{"id":5086,"date":"2020-08-03T12:46:38","date_gmt":"2020-08-03T11:46:38","guid":{"rendered":"http:\/\/www.globalflight.net\/german\/?p=5086"},"modified":"2020-08-03T12:47:03","modified_gmt":"2020-08-03T11:47:03","slug":"how-covid-killed-the-ffp-spin-off-concept","status":"publish","type":"post","link":"https:\/\/www.globalflight.net\/german\/how-covid-killed-the-ffp-spin-off-concept\/","title":{"rendered":"How Covid killed the FFP spin-off concept"},"content":{"rendered":"\n
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03 August 2020<\/span><\/em><\/p>\n\n\n\n

It might be hard to recognise anything good in the current market, but there is at least one positive side effect: The last months have clearly shown that FFP spin-offs are a model of the past and that there are smarter alternatives for airlines to raise cash.<\/p>\n\n\n\n\n\n\n\n

Most\nobservers agree that Air Canada’s 180\u00b0 move to reverse the spin-off of its\nAeroplan program three years ago was the end of the spin-off concept for\nFrequent Flyer Programs. A concept, which even before never really managed to gain\nmomentum as the negative impact became pretty quickly clear to almost anybody when\nlooking at the Air Canada template.<\/p>\n\n\n\n

But the\nunexpected Covid crisis nurtured new discussions about the potential of\nairlines spinning off their programs. Indeed, as literally each passenger\nairline around the world needed to secure cash to survive, the temptation of\nselling valuable assets was certainly there – pretty similar to the individual\nsituation at Air Canada back in 2002.<\/p>\n\n\n\n

Selling its\nFFP provides an immediate and considerable cashflow, which is hard to ignore, not\nonly to the largest airlines, but also to many tier 2 and 3 carriers. But it is\na one-time cashflow, cutting off the arms of the airline for future revenue\ngeneration.<\/p>\n\n\n\n

That’s why\nseveral airlines have done their homework to look for alternatives. It is no\nsecret that the credit card partnerships are the most valuable asset of\nFrequent Flyer Programs, often accounting for around 50% (or even more) of the\nprogram’s revenues. And IAG, with the backing of American Express, is only the\nlatest example having leveraged that potential in the best interest of all\nparties involved.<\/p>\n\n\n\n

In a\nnutshell, they’ve agreed with their co-branding partners an advance purchase\nplan, whereby the partner makes an advance payment for the number of miles\nthey’d purchase anyway over the next 2-4 years. In the case of IAG, this summed\nup to a considerable cash amount of 750 million GBP, providing that much needed\nimmediate cashflow.<\/p>\n\n\n\n

In return,\nit can be assumed that the banking partners get a considerable discount on the\nprice per mile and lock in the partnership for many years. Depending on the\nlevel of discount granted, this will more or less impact the profitability of\nthe program for a few years – but, unlike with a spin-off, the remaining and\nany future profits stay with the airline. (Next to all the other, more\nstrategic, benefits of keeping the program in-house).<\/p>\n\n\n\n

The banking\npartners on their side support their key partners with such deals, which may\nhave the potential to make the difference between survival and failure for them\nin the current situation. Obviously, the FFP co-brands are often among the most\nsuccessful products within the card portfolio of a bank. There is hence a\nmutual interest that these relationships can continue, with the survival of the\nairline being the most basic condition towards that objective. At the same\ntime, a lower price per mile translates into an improved profitability for the\nbanks.<\/p>\n\n\n\n

The only\nrisk really involved for the banks, which might not have been fully addressed\nthough – next to the remaining risk that the airline fails nevertheless, of\ncourse -, is that they bet on the continued popularity and attractiveness of\nthese cards or rather of the currency and FFPs as such. As expressed in my previous blog<\/a>, there can though be some serious\ndoubts raised about that aspect if airlines don’t reconsider some practices,\nwhich often have never been questioned for decades. Banks would therefore be well\nadvised to include clauses to such agreements granting them certain control\nabout the direction of programs, in the same manner as governments impose\ncertain conditions on granting loans or bailouts to airlines, influencing how\nairlines can develop.<\/p>\n\n\n\n

As we are\nseeing the light at the end of the tunnel, the good news is that the virus\ndidn’t manage to kill a certain mid-term vision at airlines and not a single\nairline was pushed towards an error like raising cash through selling its FFP.\nBut with the need for cash not yet being over for everybody, any airline should\nbe warned to give in to that temptation for simple cash. Especially as the\nmarket has developed smarter models, there is an obvious risk that such move\nwould be interpreted as move of final desperation, with the airline\/FFP losing\nall remaining credibility and trust in the marketplace.<\/p>\n\n\n\n

As all airlines\nhave though protected their FFPs in such a laudable and remarkable manner\nduring these most difficult times in the aviation history until here, it is now\nup to the FFPs to pay back their share to their parent airlines by helping them\nto get the right customers at the right price back onto the planes – before\nthey may change their mind about the strategic value of the programs\nnevertheless. „Non-core assets“ will definitely still be up for sale\nat many airlines. The continued interest of anybody is that no management or\nboard would ever view the FFP as such non-core asset.<\/p>\n","protected":false},"excerpt":{"rendered":"

03 August 2020 It might be hard to recognise anything good in the current market, but there is at least one positive side effect: The last months have clearly shown that FFP spin-offs are a model of the past and that there are smarter alternatives for airlines to raise cash.<\/p>\n","protected":false},"author":7,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_links_to":"","_links_to_target":""},"categories":[37],"tags":[],"_links":{"self":[{"href":"https:\/\/www.globalflight.net\/german\/wp-json\/wp\/v2\/posts\/5086"}],"collection":[{"href":"https:\/\/www.globalflight.net\/german\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.globalflight.net\/german\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.globalflight.net\/german\/wp-json\/wp\/v2\/users\/7"}],"replies":[{"embeddable":true,"href":"https:\/\/www.globalflight.net\/german\/wp-json\/wp\/v2\/comments?post=5086"}],"version-history":[{"count":1,"href":"https:\/\/www.globalflight.net\/german\/wp-json\/wp\/v2\/posts\/5086\/revisions"}],"predecessor-version":[{"id":5087,"href":"https:\/\/www.globalflight.net\/german\/wp-json\/wp\/v2\/posts\/5086\/revisions\/5087"}],"wp:attachment":[{"href":"https:\/\/www.globalflight.net\/german\/wp-json\/wp\/v2\/media?parent=5086"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.globalflight.net\/german\/wp-json\/wp\/v2\/categories?post=5086"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.globalflight.net\/german\/wp-json\/wp\/v2\/tags?post=5086"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}