Kroll Bond Rating Agency (KBRA) releases research which provides our views on airlines’ increasing use of their loyalty programs to create much needed liquidity in the current economic environment.

Airlines are among the hardest hit companies due to COVID-19 and related government restrictions on travel. Following containment measures, stay-at-home orders, and border closings designed to slow the spread of the coronavirus, airlines have been forced to adapt to significantly reduced travel demand.

For many established airlines with good prospects for recovery, loyalty programs are among their most strategic assets. In this report, KBRA details the various factors we consider in rating such secured transactions, which have taken on an increasingly important role in sourcing of cash flow and liquidity for airlines. These include:

• How loyalty programs generate cash flow as well as fit into the airlines’ overall business.
• The degree to which such programs are critical to airlines’ operations.
• An examination of various valuation methods for loyalty programs and what they mean for financing.
• Recent capital market activity related to loyalty programs and an outlook for future issuance.
• KBRA’s approach for analysis of secured recourse financings backed by loyalty programs.

Click here to view the report.