Spirit Airlines does not have the richest frequent flyer programs for customers or investors, but it is nonetheless trying to use its loyalty schemes to raise $600 million from private markets amid the worst economic disaster in commercial aviation history.

Spirit’s proposal is far from as lucrative as one United Airlines announced in June. United said it could tap its mammoth program, MileagePlus, for roughly $6.8 billion in new money. But Spirit’s rationale is similar, with the airline betting its loyalty programs are among most valuable assets, perhaps more enticing than the usual assets airlines use to secure new money, such as airplanes, gates, routes and airport slots.

Spirit has two loyalty programs, a subscription service called the $9 Fare Club, and a traditional points program called Free Spirit. The two have been appraised at $1.9 billion, including the value of the company’s deals with credit card issuers. In addition, for this deal, Spirit is pledging its intellectual brand assets, appraised at approximately $1 billion.

At $1.9 billion, Spirit’s loyalty platforms are far less valuable than those of large global carriers. For its recent offering, United valued MileagePlus at about $22 billion, while American Airlines has said its program, which is being used as collateral on a federal government loan, is worth a similar price. News reports indicate Delta Air Lines may pledge its SkyMiles program as collateral for new money, and it is likely worth a similar sum, but few details about its plans have become public.

Peek Behind Loyalty Curtain

Until this year, most airlines disclosed little about loyalty economics, believing them to be a trade secret. But airlines need money, so they’re divulging more information.

Unlike most airlines, which focus on points programs, Spirit has placed more emphasis on the $9 Fare Club. After paying an upfront fee of $59.95 for the first year and $69.95 for subsequent years, members can buy cheap, unpublished fares. They also receive discounts on bag fees, and with hotel and rental car providers.

The company said it made $63.7 million last year through the program. Between 2015 and 2019, Spirit said, the $9 Fare Club had a compound annual growth rate of 9 percent.

The Free Spirit program is the airline’s traditional loyalty arm, in which customers earn and burn points. At Spirit, as at most airlines, these programs make most of their revenue through credit card partnerships. Card companies bought nearly $50 million in points last year, Spirit reported, using them to reward people who spent money on a co-branded credit card.

That’s a small number compared to United, which made $3.8 billion last year selling miles to third parties, the bulk of which likely were purchased by JP Morgan Chase, according to a United filing.

Growth Product

Spirit is assuring investors its loyalty scheme is a growth product, even if the airline industry will remain in disarray for the foreseeable future.

It should be buoyed by a new deal with Bank of America, finalized earlier this month. Spirit agreed to the deal during a period of financial disaster, so it likely did not win industry-leading economics. Nonetheless, Spirit said that by Dec. 31, 2024, it expects to earn $100 million annually through its card program, roughly double last year’s haul.

Meanwhile, it said it is reshaping its $9 Fare Club and Free Spirit program to boost revenues. By January, customers in the $9 Club will receive discounts on seat assignments, as well as “shortcut” boarding and easier flight changes. In its filing, Spirit did not share deals about how it will alter its traditional loyalty program.

Spirit’s filing suggested the airline expects its $9 Fare Club can reach roughly $100 million in annual revenue by 2024.

Despite the airline’s bullishness, Fitch, the rating agency, gave the offering a BB+ rating, suggesting considerable risk. There’s at least some concern, it said, Spirit may not withstand this crisis.

“Fitch believes the core nature of the collateral represented by the revenue and generated by the loyalty program and $9 fare club along with the necessity to maintain access to the Spirit brand provide compelling motivation for the airline to affirm its obligations in a bankruptcy scenario,” the rating agency said in a note. “However, the value of the assets largely rests on Spirit continuing as a going concern. Liquidation of the airline would materially impact the collateral values and weaken recovery.”

Photo Credit: A Spirit Airlines Airbus jet. Spirit wants to leverage its loyalty program so it can get new funding. Phil Taylor / Flickr