It's official: Delta Air Lines (NYSE:DAL) is following key rival United Airlines (NASDAQ:UAL) in raising debt backed by its loyalty program. On Monday, Delta announced that it has formed a new subsidiary to hold the SkyMiles program and its intellectual property in order to facilitate a $6.5 billion secured debt issuance. As part of the debt issuance, the airline revealed never-before-seen details about the SkyMiles program's performance, which could have major implications for long-term shareholders. Here are three key highlights.

Rapid growth, mostly from AmEx

Delta describes SkyMiles as having "a broadly diversified stream of cash flows." That may be stretching the truth a bit. Only 32% of SkyMiles' 2019 cash sales came from the airline itself -- i.e., from the reward miles travelers receive from Delta after completing flights. The vast majority of the remaining 68% of SkyMiles sales came from just one of Delta's various non-airline partners: American Express (NYSE:AXP).

Delta's co-branded credit card program with American Express launched in 1996, but it has only really taken off over the past decade. Last year, Delta revealed that the revenue contribution from AmEx doubled from $1.7 billion to $3.4 billion between 2012 and 2018.

The presentation released on Monday showed that the AmEx contribution jumped to $4.1 billion in 2019. Cash sales to AmEx totaled $3.9 billion, accounting for 64% of SkyMiles' cash inflows.

A Delta Air Lines plane landing on a runway

Image source: Delta Air Lines.

Indeed, the growth of the American Express revenue stream from $1.4 billion in 2012 (and $1.2 billion in 2009) to $4.1 billion last year was the main thing powering an increase in SkyMiles' annual cash sales from just over $3 billion a decade ago to $6.1 billion in 2019.

Cash flow from American Express is stable

Delta also provided encouraging details about the SkyMiles program's performance in the first half of 2020. As was the case at United Airlines, its loyalty program cash flow has improved this year.

At first, that might seem counterintuitive. However, the reason is simple. Holders of Delta co-branded credit cards are still spending plenty of money. As a result, cash sales of SkyMiles to AmEx declined just 5% year over year in the first half of 2020. Meanwhile, few people are traveling, so mileage redemptions -- the main source of cash costs for the SkyMiles program -- have plunged.

SkyMiles' total cash sales declined from $3 billion to $2.5 billion, a drop almost entirely driven by lower sales to Delta itself. But the cash cost for redemptions plummeted from $1.8 billion to just $709 million. That caused cash from operations to jump 52% year over year to $1.7 billion in the first half of 2020.

A bigger, more profitable program than United's

Lastly, the presentations filed by Delta and United, in conjunction with their loyalty-backed debt issuances, provide a window into the relative performance of the two programs. As expected, Delta's SkyMiles program tops United Airlines' MileagePlus.

First, MileagePlus cash sales totaled $5.3 billion last year: 13% lower than the $6.1 billion SkyMiles brought in. Second, SkyMiles generated $2.5 billion in revenue during 2019, net of redemption and related costs. On a comparable basis, United's MileagePlus program didn't even reach $2 billion last year.

To be fair, SkyMiles only had a slight edge on operating cash flow in 2019, generating $2.4 billion versus $2.3 billion from United's MileagePlus. However, Delta's relative underperformance on this metric was driven by faster growth in mileage redemptions over the past two years than what United has experienced. In the long run, higher redemption activity is good because it signals high engagement with the program, which is a leading indicator of future growth.

In short, the SkyMiles program represents a highly profitable part of Delta's business, with durable cash flow even amid the pandemic. As air travel returns to some semblance of normalcy over the next few years, the SkyMiles program's strong revenue growth trajectory is likely to resume. That should help power a gradual recovery for the full-service airline in the years ahead.

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