To remain solvent during the pandemic, airlines have raised cash by putting up for collateral typical aviation assets and surprisingly their loyalty programs.
Loyalty program earning valuations are comfortably above_ _the market capitalization of the airlines themselves. - An airline without its highly profitable loyalty program is a company that faces high labor costs, volatile fuel prices, and a rapidly changing demand environment. - With loyalty programs, that’s offset by a high-margin, high-growth side business.
But the economics of the loyalty program doesn’t work without a robust airline operation. - Ex. if airlines scale back their flights and routes, which loyalty members would want to spend their points on, the loyalty program could become worthless.