Flightlines 8: Backing the Blue
JetBlue taps into its TrueBlue loyalty program to secure nearly $3 billion in debt as the company struggles to find a new direction.
Hello and welcome to another issue of Flightlines. JetBlue has been a frequent subject in aviation news this year, particularly following the failed acquisition of Spirit Airlines, which we covered in Flightlines 4. Since then, investors have been eager to understand the airline's future direction. Under its new CEO, JetBlue has streamlined operations by cutting unprofitable routes, focusing on the Northeast, and enhancing service from New York and Boston to popular vacation spots. However, this week brought more headlines, and the reaction from investors and creditors has been decidedly cautious.
Weekly feature
On Monday, JetBlue Airways Corp. (JBLU) saw its stock price fall by 20% after announcing the sale of $400 million in five-year convertible notes, closing at its lowest point this year. In response, credit rating agencies Moody’s, Standard & Poor’s, and Fitch revised their ratings, with Moody's and S&P downgrading JetBlue by one level. The following day, JetBlue raised an additional $2 billion through senior secured notes and secured a $765 million five-year term loan, both backed by its TrueBlue loyalty program.
The immediate market reaction and subsequent credit rating downgrade indicate concerns about JetBlue's strategic direction. Moody’s, in its rationale for the downgrade, noted that "restoring operating profit and cash flow to levels that would lead to materially stronger credit metrics will require a number of years." The agency referenced JetBlue’s own projections of a $1.2 billion loss in 2024 and a $700 million loss in 2025, which they see as realistic. They also noted that improved cash flow would largely depend on financing and new aircraft acquisitions— recently the company announced the deferral of 44 new aircraft until 2030.
The sharp decline in JetBlue’s stock price reflects broader concerns among investors about the airline’s ability to navigate its financial challenges. The decision to issue convertible notes, which could dilute existing shares, has fueled anxiety over the company's long-term value. Additionally, the reliance on substantial debt raises questions about JetBlue's future financial flexibility and its ability to weather economic downturns or industry disruptions.
While investor’s see this as a precarious position, JetBlue’s debt issuance does highlight a strategic use of its loyalty program as collateral, a move that reflects a broader trend in the airline industry. By leveraging JetBlue Loyalty, LP, a wholly-owned subsidiary, the airline is turning what is often seen as a liability—loyalty points—into a financial asset. Revenue streams from partnerships like its co-branded Mastercard make the program materially valuable, in addition to the customer retention benefits the company sees from running the program.
This approach is not unique to JetBlue; other airlines like American Airlines and Delta have similarly used their frequent flyer programs to secure financing. This trend underscores the growing importance of loyalty programs as both financial assets and tools for customer engagement, revealing their dual significance in modern airline strategy.
As discussed in The Atlantic, the transformation of airline loyalty programs into major revenue generators illustrates how these programs are evolving into bank-like entities. JetBlue’s strategy reflects this shift, where loyalty programs are not just about customer rewards but also critical financial tools that help airlines navigate economic challenges and secure capital.
“Here’s how the system works now: Airlines create points out of nothing and sell them for real money to banks with co-branded credit cards. The banks award points to cardholders for spending, and both the banks and credit-card companies make money off the swipe fees from the use of the card. Cardholders can redeem points for flights, as well as other goods and services sold through the airlines’ proprietary e-commerce portals.
For the airlines, this is a great deal. They incur no costs from points until they are redeemed—or ever, if the points are forgotten. This setup has made loyalty programs highly lucrative. Consumers now charge nearly 1 percent of U.S. GDP to Delta’s American Express credit cards alone. A 2020 analysis by the Financial Times found that Wall Street lenders valued the major airlines’ mileage programs more highly than the airlines themselves. United’s MileagePlus program, for example, was valued at $22 billion, while the company’s market cap at the time was only $10.6 billion.”
This trend raises some interesting questions about the future of airline economics: Will we see loyalty programs continue to outgrow the airlines themselves in terms of value? And as these programs evolve, what new financial products or services might emerge from this hybrid of flights and rewards? For JetBlue, the ability to balance complex financial strategy with profitable airline operations will be key to long-term success.
In the news
The latest and most impactful stories shaping the world of commercial aviation this week.
August 17th, 2024
JetBlue & Spirit Challenge $34 Million In Legal Fees Over Blocked Merger
Cathay Pacific Passes 2 Million Pax In July As Long-Haul Demand Surges
August 16th, 2024
August 15th, 2024
Canada's Jetlines Restructures Leadership Amid Push For Additional Capital
EL AL Israel Airlines Order Finalized For Up To 31 Boeing 737 MAX Planes
Flight Attendants At Alaska Airlines Reject New Labor Agreement
August 14th, 2024
August 13th, 2024
Delta adds new Boston, NYC routes just weeks after JetBlue drops them
Budget airline turf war: Breeze adds 10 routes to New Haven, Avelo’s biggest stronghold
August 12th, 2024
✈
Thank you for reading. Flightlines looks forward to bringing you more insights and updates in the world of commercial aviation next week.
Until then, safe travels and happy flying!