Just as the world economy drove itself into a credit crunch by circulating too much phony money based on worthless mortgage-backed securities and credit default swaps, the airlines are printing their own version of phony money with billions of frequent flier miles.
This scheme being propagated by the airlines and their credit card backers can not continue at the current pace. The airlines are creating money out of thin air just like the purveyors of mortgage-backed securities managed to do with devastating effects as they created more and more versions of collateralized mortgage obligations.
This time, the only victims will be trusting frequent fliers who will find their mileage currency devalued at a more rapid pace. The first tranche of the frequent flier securities has already been devalued with massive changes in valuation and the elimination of millions of miles by declaring them “expired.”
Air Transport News just noted,
Delta Air Lines announced a multiyear extension of its branded credit card partnership with American Express that will provide it with more than $2 billion in combined incremental liquidity and contract enhancements. DL said it will receive “an immediate $1 billion boost to its liquidity” from an American Express purchase of SkyMiles, in addition to $1 billion in contract improvements through 2010.
Poof! Two billion dollars just appeared. Really?
This is a side of the airline industry’s financial machinations that should bear a bit more scrutiny. America’s frequent fliers are being systematically duped.
Charlie Leocha is the President of Travelers United. He has been working in Washington, DC, for the past 14 years with Congress, the Department of Transportation, and industry stakeholders on travel issues. He was the first consumer representative to the Advisory Committee for Aviation Consumer Protections appointed by the Secretary of Transportation from 2012 through 2018.
