Last updated on April 17th, 2020
There’s been no shortage of news from the airline industry, despite the lack of flights. Coronavirus and the COVID-19 pandemic continue to impact the industry, with many carriers facing the threat of bankruptcy. The latest news from the hard-hit sector is that United and Delta may sell miles to banking partners early due to coronavirus. What does it mean if United and Delta “pre-sell” airline miles to banks, however?
How Do You “Pre-Sell” Airline Miles to Banks?
While many people might think their airline miles come directly from the carrier, this isn’t the case. Credit card companies, like American Express, buy miles from airlines at a price they negotiate beforehand. That means those huge signup bonuses don’t come from Delta, but rather from Amex.
Since banks buy miles from airlines all the time, the news that United and Delta want to pre-sell miles probably doesn’t seem like a big deal. However, it points to a worrying reality for the airline industry.
The Impact of Coronavirus on the Airline Industry
Coronavirus is deeply affecting the travel industry, with airlines being hit especially hard. With limited flights, many airlines are still holding out hope that the recent $2 trillion stimulus package can help them stay afloat. U.S. carriers, for instance, have cut their routes by 70% since the start of the coronavirus pandemic. In the meantime, however, they can pre-sell miles to their credit card partners.
Pre-selling miles at a greatly reduced rate removes future revenue from the airlines. After all, those miles are now the banks’. This potential sale also gives airlines less leverage with credit issuers once their contracts are due for renegotiation. With more miles in the hands of banks, airlines like Delta and United will have fewer bargaining chips.
Carriers Rely Heavily Upon Co-Branded Credit Cards
Airline credit cards are big business for both banks and airlines. With a huge reduction in flights, airlines are cash-strapped and in need of liquidity. This mile sell-off is one way to access cash quickly – but at the cost of future revenue. For cardholders, however, it provides even more miles – and more value – for using their cards. And that is good news for banks and, hopefully, consumers.