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United Airlines, American Airlines, Delta Airlines all mortgage frequent flyer programs

Here's what that means for flyers

Summary

This is an unprecedented move to get a quick influx of cash. But frequent flyers probably won’t see much change – at least for right now.

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It’s a fact of life: Fewer people are flying.

According to TSA checkpoint data, the number of flyers is down 31% from this time last year. Though the numbers are up from earlier this year, that is still a significant drop from 2019. And airlines, which have a lot of fixed costs, are trying to supplement some of the list revenue.

As a result, all three major airlines – American Airlines, Delta and United – are mortgaging their frequent flyer programs.

Earlier this year, United Airlines was the first major carrier to announce it was mortgaging its frequent flyer program, MileagePlus, in a $6.8 billion deal.

American Airlines soon followed, mortgaging its AAdvantage frequent flyer program as collateral against a $4.75 billion government CARES Act loan.

Last week, Delta announced it would take out a mortgage on its SkyMiles frequent flyer program for $9 billion.

See related: Prepping your post-pandemic rewards travel strategy

A quick way to get cash

The mortgage announcements made headlines because airlines are so protective over these programs.

“Frequent flyer programs are like Fort Knox to airlines,” says Burkett Huey, equities analyst at Morningstar. One reason for this is frequent flyer programs are extremely lucrative.

“What people don’t realize is that frequent flyer programs make more money for the airline than operating the actual airlines,” says Peter Greenberg, travel editor for CBS News.

Beyond the miles that customers accrue directly from the airline, airlines sell miles to credit card issuers.

“About 82% of those miles are never going to be used,” says Greenberg.

You can mortgage almost anything that has value. But even to those well-versed in frequent flyer programs, this move seems a little unusual.

“It’s definitely a move we haven’t really seen before,” Zach Honig, editor-at-large of the Points Guy says. “What we have seen is programs spun off and managed independently.”

In the past, airlines have tapped frequent flyer programs to raise money, doing everything from pre-selling miles to selling parts or all of the programs, says Brendan Dorsey, managing editor of Million Mile Secrets.

What does this mean for frequent flyer members?

In the short term, this could mean some good deals for consumers.

The moves come “at a time when there has never been more [capacity] and major availability for mileage redemption,” says Greenberg.

One such recent deal: As of Sept. 14, American Airlines was offering transcontinental flights in business class for as low as 20,000 miles.

“There’s never been a better time to look up to 330 days out, and plan that dream flight,” says Greenberg.

For frequent flyer club members, especially those focused on accumulating miles, the mortgage news might be unsettling. But airlines say the mortgages won’t impact customers at all – and many industry experts agree.

Even if the company hypothetically defaulted and a frequent flyer program was surrendered to the banks, “the underlying economics [of the program] wouldn’t change,” says Morningstar’s Huey.

Although Dorsey is slightly more cautious.

“It made sense to me that they would use this to leverage cash,” he says. But for program members, “it’s hard to say what it means right now.”

For the time being, though, Dorsey is reassured by the terms of the mortgages.

“What’s good for them – and for members, too – is that they’re not giving up any control,” he says.

See related: Stuck with airline and cruise credits? Here’s how to put them to use

A smarter way to use miles

Regardless of how it ultimately plays out for consumers, this is a wake-up call for any frequent flyer who hoards miles.

“Miles are imaginary,” Dorsey says. “They only have value once you redeem them.”

Though you might be able to find some good deals right now, this is not a certainty. In fact, these miles normally lose value over time.

“One mile five years ago was worth a lot more than it is today,” says Dorsey.

If the pandemic continues, Dorsey predicts that the airline may “try to squeeze more value” out of the program. If so, “that usually means devaluing the miles,” he says.

In April, United Airlines increased the number of miles required to book a ticket through its partner airlines by 10%, Dorsey notes. So a ticket that was 70,000 miles would now cost 77,000 miles. Though not a huge jump, those miles now buy just a little bit less.

This is why smart flyers adopt the motto of “earn and burn,” says Dorsey.

But Honig expects miles to hold their value for the near future: “Given the decreased demand for redemptions at this point, I would be surprised to see more devaluations.”

Still, he doesn’t believe that you should think of these miles “as part of your retirement savings … you don’t want them sitting in your account for years and years because, as we’ve seen, they will devalue.”

See related: Best ways to redeem United miles

The future of air travel

Airline miles deals might be the bright spot for consumers as airlines deal with decreases in air travel during the pandemic, says Greenberg.

With declines in business travel, “airlines are pinning their short term future on leisure travel,” he says.

And that’s one reason they’ve eliminated ticket change fees. “They’re letting people know they can buy coach ticket for leisure travel and not get stuck with a fee that can be more than price of the original ticket,” he says.

When the CARES Act employment protections expire on Sept. 30, airlines that accepted government loans and grants will be able to furlough or lay off employees on Oct. 1.

“You’re going to see airlines in a race to see who can shrink fastest,” Greenberg speculates. “Furloughs, less planes and dropping cities from routes.”

American Airlines and United Airlines have already announced plans to suspend service to some smaller cities, should the government fail to extend the payroll program under the CARES Act. If this happens, flyers may have to drive hours to catch a flight, and fares will likely increase, Greenberg says.

“We’re in for 18 months of a relatively rough ride for passengers,” he says, “with the exception of the gift of the frequent flyer miles.”

What to do with your frequent flyer miles

If you have a co-branded credit card and don’t plan on traveling anytime soon, it might be time to reevaluate your rewards strategy and start putting charges on a card with a little more immediate value, like a cash back card, says Dorsey.

You could also opt for a more flexible travel card that doesn’t just earn rewards for flights, he noted.

But for the miles already sitting in your account from credit card spending or flying, you probably shouldn’t immediately cash them out by any means necessary – especially if you’d consider using them for anything other than flights.

See related: United Airlines partners

Airline loyalty programs have always delivered the most value when used for travel. So even as the future value of these miles might be in question, cashing in miles for gift cards or merchandise is not typically the best move. And in light of the pandemic, United has increased the cost of these items, says Honig.

“Now those redemptions are significantly more expensive – you need a lot more miles than you would before,” he says.

Contrary to conventional advice, Honig admits he’s banked over a million miles in his United account. And he doesn’t have any immediate plans to cash them out, citing confidence in the program’s post-coronavirus future.

His advice for anyone in a similar situation: “Look at where you want to travel after the pandemic.”

See related: How to donate unused rewards miles and points

Editorial Disclaimer

The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

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Credit Card Rate Report Updated: October 28th, 2020
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