUST GET RID OF PARKER! He is the reason AA is where it is today!

  8. Dougg

    June 25, 2020 at 9:04 am

    The EU is afraid Americans who are sick will travel to the EU to taker advantage of the free heath care they offer. And we know Trump is behind the ban as well because this prevents American doctors from inserting the mind control chip Trump has control over with the 5G network. This is Trump’s plan to win the next election. Notice how Trump doesn’t wear a mask? That’s because they have him under control.

    This is and honest to God true according to the women who was telling it to everyone outside of the store I was shopping at the other day. I believe here story is based loosely on facts she made up.

  9. Dougg

    June 25, 2020 at 9:08 am

    People shout remember what the President Wilson of the United States did to the US and Europe during World War I. He knew there was a new type of flu going around which was killing thousands of American soldiers in the US. He ordered these sick soldiers to be sent to Europe. The US lost more American soldiers lives on the trip to Europe then on the battle field. Then they spread this “new flu” to Europe. Could it be Europe doesn’t want to see history repeat itself?

  10. Zebraitis

    June 25, 2020 at 9:11 am

    My stapler is valued at 11ty billion trillion. I had it verified by third party appraisal (Joe Isuzu).

  11. shoelessj

    June 25, 2020 at 11:32 am

    Valuation is almost exactly what the US spent on WW 1. I guess that is called inflation. Scary

  12. deadmoneywalking

    June 25, 2020 at 12:32 pm

    That “asset” sounds like a “liability.”

  13. ednumrich

    June 25, 2020 at 12:35 pm

    Worth $31.5 billion? To whom?

  14. guwinster

    June 26, 2020 at 5:12 pm

    I’m struggling to see how AAdvantage is worth anything as collateral. Doesn’t the CARES Act provide government backed loans? If so, what value does the government get from flyer’s personal information? That’s what AAdvantage really offers as collateral, and the federal government already has most of that information anyways. Certainly, the Feds have a list of everyone’s flying history and if they need someone’s credit card info, that’s a pretty simple subpoena.

    If AAdvantage is being offered as collateral to a private lender, wouldn’t that lender already have all the personal info it needs from its existing relationships with actual banks and credit card issuers?

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