American Airlines Taps Rewards Program To Help Raise $7.5 Billion

American Airlines, rewards program, bonds, loan, pandemic

American Airlines is planning to use its frequent flier rewards program to help fund a portion of the $7.5 billion the company is looking to raise, The Wall Street Journal reported on Monday (March 8).

The air carrier said it was going to get a $2.5 billion term loan using its rewards program, AAdvantage, as collateral for the financing. American is also planning to issue $5 billion in bonds.

The airline indicated that it would use the funds raised to pay back a $7.5 billion secured loan borrowed under the COVID-19 pandemic’s CARES Act. American Airlines said in January that it had used $550 million under that loan, per the WSJ.

Airlines’ use of loyalty programs has been a common method of backing loans during the pandemic, as the industry has been particularly hard-hit as travel stalled amid worldwide lockdowns. United expressed its intent in June to borrow $6.8 billion using its frequent flier program, and Delta indicated in September that it would raise $9 billion backed by its loyalty initiative SkyMiles, the WSJ reported.

Airlines sell miles to banks and merchants that shoppers can then earn when using a particular credit card. Last year, American said its AAdvantage program was worth $19.5 billion to $31.5 billion, per CNBC.

As people largely stopped flying, airlines started replacing seats with cargo space to meet the needs brought by the pandemic. The market served by cargo-only planes has been increasing since April. When American Airlines started offering cargo-only flights early in the pandemic, they were the first that the airline offered without passengers since 1984.

American Airlines said in October 2020 that its cash burn rate dropped to about $44 million daily in the third quarter, an improvement from the second quarter’s $58 million per day. The airline also upped its cargo-only flights by over two times between August and September 2020.