United Airlines has struck a deal to raise $5 billion in financing, using its MileagePlus loyalty program as loan collateral. We also now know how much United values its loyalty program.
In an 8K filling with U.S. Securities and Exchange Commission, released this morning, United will work with Goldman Sachs, Barclays, and Morgan Stanley to to secure a new $5 billion loan, which will further alleviate any liquidity concerns at the airline. The loan will serviced by Goldman Sachs on behalf of all three lenders.
With this new $5 billion loan, United will have access to a total of $17 billion in liquidity by the close of the third quarter of 2020.
Lest anyone think United’s troubles are over, the airline reminded its employees that it must pay back the loan, adding:
“Without a continued emphasis on aggressive cost management, this new liquidity would only last several months.”
United again reminded employees:
“Our primary goal is to save cash and set ourselves up for long-term success, which includes preserving as many jobs as we possibly can. We believe innovative financial solutions, smart decisions about our schedule, right-sizing our organization to align with demand and cooperating with our union partners to cut costs is how we can best position our company for long-term success.”
What Does New United Loan Mean For MileagePlus?
In short, nothing. The new loan will not directly impact how United runs the program. United promises “to operate, evolve, and grow the MileagePlus program” and build upon its membership base of over 100 million members.
How High Does United Airlines Value MileagePlus?
The SEC filing also reveals that United values its MileagePlus program at $21.3 billion. To arrive at the figure, United multiplied the 2019 EBITDA (earnings before interest, taxes, depreciation and amortization) of MileagePlus holdings by 12.
United underscores the “customer lifetime value” MileagePlus represents. If you’re into numbers, you can view a detailed slide deck here on how United values MileagePlus.
A few observations:
First, MileagePlus earned about 12% of United’s revenue and 26% of its profit:
Second, United sold 71% of its miles to Chase or other third parties versus 29% in-house:
Third, nearly 40% of members have been members for over 10 years and 65% of program members make more than $100,000 per year. Furthermore, 48% of members live in hub cities.
CONCLUSION
The new loan will help alleviate liquidly concerns, buying United more time to wait for a vaccine. United predicts it is only when a vaccine is widely available that travel demand will return to 2019 levels. With an extra $5 billion soon available, United will have more time to ride out the storm.
As for the value of MileagePlus, using 2019 number before the latest devaluations went into effect is rather optimistic math…
image: United
“First, MileagePlus earned about 12% of Untied’s revenue and 26% of its profit” Hehehehehehe “Untied”. We see you Matthew:)
As an aside, didn’t some parody site get United all angered over that “spelling” a few years ago?
The factoids are certainly interesting, but all of the “standalone” value of MPH goes away if it is decoupled from United, and once all of the intercompany revenue and costs coming other United entities is eliminated, I wonder how profitable the program really is. 12x EBIDTA is a reasonable valuation on a standalone basis, but much of the MPH’s transactions are related party in nature and presumably not conducted at arm’s-length.
@Matt, Wouldn’t you say this a bit of a drastic move on United’s part ? Since 1. Routes 2. Physical ownership of airplanes; are the only possession valued more then the MP program ? Find this kinda interesting. Does this move tell us something that we all are missing to see in clear sight ?
With a potential second wave and another round of shutdowns as cases surge in 19 states, I’m not so sure this was drastic.
I’m amazed 65% of members make over $100K.
Perhaps this is explained in part by the fact that most of the 48% of MP members who live in hubs also live in very high cost-of-living areas (SF, LA, NYC, DC, CHI …)
How on earth does United know how much I make? Some of that data might come from Chase’s card applications but that is often stale data. And not everyone has a Chase card.
“build upon its over membership base of 100 million members” – ??
should it be this:
build upon its membership base of over 100 million members
Que fecha abran viajes para nicaragua estoy desesperada por viajar tenia q viajar desde ase 2 meses y no e podido quisiera saver cuando abran vuelos a nicaragua
Service to Managua resumes in July:
https://liveandletsfly.com/united-july-2020-schedule/
Any idea why United didn’t just use the program as collateral for a line of credit instead? Less expense if you don’t use it.