Turning Data into Dollars: A Deep Dive into the United Airlines MileagePlus Case Study
Unraveling how United Airlines transformed customer data into a multibillion-dollar asset
Data has emerged as a formidable asset and a cornerstone of modern business models. Companies gather, analyze, and store vast amounts of it as part of their regular operations, converting these “data assets” into a vital resource for unlocking value and influencing strategic decisions. United Airlines’ MileagePlus loyalty program offers a great case in point. This point of view will explore how United Airlines managed to use its data-laden MileagePlus program as collateral for a significant loan, that enabled the enterprise to weather through the COVID crisis.
The United MileagePlus case study
In the thick of the COVID-19 pandemic, United Airlines found itself grappling with a financial squeeze as the demand for air travel globally plummeted. To alleviate the financial pressure, United offered its MileagePlus loyalty program as collateral, securing a ~$5 billion loan. The lenders, which included investment firms Goldman Sachs, Barclays, and Morgan Stanley, were drawn to the resilience and revenue potential of the program.
In this arrangement, United pledged the entirety of the MileagePlus program and its associated cash flows to the lending consortium. This meant that the revenue from the sale of miles to United’s credit card partner, JPMorgan Chase, and other MileagePlus partners was considered as part of the collateral. In the event of a loan default, the lenders would assume ownership of the program and gain control of its revenue streams.
As part of securing the ~$5 billion loan, United Airlines had to evidence the value of the asset that formed the collateral. The program was “spinning off $5.3 billion in cash and $1.8 billion in EBITDA profit each year.” Their 2019 estimate valued their loyalty program at ~$20 billion, an enormous number for an asset that in fact largely consists of… data.
How loyalty programs generate revenue
To see how United was able to put a ~$20 billion valuation on this data asset, let’s briefly review how this data is used to generate revenues. Loyalty programs like MileagePlus create multiple revenue streams. For United, one key income source is the sale of miles to credit card companies such as J.P. Morgan Chase. As cardholders use their co-branded credit cards, they earn miles that are purchased from United by the bank, thus producing a steady income stream for the airline.
That is, if you use the credit card, you earn miles that you can spend to, for example, book a flight “for free.” But there’s no such thing as “free,” even in this case — when you accumulate these miles, they are, in fact, purchased by the financial institution from the airline company (or any other company with such a loyalty program) before being credited to you. And that’s the main way that revenue is created.
Additionally, United earns revenue by selling miles to other business partners, like hotel chains and car rental companies. These businesses offer the miles as rewards to their customers, enhancing their service offerings and simultaneously securing revenue for United.
The critical role of data
But what, you might ask, does that have to do with data?
Well, data lies at the heart of the MileagePlus program, serving as its central asset. The core mechanisms of the program itself are data-driven: they involve customer accounts with their stacks of miles, a real-time overview of purchasable offers, the pricing of these offers in miles, and the provision for customers to search for and pay for products and services with these miles. There are no “physical miles” anywhere — there is no gold in the bank. This is all data.
Additionally and more critically, the program amasses a wealth of information, including expanded customer data, member travel patterns, spending behaviors, and preferences. When analyzed, this data offers insights into identifying revenue opportunities and further enhancing the loyalty program. An example of how this data drives revenue in the loyalty program is through personalized marketing. By analyzing the spending habits and preferences of its members, United can deliver targeted promotions to encourage further spending. These promotions might involve partner offerings, such as discounted hotel stays or car rentals, that lead to the purchase of more miles.
The data also allows United to identify high-value customers and implement strategies to enhance their loyalty further. By offering these customers exclusive rewards, upgrades, or personalized experiences, United can stimulate more spending and engagement with the program, thereby generating even more revenue.
Given that this data was — and remains— so foundationally important for the loyalty program, as part of the loan agreement United had to disclose (part of) their data to the lenders. In the same way in which a building would serve as the collateral, the lenders had to make sure that there were no issues with the asset — no leaky roof, no security issues, and no issues with the condition of the property. When this evaluation resulted in no concerns, coupled with the healthy financial figures of the loyalty programs, the lenders decided to award United Airlines the loan.
This deserves to be further unpacked, because this is really quite remarkable. The banks, in fact, put “their money where their mouth was.” It is easy to say that a given dataset is valuable or can drive revenues, but how much of that is attributable to the data itself? Assessing this is inherently a very complicated task. In the case of the MileagePlus Program being pledged as collateral, the lenders were convinced that with the data behind the program, in case of a default they could maintain the revenue streams, in any case long enough to find an alternate buyer. They matched that conviction by betting money on it, and that is what makes the MileagePlus Program a “data asset” in the truest sense of the word.
Conclusion
The United Airlines MileagePlus case study demonstrates how companies can unlock the value inherent in their data assets. It underlines that treating data as an asset can drive revenue, profitability, and, ultimately, value. While not every dataset should be developed into collateral or a direct source of monetization, the core takeaway is the recognition of the potential of data to generate substantial value when managed strategically.
The key lies not just in data possession, but in the ability to harness its potential as a valuable asset. This requires a product mindset and a continued, unrelenting focus on ensuring the health of the data asset.
References
- FORM 8-K (001–06033 / 001–10323), SECURITIES AND EXCHANGE COMMISSION.
- The Untapped Capital Stream: Data-As-Collateral, CDO Magazine.
- United Airlines pledges loyalty program for $5 billion loan, Reuters.
- United Airlines mortgages its MileagePlus loyalty program to borrow $5 billion, AXIOS.
- MileagePlus Investor Presentation, United Airlines.
- What’s the big deal about Data Products?, Medium.
- Data ROI Report on Data as an Asset, EDM Council.
