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Delta in talks with AmEx to Unload Early Sky Pesos

Delta in talks with AmEx to Unload Early Sky Pesos

Old Apr 13, 20, 7:27 am
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Delta in talks with AmEx to Unload Early Sky Pesos

WSJ is reporting this morning that Delta is in discussions with American Express unloading miles ahead of schedule at a reduced price that AmEx would ordinarily pay. On March 20, 2020 Delta pledged airplanes for a $2.6 billion credit line and immediately drew down to $2.3 billion.

Delta will just further devalue Sky Pesos to junk bond status for redemption.
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Old Apr 13, 20, 7:31 am
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Here's the story:

https://www.wsj.com/articles/united-...is-11586779535

This is the equivalent of a desperation bond issue, but on much foggier terms. The market value of a point / mile is liquid and pegged at the carrier's discretion, moment to moment. When you buy a bond you know what the maturity value and date will be. Buy a mile, and you have no idea of its value until you attempt redemption. Miles are a faithless currency, or ought to be. What a sad bed the airlines have made for themselves.
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Old Apr 13, 20, 8:06 am
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Originally Posted by DrMilano View Post
WSJ is reporting this morning that Delta is in discussions with American Express unloading miles ahead of schedule at a reduced price that AmEx would ordinarily pay. On March 20, 2020 Delta pledged airplanes for a $2.6 billion credit line and immediately drew down to $2.3 billion.

Delta will just further devalue Sky Pesos to junk bond status for redemption.
...until that moment when nobody in their right mind will want to hold a Delta AMEX credit card.
The SkyPeso Ponzi Scheme is close to collapse.
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Old Apr 13, 20, 8:40 am
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Originally Posted by BearX220 View Post
Here's the story:

https://www.wsj.com/articles/united-...is-11586779535

This is the equivalent of a desperation bond issue, but on much foggier terms. The market value of a point / mile is liquid and pegged at the carrier's discretion, moment to moment. When you buy a bond you know what the maturity value and date will be. Buy a mile, and you have no idea of its value until you attempt redemption. Miles are a faithless currency, or ought to be. What a sad bed the airlines have made for themselves.
This is more equivalent to buying the wood for a construction project with a signed contract a few months in advance. It's not like a random bank will be holding the miles as they're intended to be consumed by an existing contract.
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Old Apr 13, 20, 8:45 am
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Another reason to earn and burn -- especially with free cancellation on speculative bookings for non PM/DM.

I know we are trying to pick some seemingly safe dates and locations to make speculative bookings
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Old Apr 13, 20, 8:53 am
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Originally Posted by Dieuwer View Post
...until that moment when nobody in their right mind will want to hold a Delta AMEX credit card.
The SkyPeso Ponzi Scheme is close to collapse.
As soon as I start flying again, I am burning all my miles before they turn into pumpkins. I think AmEx decision makers are savvy enough to protect themselves from the inevitable - the article I read said this is by no means a done deal. AmEx is entertaining the offer, as they are obligated to due, but it seems they are concerned about the obvious issues (DL's long term viability and the value of miles (both redemption rates and if customers will want them)).
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Old Apr 13, 20, 9:13 am
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Originally Posted by The Situation View Post
As soon as I start flying again, I am burning all my miles before they turn into pumpkins.
Too late! Skymiles already turned into pumpkins, now they may turn into rotten pumpkins....

Originally Posted by The Situation View Post
I think AmEx decision makers are savvy enough to protect themselves from the inevitable - the article I read said this is by no means a done deal. AmEx is entertaining the offer, as they are obligated to due, but it seems they are concerned about the obvious issues (DL's long term viability and the value of miles (both redemption rates and if customers will want them)).
Amex prepaid a bunch of Delta miles in 2004 so there is precedent.

https://money.cnn.com/magazines/fort...1111/index.htm
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Old Apr 13, 20, 10:18 am
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Originally Posted by Dieuwer View Post
...until that moment when nobody in their right mind will want to hold a Delta AMEX credit card.
The SkyPeso Ponzi Scheme is close to collapse.
Redeemable SkyPesos are already pretty far down on the list of reasons to hold a Delta AMEX card. The perks that make it worthwhile are MQD waiver (Reserve/Plat), MQMs for meeting thresholds(Reserve/Plat), SkyClub access(Reserve), Companion Pass (Reserve/Plat), free baggage for non-elites (Gold/Plat/Reserve), Zone 1 boarding for non-elites (Gold/Plat/Reserve), and possibly upgrade eligibility for non-elites (Reserve).
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Old Apr 13, 20, 10:43 am
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Originally Posted by DiverDave View Post
Too late! Skymiles already turned into pumpkins, now they may turn into rotten pumpkins....



Amex prepaid a bunch of Delta miles in 2004 so there is precedent.

https://money.cnn.com/magazines/fort...1111/index.htm
No kidding!! I had a trip booked this week that would have used about 1/3 of my miles at a rate of 2.3 cents per mile and was trying to use up most them anyway. Cancelled that. Now there is even more urgency to use them.
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Old Apr 13, 20, 11:21 am
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Originally Posted by The Situation View Post
As soon as I start flying again, I am burning all my miles before they turn into pumpkins. I think AmEx decision makers are savvy enough to protect themselves from the inevitable - the article I read said this is by no means a done deal. AmEx is entertaining the offer, as they are obligated to due, but it seems they are concerned about the obvious issues (DL's long term viability and the value of miles (both redemption rates and if customers will want them)).
DL's long-term viability is absolutely a big concern for AMEX, in the sense that if DL went belly-up (at which point AA and UA would likely already be dead), it would be a huge blow to AMEX's business. They may huff and puff a little, but if a deal like this can help sustain their partner, they will do it. In the grand scheme (ex-COVID circumstances), DL is a lot more important to AMEX than the other way around, even though a big chunk of DL's net income can be attributed directly to the AMEX relationship.
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Old Apr 13, 20, 11:30 am
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Originally Posted by woodenshoe101 View Post
DL's long-term viability is absolutely a big concern for AMEX, in the sense that if DL went belly-up (at which point AA and UA would likely already be dead), it would be a huge blow to AMEX's business. They may huff and puff a little, but if a deal like this can help sustain their partner, they will do it. In the grand scheme (ex-COVID circumstances), DL is a lot more important to AMEX than the other way around, even though a big chunk of DL's net income can be attributed directly to the AMEX relationship.
Perhaps.
But AMEX will have to answer to THEIR shareholders, not the Delta's shareholders. If AMEX seems to be "giving away" money for no good reason, AMEX shareholders will be angry.
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Old Apr 13, 20, 11:45 am
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Originally Posted by woodenshoe101 View Post
DL's long-term viability is absolutely a big concern for AMEX, in the sense that if DL went belly-up (at which point AA and UA would likely already be dead), it would be a huge blow to AMEX's business. They may huff and puff a little, but if a deal like this can help sustain their partner, they will do it. In the grand scheme (ex-COVID circumstances), DL is a lot more important to AMEX than the other way around, even though a big chunk of DL's net income can be attributed directly to the AMEX relationship.
The AMEX/DL overlap continues to point to Buffet at some point (even if he sold to get below 10% a few days ago). Wonder if DAL would consider spinning off SkyMiles and selling a stake to Buffett and AMEX as another alternative to generate cash.

Presumably both would benefit from the data

Originally Posted by Dieuwer View Post
Perhaps.
But AMEX will have to answer to THEIR shareholders, not the Delta's shareholders. If AMEX seems to be "giving away" money for no good reason, AMEX shareholders will be angry.
True though if Buffett gives tacit approval on something like this, I assume his large stake in both would help carry the day with shareholders from both sides.

Last edited by Duke787; Apr 13, 20 at 11:51 am
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Old Apr 13, 20, 11:50 am
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This doesn't strike me as particularly desperate. This is just another example of the big airlines (United is negotiating similar move with Chase) leveraging their balance sheets to keep their operation going. They take some more liability on their balance sheet, but also bring in cash to keep the lights on. No one is going to redeem those miles until the crisis passes, so they have no servicing cost to that debt. Basically, they take a reduction on future revenue (in the form of whatever discount they giving their banks over the usual rate they charge for miles) in exchange for cash now.

If you really think that the US government is going to let their big three international airlines go bellyup, I have a bridge in New York to sell you. The big three airlines (and Southwest too) are all too big to fail, just like the automakers. This isn't to say future consolidation or other activities may not occur. That's possible. But the miles will go with the acquiring carrier and the banks still win.
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Old Apr 13, 20, 11:51 am
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Originally Posted by Duke787 View Post
The AMEX/DL overlap continues to point to Buffet at some point (even if he sold to get below 10% a few days ago). Wonder if DAL would consider spinning off SkyMiles and selling a stake to Buffett and AMEX as another alternative to generate cash.

Presumably both would benefit from the data



True though is Buffett gives tacit approval on something like this, I assume his large stake in both would help carry the day with shareholders from both sides.
Buffet sold most of his DL stske: https://seekingalpha.com/news/355841...airline-shares
https://seekingalpha.com/filings/pdf/14057637.pdf
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Old Apr 13, 20, 11:57 am
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Is this new? There was a recent thread about Buffet selling some DL stock where it was concluded that what was sold was a fairly minor portion of his DL holdings as well as being a small fraction of the total shares of DL stock outstanding, although I don't recall whether his holdings would have been of some particular class (but I wouldn't expect him to invest in nonvoting shares).
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