David Rowell looks at Air Canada’s successful public offering of its Aeroplan program, and wonders why United hasn’t gone public with Mileage Plus?
Rowell thinks Mileage Plus could be worth $15 billion.
That seems a little high to me, I’m also not sure that imputing similar per-member value makes sense. My hunch is that US consumers participate in more frequent flyer programs than Canadian consumers do, so Mileage Plus while valuable may occupy less mindspace than Aeroplan.
I’d personally believe a $5 billion market value estimate rather than $15 billion, but what do I know? Either way, it doesn’t change David’s central point that United has a hugely valuable hiddle asset.
Contra David, who believes United should sell a large stake in its frequent flyer program to exit bankruptcy and pay back creditors and the government for its bailouts, United’s bankruptcy is likely the reason that Mileage Plus has not yet been spun off. Air Canada was ready to spin off Aeroplan but put those plans on hold when it entered bankruptcy.
The questionable status of the attached airline will likely drag down the value of its frequent flyer program in any kind of offering. Once United exits bankruptcy, I would anticipate an IPO provided that market conditions remain stable.
While it may even make sense to include a frequent flyer program IPO as part of a plan for continuing operations submitted to the bankruptcy court, I doubt it makes sense to put this first and use it to fund a bankruptcy exit.
Still, the value of this hidden asset shouldn’t be ignored when valuing the company and planning for its repayment obligations. Here I think David is dead-on correct.