Buying an airline using points

The dance of buyouts and other aid offers surrounding Japan’s JAL sped up a bit overnight with Delta leading the effort from SkyTeam to offer over USD$1Bn in cash and loans to the beleaguered carrier should they be willing to defect from the OneWorld alliance.  American Airlines offered back a similar amount, though without the need for $300MM in alliance-switch penalty guaranties.  Yes, things are truly interesting over in Japan these days.

But with the two airlines in question hemorrhaging cash these days there is a rather important question that needs to be answered: Where are they getting the money to make such offers?

The answer, it would seem, has a lot to do with frequent flyer points.   Lately the only way the airlines seem to be raising any cash is by selling their points to credit card companies.  Both American and Delta have recently signed deals to raise funds from Citibank and American Express, respectively.  So the airlines are selling a ton of points to third parties and then turning around to use that cash in an attempt to buy JAL.  Yup, they’re trying to buy an airline with points.  Not quite as crazy as getting a boob job using points though almost certainly a better value on a dollars/point ratio.

As for the actual effects of the loans/merger/buyout/bailout/whatever we’re calling it, that isn’t particularly clear.  JAL holds the largest share of takeoff and landing slots at Tokyo’s Haneda airport and they are definitely worth a fair amount of money.  Of course, that value depends on having a Japanese economy that is functional and able to push passengers onto the flights. 

Perhaps Delta is looking to recreate the Pan American route network buy purchasing 5th freedom rights around the world.  Then again, that didn’t work out so well for Pan Am.

And maybe they’re actually trying to drag SkyTeam out of its current position of the “we got picked last” alliance, though I’m not really sure that picking up an almost bankrupt carrier really helps on that front.  Still, having the JAL route network would be a huge boon for SkyTeam, though perhaps not quite as significant as the hit OneWorld will take from losing their only representation in that region.

It doesn’t seem likely that anything will actually be decided in the immediate future so there will be plenty of time to watch this one play out.  And it should be a rather entertaining dance to watch.

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Seth Miller

I'm Seth, also known as the Wandering Aramean. I was bit by the travel bug 30 years ago and there's no sign of a cure. I fly ~200,000 miles annually; these are my stories. You can connect with me on Twitter, Facebook, and LinkedIn.