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United Takes $5 Billion Loan Against MileagePlus User Data

United Airlines is seeking a $5 billion loan secured by their MileagePlus loyalty program, justifying it with user data that suggests long-term growth. But the data revealed in a SEC filing shows that the program is skewed as a profit center for the airline, and not necessarily the passengers.

United Airlines believes their MileagePlus membership is worth $5 billion dollars, and is seeking a loan with their user base as capital. The airline revealed the plan in a Form 8-K report submitted to the U.S. Securities and Exchange Commission.

United’s Finance Plan for MileagePlus

With passenger load factor down to 35 percent in May, United’s business was significantly impacted by the COVID-19 pandemic and subsequent shutdown. At the end of the first quarter, the airline decided to take out a $2 billion credit facility, along with $5 billion from the CARES Act funding, after losing $2.1 billion in profit.

With the need to improve liquidity, the airline will also secure a $5 billion loan, secured by the MileagePlus loyalty program and the company’s internal subsidiaries. In total, the Chicago-based airline claims the program holds a value of $21.9 billion.

What Flyers Learned About the MileagePlus Program

United made the pitch to finance their loyalty program in a 47-page report, made public with their 8-K filing. Their notes gave a deep inside look to how their frequent flyer program works, and how they earn money on it.

With over 100 million members worldwide, the airline receives $5.3 billion in cash flow from loyalty program members. In addition, the airline claims over half of their flight revenues came from MileagePlus members.

From their data, the average United MileagePlus member is between the ages of 30 and 64. Nearly two-thirds of their members earn over $100,000 annually, while half live outside of a United hub region. New United MileagePlus members spend 34 percent more with the airline in their first membership year, compared to non-members.

Source: United Airlines

The troubling news for consumers comes from the data on mileage redemption. Between 2017 and 2019, miles issued grew by an average of six percent – but actual miles redeemed only grew by four percent in the same time period. In addition, 80 percent of all miles redeemed were used on United flights.

Source: United Airlines

Even more concerning is the way the majority of miles are earned. According to the company, 71 percent of all MileagePlus miles come from credit card programs. In the example they provided, if a member spends $10,000 with a credit card partner to earn 15,000 MileagePlus miles, the bank buys those miles from United at $0.02 each, for a profit of $300. When the customer redeems those miles for a flight, MileagePlus buys the ticket from United for $150, for a 50 percent profit for the airline – in addition to what the bank earns.

Source: United Airlines

Who Is Financing the MileagePlus Loan?

The loan will be financed by a team of banks: Goldman Sachs Lending Partners, Barclays Bank PLC and Morgan Stanley Senior Funding, with Goldman taking the lead. “It is expected that [Mileage Plus Holdings, LLC] and [Mileage Plus Intellectual Property Assets, Ltd.] will seek long-term debt financing in lieu of borrowing the full available amount under the committed term loan facility,” United notes in the 8-K filing. “Or in order to refinance amounts drawn under the committed term loan facility, subject to market and other conditions.”

Although the loan will allow United to maximize liquidity and cash-on-hand, it will increase the airline’s debt load. At the end of 2020’s first quarter, the carrier held long-term debt of $18.5 billion with $2 billion available from a revolving credit line.

The additional debt comes on the news that United will be removed from the NASDAQ 100, making them the second carrier to leave the index this year. On June 22, the airline will be replaced by technology company DocuSign.

17 Comments
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jayer June 24, 2020

How any frequent flyer program can be worth $5 billion as collateral is beyond me. Yes it incentivizes members to book with United and they can sell bulk miles for good money, but once those miles go into a passenger's account they all become just another unfunded liability.

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volabam June 20, 2020

LOL, someone's going to pay to see that people left United in droves after their passenger assaulting, dog killing, and COVID-19 fearmongering.

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zyxlsy June 19, 2020

"In the example they provided, if a member spends $10,000 with a credit card partner to earn 15,000 MileagePlus miles, the bank buys those miles from United at $0.02 each, for a profit of $300." It is NOT "a profit of $300". It is revenue, or sales, NOT profit.

J
Jackie_414 June 18, 2020

Another point is that the miles stored in the Mileage Plus program represent a liability for the airline. The accounting profession has for years been trying to get the airlines to recognize that liability on their financial statements, to no avail. So, how can an entity use a liability to collateralize debt? Further, it seems to me that what United is really after here is to strand the miles in the plan. That is, for the member the miles represent an asset that can be transferred into flights, or goods. My perception is that this is a mechanism to strand those assets that the members own, making them useless and valueless. The mentality at United is that when using miles it is a free flight. United representatives even use that terminology, a free flight. Each time I correct them, reminding the United rep that I earned those miles and they are an asset to me, a liability to the airline. So, there is no "free" about it.

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Jackie_414 June 18, 2020

I would say that United is double counting here and if the debtholders cannot see that then they deserve what is heading their direction in the future.