Should You Worry That Delta Mortgaged Your SkyMiles?

Delta Air Lines announced yesterday it’s leveraging the SkyMiles loyalty program in order to secure $6.5 billion in funding.

The carrier crated an indirect wholly-owned subsidiary named “SkyMiles IP Ltd., a newly formed Cayman Islands exempted company incorporated with limited liability.” (This might explain why Delta chose the Caymans — in addition to it being a beautiful destination, of course.)

The Atlanta Journal-Constitution’s Kelly Yamanouchi reported the move allows Delta to turn down a CARES Act federal loan. This way, Delta “(avoids) surrendering more control in return for new federal money. It also highlights the airline’s ability to tap capital markets and the continued popularity of credit cards offering frequent flier miles despite a steep drop in air travel.”

Should we worry about SkyMiles?

Will Our SkyMiles Disappear?

What if Delta files for bankruptcy or defaults on a payment? Will our SkyMiles balances suddenly drop to zero? Would there even be a SkyMiles program?

View from the Wing’s Gary Leff has a financial background, so I asked his input. He explained the loans Delta took out are secured by loyalty program income, so no one’s miles are at greater risk — even in the event of Chapter 11 bankruptcy or default on the loans.

Plus, “if an airline goes bankrupt, its mileage program and co-branded credit cards usually remain intact,” Experian’s Eric Rosen writes.

I see Delta television ads all the time during baseball games on MLB.TV, so it seems they have some discretionary funds to spend on advertising. And people are spending on their Delta SkyMiles Amexes — so much so that the airline seems confident people want to return to traveling and spend their points.

So I’m not too worried about Delta filing for bankruptcy or defaulting.

(Also, while SkyMiles are “yours” to use, they’re actually Delta’s property.)

What About the SkyMiles Program Overall? Should We Be Worried?

Well, that’s where I’m not exactly encouraged.

In its 8-K SEC filing, Delta touts that “SkyMiles has an attractive business model allowing flexibility to control costs and preserve margins.” 

“In other words,” says Ben Schlappig at OMAAT, “miles can be devalued as the program sees fit.”

(Quick disclaimer: Neither René nor I own or trade any airline stocks.)

Delta isn’t the first airline to leverage its loyalty program. While we shouldn’t be shocked entirely Delta took this step, it certainly is a little jarring when customer loyalty is somehow mortgaged, if you will.

The airline didn’t mortgage its SkyMiles program when it filed for bankruptcy in 2005. But one naturally may wonder if they’re more desperate or in tougher shape this time around. Or both?

Make sure to check out the SEC filing. There’s a bunch of fascinating and previously closely-guarded information that Delta spills like a Dasani bottled water perched on your first class seat.

What Might Happen with SkyMiles?

It’s tough to imagine how SkyMiles will somehow improve in the near future, if at all. (You didn’t really think Delta would bring back award charts, did you?)

Speaking of which, I wouldn’t be surprised if partner awards become more expensive. And that’s even when they’re available. We’ve heard instances of SkyMiles reps not even knowing which airlines are Delta partners!

Keep in mind Delta suspended the SkyMiles Marketplace — which, in our opinion, was less than impressive. Even redemptions for gift cards were underwhelming before they were pulled.

We’re really in trouble if/when Pay with Miles (PWM) redemptions drop to below a cent per SkyMile. Let’s hope it doesn’t come to that.

For the immediate future, I think we can keep SkyMiles valued at a penny each.

Is This the Future of Airline Loans?

Airlines leveraging their loyalty programs may become a widespread practice — even when things bounce back.

So if the SkyMiles mortgage program works out — and we think it will — don’t be too surprised if Delta utilizes it again.

Should You Still Spend on Your Delta Amex Cards?

Well, that’s up to you.

The only reason I spend money on my Delta Amex cards is to reach the MQM bonuses, if there’s a great Amex Offer, or some increased bonus category promotion like we saw early this summer. I generally use them for purchases that don’t earn more than 1X anywhere else (taxes, car repair shops, some retail outlets, etc.).

When I reach my Delta Amex spend goals, I put those cards away for the rest of the year. I don’t spend on my Delta Amexes just so I can collect redeemable SkyMiles. (And, to be blunt, neither should you.) 

Why?

Cashback cards and transferrable reward points cards are far more valuable. (Think American Express® Gold Card, Chase Sapphire Reserve®, Chase Sapphire Preferred® Card, Chase Freedom Unlimited®, etc.) It’s much easier to get at least a penny’s worth with Amex Membership Rewards points and Chase Ultimate Rewards® points than SkyMiles.

Keep in mind René has long advocated that “points are not like fine wine: they do NOT get better with age. Burn them, my friends! Burn them!”

Final Approach

Is at all doom and gloom? I don’t know that leveraging loyalty is good. Though I understand we’re in the proverbial uncharted waters right now. None of this is fantastic news, to be honest (“Yay! Delta mortgaged my SkyMiles!” Um, no bueno.)

In the meantime, let’s hope Delta finds a way to make the SkyMiles program more valuable. It’s in everyone’s interest — right?

— Chris

Featured image: ©iStock.com/Boarding1Now

PS – Before you comment, yes we know Delta owns “your” Skymiles – not you!