American Airlines operates rewards program to raise funds
The airline said it would secure a $ 2.5 billion term loan using its rewards program, AAdvantage, as collateral for the funding. American also plans to issue $ 5 billion in bonds.
The airline said it would use the funds raised to repay a $ 7.5 billion secured loan borrowed under the CARES Act from the COVID-19 pandemic. American Airlines said in January it had used $ 550 million on the loan, according to the WSJ.
The use of loyalty programs by airlines has been a common method of financing loans during the pandemic, as the industry has been hit particularly hard by the travel blockage amid global lockdowns. United expressed its intention in June to borrow $ 6.8 billion using its loyalty program, and Delta said in September that it would raise $ 9 billion backed by its SkyMiles loyalty initiative, the WSJ reported.
Airlines sell miles to banks and merchants which buyers can then earn using a particular credit card. Last year, American said its AAdvantage program was worth $ 19.5 billion to $ 31.5 billion, per CNBC.
While people largely stopped flying, airlines began to replace the seats with cargo space to meet the needs generated by the pandemic. The market served by cargo-only aircraft has been increasing since April. When American Airlines began offering cargo flights only at the start of the pandemic, they were the first the airline has offered without passengers since 1984.
American Airlines said in October 2020 that its cash consumption rate fell to about $ 44 million per day in the third quarter, an improvement from the $ 58 million per day in the second quarter. The airline has also doubled its cargo flights only between August and September 2020.