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Delta to raise $9 billion backed by SkyMiles

Delta to raise $9 billion backed by SkyMiles

Old Sep 14, 20, 10:01 am
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Delta to raise $9 billion backed by SkyMiles

Delta will be trying to raise $6.5 billion through bonds and a term loan facility to be backed by SkyMiles:

https://news.delta.com/delta-air-lin...lity-delta-and

The SEC filing below provides some interesting insight into the program statistics:

http://d18rn0p25nwr6d.cloudfront.net...b9114333c1.pdf

- 68% of members are in non-hub cities
- 97% of redemptions in 2019 were on Delta; only 3% on partners
- average tenure of member: 16 years
- Medallion members provide 1.5x revenue premium compared to regular members
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Old Sep 14, 20, 10:13 am
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I saw that in the Journal this am. Will be interesting to see how it plays out. DL is clearly in survival mode.
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Old Sep 14, 20, 10:25 am
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Originally Posted by TrojanTraveler View Post
I saw that in the Journal this am. Will be interesting to see how it plays out. DL is clearly in survival mode.
Every non-state owned airline is in survival mode
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Old Sep 14, 20, 10:54 am
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The world is changing right before our eyes. No excuses at this point if you don't see it.
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Old Sep 14, 20, 11:19 am
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Originally Posted by ClipperDelta View Post
Delta will be trying to raise $6.5 billion through bonds and a term loan facility to be backed by SkyMiles:

https://news.delta.com/delta-air-lin...lity-delta-and

The SEC filing below provides some interesting insight into the program statistics:

http://d18rn0p25nwr6d.cloudfront.net...b9114333c1.pdf

- 68% of members are in non-hub cities
- 97% of redemptions in 2019 were on Delta; only 3% on partners
- average tenure of member: 16 years
- Medallion members provide 1.5x revenue premium compared to regular members
"Partners" for redemption means non-airlines, so it's 97% of redemptions on DL/AF/etc. EDIT: though I see on a later slide, the 97% refers to "on DL", which I guess would mean DL-coded award tickets regardless of metal and that likely somewhat less than 0.5% of redemption value was on non-DL-coded flights.

The Amex stats on slide 8 are interesting:

* 8% of Amex billings are SkyMiles cards
* 22% of loans are SkyMiles cards

Presumably the 22% is percent of credit card spend+interest and 8% is percent of credit+charge (including corporate) card spend (implying that charge/corporate card spend is a little less than twice credit card spend+interest.

Last edited by hhdl; Sep 14, 20 at 11:41 am
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Old Sep 14, 20, 11:22 am
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Originally Posted by ClipperDelta View Post
The SEC filing below provides some interesting insight into the program statistics:

http://d18rn0p25nwr6d.cloudfront.net...b9114333c1.pdf
What am I missing here? What's "loyalty travel award revenue"?

"As a result, loyalty travel award revenue for Delta declined 59%, in line with the 60% decline in passenger revenue"

EDIT: Ah ha! I was looking at it the wrong way. I looking at it from the program member side, not the partner side. This from the WSJ article: "Carriers mainly earn money from frequent-flier programs by selling miles to banks and retailers that then award them to customers who sign up for credit cards and make purchases. That means airlines stand to benefit from every swipe of a co-branded card, whether customers are buying plane tickets or clothing. Airlines have said those revenues have proved stable even at times when flying has dropped off."

https://www.wsj.com/articles/delta-t...d=hp_lead_pos4

Last edited by photojojo; Sep 14, 20 at 11:31 am
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Old Sep 14, 20, 11:26 am
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Also, the fact that they have Hilton as the most prominent partner after Amex is something I find interesting...
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Old Sep 14, 20, 11:32 am
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Originally Posted by photojojo View Post
What am I missing here? What's "loyalty travel award revenue"?

"As a result, loyalty travel award revenue for Delta declined 59%, in line with the 60% decline in passenger revenue"
I would suspect that they calculated what an independent SkyMiles would have paid DL for awards (and SkyClub memberships, exercising (R|G)UCs, using miles for FCM and Pay With Miles, etc.) for March-September 2019 and March-September 2020, under the terms of the new agreement SkyMiles has to purchase such things from DL (though I suppose it's quite possible that operating the SkyClubs will be something that gets sold to SkyMiles and leaves DL's (unconsolidated) financials).

As they say in latin, "for the sake of form".
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Old Sep 14, 20, 11:40 am
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Originally Posted by hhdl View Post
I would suspect that they calculated what an independent SkyMiles would have paid DL for awards (and SkyClub memberships, exercising (R|G)UCs, using miles for FCM and Pay With Miles, etc.) for March-September 2019 and March-September 2020, under the terms of the new agreement SkyMiles has to purchase such things from DL (though I suppose it's quite possible that operating the SkyClubs will be something that gets sold to SkyMiles and leaves DL's (unconsolidated) financials).

As they say in latin, "for the sake of form".
See the edit I just made; I thought I could beat you before you replied. Apparently it's referring to miles DL sells to other companies (like American Express) that they then use to entice customers.
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Old Sep 14, 20, 11:55 am
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Originally Posted by photojojo View Post
See the edit I just made; I thought I could beat you before you replied. Apparently it's referring to miles DL sells to other companies (like American Express) that they then use to entice customers.
I think the last slide (#19) supports my (approximate) interpretation

1H 2019 sales of SkyMiles (paid for by DL, AX, other partners, and SkyMiles members): $3.000b
1H 2020 sales of SkyMiles: $2.523b (decline of 16% YoY... given that DL is down around 60% and I doubt there's been much direct buying of miles by members, this says the partners (mostly Amex) are buying at least as much as before)

1H 2019 payments for redemptions (to DL, etc.): $1.779b
1H 2020 payments for redemptions: $709m (decline of 60% YoY)

Because 97% of those payments didn't actually happen (some accounting transaction happened at DL at the time, but any resemblance between the amounts then and the amounts now is entirely coincidental), they (that pesky phrase "pro forma") basically ran back the numbers on 2019 and 1H 2020 as if the contract DL has entered into with SMIP were in force. Of course, because SMIP will be lending to DL (probably effectively buying large amounts of fully changeable (including ability to change traveler names) non-refundable tickets which will get changed as redemptions happen), even this probably won't look much like the actual checks moving between DL and SMIP.
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Old Sep 14, 20, 12:00 pm
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It would be at least very close to the line of accounting fraud to consider miles bought by Amex (pretty clearly a liability) as revenue at the time of sale. The revenue gets earnt when the redemption is consummated (e.g. when you board for an award flight), until then it's a liability (one with zero cash value but a liability nonetheless).
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Old Sep 14, 20, 12:07 pm
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Originally Posted by TrojanTraveler View Post
I saw that in the Journal this am. Will be interesting to see how it plays out. DL is clearly in survival mode.
DL was at $15.7B of liquidity at the end of Q2 2020. They just mentioned last week that they are currently averaging daily cash burn of $27m for Q3, so they will be at around $13.2B at the end of Q3. With this $6.5B, they should be at close to $20B cash by the end of Q3.

This fund-raising also means they will not be taking the government loan of about $5B that was available to them as part of the CARES Act; they had until Sep 30 to decide whether to go through with that loan even though they had signed a letter of intent for that earlier.
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Old Sep 14, 20, 2:14 pm
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Originally Posted by ClipperDelta View Post
DL was at $15.7B of liquidity at the end of Q2 2020. They just mentioned last week that they are currently averaging daily cash burn of $27m for Q3, so they will be at around $13.2B at the end of Q3. With this $6.5B, they should be at close to $20B cash by the end of Q3.

This fund-raising also means they will not be taking the government loan of about $5B that was available to them as part of the CARES Act; they had until Sep 30 to decide whether to go through with that loan even though they had signed a letter of intent for that earlier.
Right, I had forgotten about the CARES act loans. This helps them avoid that and the potential strings that could have been attached to that loan.
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Old Sep 14, 20, 2:54 pm
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Originally Posted by kop84 View Post
Every non-state owned passenger airline is in survival mode
Fix that just a bit. Freight airlines are the business to be in right now.
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Old Sep 14, 20, 3:43 pm
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would love to see a further breakdown of medallion level percentages. That seems to be classified. Not sure why that is more sensitive. What % of medallion members are diamond, platinum, etc.
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