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Delta Air Lines, which plans to use its frequent flyer program to back about $6.5 billion in new debt, sold roughly $4.2 billion in SkyMiles to third-party customers last year, the majority to American Express, which used them to incentivize its customers for credit card spending.

Delta is at least the fourth U.S. airline to use its loyalty program to secure new cash, joining United Airlines, American Airlines and Spirit Airlines. Delta’s plan is most similar to United’s, with Delta expecting to raise debt from private markets secured against a new entity called SkyMiles IP Ltd. and registered in the Cayman Islands.

Airlines have been using loyalty programs as collateral because they believe they are immune to some industry pressures. While they were created to keep customers loyal, frequent flyer programs have become more like stand-alone businesses that create points and sell them to third-party firms, such as credit card issuers and hotel companies. Even when people do not travel, they continue to spend money on co-branded credit cards.

Delta’s program has been considered among the richest in the industry, but the airline previously shared few details about the economics. On Monday, the airline pulled back the curtain a bit, showing why the SkyMiles program is among its more valuable assets.

Delta’s filings were not as juicy as United’s, which announced its transaction in June. But here is some of what Skift learned.

How Valuable Is Delta’s program?

Delta claims its program was highly lucrative last year, producing $2.4 billion in net cash from operations.

According to a Delta filing, the program booked about $6.1 billion in revenue in 2019, about two-thirds from American Express. Most of the rest of it came from Delta, which, had SkyMiles been independent last year, would have bought $1.9 billion in miles from the subsidiary to reward passengers for their flights.

There were two other revenue streams, though neither amounted to much on a percentage basis. Sales of points to other partners bought about $100 million in miles last year, with customers like Hilton Honors and Lyft using them to reward their customers.

In addition, SkyMiles customers purchased about $161 million last year in miles. Delta typically charges consumers about 3.5 cents per mile, if they want to top up accounts.

How Do people Use Skymiles?

Consumers can redeem miles for free flights on nearly two dozen airlines, and when they do, Delta must pay those airlines. But according to Delta, consumers prefer to stay with what they know and rarely book partner awards.

Delta said about 97 percent redemptions occur on Delta, which gives the airline impressive flexibility to keep revenue up and costs down.

Whenever demand spikes, Delta can just change the rules of the game. Or, as the airline noted in its filing, Delta can “adjust the redemption value of miles, based on demand strength or weakness, seasonality, or other factors.”

Delta said redemptions last year cost the SkyMiles program about $3.6 billion, though in most cases that was simply Delta paying Delta.

Isn’t Covid-19 Bad for Business?

For the airline, yes. But for the frequent flyer program, maybe not.

At least that’s how Delta spins it. Most of the program’s outside revenue is tied to American Express, and not the airline business, and that money is still pouring in, as people continue to spend on credit cards.

In the first half of this year, overall revenue from mileage sales was down about 16 percent, year-over-year. A big reason is because fewer SkyMiles members are traveling, so Delta needs to buy fewer miles from its subsidiary.

But during that period, sales of miles to American Express declined only 5 percent. “Amex sales have not declined at the same rate as the airline, leading to strong cash flow performance,” Delta said in its filing.

What About Traditional Loyalty?

While credit card dollars keep Delta’s program humming, the airline also uses SkyMiles for customer retention. On that front, Delta claims the platform is working as intended.

The airline said SkyMiles members contributed more than 60 percent of Delta’s ticketing revenue last year. In addition, it said, elite frequent flyers pay a substantial premium on tickets to fly Delta.

Delta also shared information about program demographics. About 30 percent of members are younger than 34, Delta said, while 37 percent are between 35 and 54. Meanwhile, almost half of all members earn more than $100,000 per year.

A substantial number of SkyMiles members — about 68 percent — live outside Delta’s hubs. Among hub-dwellers, the largest percentage (8 percent) comes from the New York Area, while Atlanta (6 percent) is second and Los Angeles (5 percent) is third.

Photo Credit: Delta Air Lines is using its frequent flyer program to raise new money. Delta Air Lines