This represents 7% of American Express’s worldwide billed business based on numbers from last year. So yes, it’s significant.
Given the “addictive nature of miles,” these loyalty programs can also effectively serve as a cushion for airline revenues in economic down cycles. Until airlines increase transparency on exact numbers and give the market more clarity as to the nature of the cash flows, the share price will not reflect the true value of this steady, very profitable stream of income.
This is a very nice balance for what is traditionally a rather lumpy business both on the top and bottom line, subject to the vagaries of commodity prices, global events and individual travel idiosyncrasies.
The fact remains that DAL stock, the most attractively priced of the major U.S. airlines, is definitely heading in a positive direction in terms of keeping an eye on costs, securing debt at favorable rates (first investment grade, unsecured debt issuance completed in almost twenty years), and continuing to generate free cash flow ($17 billion cumulative from the dark days of the late 2000s).
As Delta delivers on its promises on operations, capital allocation, and customer service and the market fully realizes the value of its credit card loyalty program, Delta stock should rise in sync with those developments.
As of this writing, Luce Emerson did not hold a position in any of the aforementioned securities.