When Air Canada made its frequent flyer program an independent company in 2002, many insiders expected other airlines would follow, spinning off profitable loyalty schemes.

Airlines could raise cash — they needed it in the early 2000s more than today — and they would no longer need to run businesses that didn’t mesh with their core mission of transporting passengers.

Fifteen years later, few airlines express interest in selling one of their most lucrative assets. Even Air Canada, which by 2008 no longer had any investment its program, Aeroplan, is bringing loyalty back in-house. Aeroplan’s current owner, Aimia, will keep the name and the data, but by 2020 Air Canada will start anew with a fresh program.

However, one influential investment analyst said this week he expects the trend to return. Joseph DeNardi of Stifel, who tracks loyalty programs, said in a research note that more carriers, probably outside the United States, may consider spinoffs in the next year or two. Today’s loyalty schemes, he said, generate significant profit by selling airline miles to banks and merchants, and they might be too valuable for airlines to run themselves.

“The bottom line is that there is far too much value trapped within airline loyalty programs, far too much demand within private equity to invest in airline loyalty programs, and far too much cash within private equity for nothing to happen within the next few years,” DeNardi said.

On most U.S. airline earnings calls, DeNardi pushes executives to share details about the profitably of their frequent flyer programs. They rarely share details, but DeNardi nonetheless publishes estimates on program valuations. In this week’s note, he said American’s program is likely worth $37 billion, while Delta’s is $30 billion, United’s is $25 billion, Southwest’s is $24 billion and Alaska’s is $10 billion.

Often, he has noted, loyalty programs are worth more than an entire airline. As of Tuesday, American’s market capitalization was about $24 billion.

“Airlines could reward shareholders by monetizing these businesses and take advantage of this valuation arbitrage,” DeNardi said this week.

In his note, DeNardi said airline executives often cannot run a loyalty program as efficiently or profitably as a company specializing in the schemes.

“The business of running an airline and the business of running a marketing company — i.e. a loyalty program — are fundamentally distinct and require very different skill sets,” he said.

Chase Sapphire Reserve Intel

DeNardi’s note also touched on the Chase Sapphire Reserve, a travel-centric credit card introduced last year. It’s designed for younger travelers, and though it has a $450 annual fee, it comes with some goodies, including a $300 travel credit, and a membership in Priority Pass, an airport lounge network.

Chase executives have been bullish, saying sign-ups have been better than expected. But DeNardi reported the card might not be as successful as executives have suggested, noting Chase has “significantly reduced” its investment since its Summer 2016 launch.

“Card executives we spoke with were more mixed regarding their view on the success of the Sapphire card for Chase,” DeNardi said. “One indicated that, while account originations were strong, spending trends on the card have been disappointing – which we learned is perhaps the most important metric regarding the profitability of the card for the bank.”

For airlines, this might be favorable news. Historically, Chase has focused on co-branded cards, including products tied to United’s MileagePlus program. But now Chase has its own cards to promote, and while there there is relationship between the Sapphire Reserve and United — cardholders can transfer points to the airline — it’s looser than with a co-branded card.

If Chase decides not to promote the Sapphire Reserve card so much, it might have more budget to advertise United’s card. The two companies are discussing a contract extension.

“We do believe that airline co-brand cards can coexist with bank rewards cards,” DeNardi said. “However, airlines need to ensure that the value their co-brand cards offer consumers remains competitive. It’s clear to us that the gap has been widening in recent years – i.e. bank rewards cards are offering more value than airline co-brand cards.”

Photo Credit: According to one investment analyst, American's loyalty program is worth more than the company. American Airlines