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1、Equity ResearchGlobalCredit SuisseGlobal AirlinesLoyalty plan values can structurally boost liquidity now - equity values laterAirlines | Strategy IdeasHistorically under-appreciated loyalty plans being leveraged to maximize liquidity -opportunity for the rest of the global sector to follow the US l
2、ead: We have watched with keen interest as a number of the largest US airlines have utilized loyalty plans (off balance sheet assets) to raise credit over the past year, while in Europe IAG has also sold forward Avios points to Amex. With loyalty plan values potentially representing 7%- 278% of curr
3、ent market caps across the airlines under our global coverage, we see significant opportunity to take advantage of increasing loyalty plan value appreciation. Loyalty plans helpful to liquidity strategies during, but also beyond, the pandemic: In European Airlines: Liquidity the key rhort-term focus
4、 - but lon-term liquidity thinking also likely to change, we outlined our view that the aftermath of COVID-19 should include higher liquidity buffers for the sector, with airlines potentially needing to hold up to 40% of annual revenues in cash to absorb a crisis such as COVID-19. Comments from Luft
5、hansas new CFO that it will look to maintain 6bn-8bn in liquidity access going forward (versus 3.4bn cash pre-pandemic), suggest the industry may be moving in this direction, and we think the use of loyalty plans could help the short and long term. Loyalty plans may eventually shift from the role of
6、 pledged assets to boosting airline equity values： As airlines look to de-leverage (including current equity raising plans at the likes of Air France-KLM), the role of loyalty plans may develop from pledged assets to better understood drivers of airline equity stories. We continue to see loyalty pla
7、ns as under-utilized assets, positioned to play a major role in helping airlines become better retailers and increase their relevance to the daily lives of frequent and infrequent flyers (see AirLinks 二 Value Chain Insights: Airline efforts to boost margins present risks and opportunities for Amrdeu
8、s). With each 1% revenue boost meaning c.16% to global EBIT in 2019, modest structural help could meaningfully boost shareholder value.Figure 1: Potential to top up liquidity levels by 9-543% leveraging loyalty plan valuesat35% of OnPointSource: Company data for December 2020, On Point Loyalty 2020
9、plan value estimates, Credit Suisse researchResearch AnalystsNeil Glynn, CFA44 20 7883 6929Arthur Truslove44 20 7883 1079Hannah Burrows44 20 7883 0060Paul Butler61 2 8205 4309William Park61 2 8205 4536Louis Chua, CFA65 6212 5721Danny Chan60 3 2723 2082Lok Kan Chan852 2101 6390Rebecca Law852 2101 798
10、5Onur Muminoglu90 212 349 0454Alejandro Zamacona, CFA52 55 5283 8901Regis Cardoso55 11 3701 6297DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS,LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks
11、 to do businessGlobal loyalty plan detailsAmericans AAdvantage:American highlighted that AAdvantage had around 23m active members (having flight or programme activity in the calendar year) within a total membership of 115m+. It generated around $5.9bn in pro forma cash sales in 2019 (+7.8% yoy), wit
12、h an EBITDA margin of 20% on miles purchases by American and negotiated mileage pricing with other partners, and around $3.1bn in cash from operations (53% margin) following $2.6bn of redemption/travel benefit costs. 2019s OCF margin of 53% was up from 49% in 2018, and actually rose to 77% in 2020 g
13、iven the resilience of third party revenues, while cash payments for redemptions collapsed.c.74% of cash flows from third parties including Citi and Barclays, as well as partners in travel, retail, lifestyle and hospitality, and also direct sales to programme members. Partner contracts average 3Y in
14、 duration (ex-Citi, Barclays).American emphases AAdvantages long-term track record of stable and growing performance throughout cycles, as well as the “flexibility to control costs and preserve margins. Naturally, revenues suffered in 2020, but a 38% decline compared favourably with Americans passen
15、ger revenue decline of 65%, and third party sales declined only 25%.Further, it reports member yields were 44% higher than non-member yields in 2019, with member engagement development illustrated by active membership growing 10% in 2018 and 8% in 2019.Figure 11: AAdvantages wide range of Non-Air an
16、d Air Partnerships Deep Ecosystem with Entrenched Partner Relationships*-EHNon-Air PartnershipsAmerranAininet 今 Rocketmiles卜 i ji)J H.TIHGStrategic and focused partnerships allow members to earn with 80 partners and redeem with 52 partners across the *lobenpu.由-owAmericasAsia-PadficEMEAAir Partnersh
17、ipsAirTdhitiNuiA, in川 RWE -dollar*TAnriftyCAM,Akmo|m NationalAVIS BudgetHertz PaylessRLifni nc5Y tenure versus members with 5Y tenure14x for premier members vs non-premier members. 25x for premier partner-engaged members versus non-premier non-partner engaged members.52% of MPH members reside outsid
18、e of Uniteds seven hub cities/catchment areas (New York, San Francisco, Chicago, LA, Houston, District of Columbia, Denver).Figure 13: MileagePlus Non-Air and Air partnerships Strategic partnerships with leading brands and relationships with non- D United air carriers and other partnersDeep, long st
19、anding ecosystem of accrual and redemption partners: Over 110 total partners 50+ accrual & redemption partners, 50+ accrual only partners, and 10 redemption only partnersDeep, long standing ecosystem of accrual and redemption partners: Over 110 total partners 50+ accrual & redemption partners, 50+ a
20、ccrual only partners, and 10 redemption only partnersPartnership Type20Source: Company presentationlAGs Avios:At CMD 2019, I AG Loyalty highlighted 9m active members (7m in Europe) and strong growth in both points issuance and redemption (6-7% CAGR over 2017-2019) which helped drive a 20% op margin
21、in 2018 and c.400m in cash flow in 2019.It had targeted 600m in cash flow by 2022 pre-crisis. At December 2019, Avios total assets were booked at 1.7bn per its financial statements, largely reflecting unutilized points to be monetized, and IAG reported l,917m in deferred revenue due to customer loya
22、lty programmes at FY19.The strength of lAGs Loyalty model lies in its partnerships in our view, with over 930 partners confirmed at CMD 2019 (130 direct, 800+ via affiliates) including in finance (e.g. Amex, HSBC), retail (e.g. Tesco) and travel (e.g. booking , Airbnb). In 2018, nearly 50% of points
23、 were issued to non-air partners, which helped to drive a total of c.40bn spent collecting Avios annually across channels.Through the pandemic, Avios has actually moved to expand its reach further by partnering with Nectar to allow members to exchange points between the two programmes. It is also fo
24、cused on further opportunities in customer bank accounts.AirAsia - BigRewards:AirAsia highlighted that it has around 26mn members in its loyalty program (BigRewards, held at an entity called BigLife), of which 50% of them are active members (AirAsia defines active members as members who have consist
25、ent activities over a period of 36 months). As a reminder, AirAsia flew 52mn passengers in 2019 (a pre-COVID year), implying that it has converted less than half of its passengers flown into a member of its loyalty program.In its latest financial report for FY20, AirAsia segregated its revenue and E
26、BITDA for most of its digital entities and the portion that covers BigLife generated positive EBITDA of RM38.6m in FY20 (it was driven by a one off deferred revenue breakage recognized by BigRewards as the points remained unredeemed and had expired).From an operational standpoint, in 2020, BigReward
27、s launched BigXchange, a universal points exchange hub that allows two-way points conversion, from participating partners loyalty points into BIG points and vice versa (e.g. Sunway Pals). It also introduced a point expert characternamed BIGGIE in June20, with a mission to engage with BIG Members on
28、the smarter ways to earn and use BIG Points for greater rewards and savings. Importantly, to ensure that its digital ecosystem is properly developed, it revamped its mobile app with additional features to use BIG Points beyond flights and travel including voucher redemption of F&B, services and shop
29、ping.We understand that BigLife is targeting to generate positive cash flows in 2021 and will continue to strengthen its points program as a universal currency. It will focus on onboarding new partners for BigXchange within ASEAN. Currently, it has a credit card partnership with Hong Leong Bank (it
30、used to be Citibank, but that partnership has been terminated).Figure 14: BigRewards partnershipsOver 2.6MApp Downloads-60k monthly downloadsOver 300PartnersBooking | Hilton |(kiwi 淮F AVIS北治Trip.；沅 Bangkok BankCOMoamingman petronTESCOLcKsfave，Lazada GoljEK 需1c畲Source: Company presentationGOL - Smile
31、s:On 25 March 2021, Smiles shareholders approved a take over by GOL. This followed the initial carve out and listing of Smiles in 2013 as a means of raising capital by GOL (which retained a 54% stake).Smiles has 59 partner airlines (including new additions, BAZ Iberia, ANA), and maintains partnershi
32、ps including cruise liners.Its revenue declined from R$l,051m in 2019 to R$573m in 2020, driving net income down from R$627m to R$196m, whereas cash flow generation fell from R$l,683m to R$l,324m.Qantas - Frequent Flyers:QAN had 13.5m members as at 31 December 2020 and management highlights that mem
33、ber engagement continues to track at record levels driven by implementation of various initiatives. These include credit card and insurance offerings as well as status extensions, introduction of new ways to earn status credits, expansion of loyalty point redemption to rail travel and relaunch of ho
34、liday deals. On top of this, QAN is offering Fly Flexible policy, which now enables unlimited free changes for bookings to 30 April 2021 for flights to at least end of February 2022. Management is also engaging with a number of new and existing coalition partners to extend relationships.QANs loyalty
35、 business generated around A$1.5bn of revenue in FY19 (8% of the Group revenue), and A$411m of EBITDAR, all from external revenue (12% of the Group EBITDAR). Management is targeting a double digit growth at the underlying EBIT level for QAN loyalty from FY21 to FY22. We forecast underlying EBIT to s
36、tep down by 21% in FY21 before growing 19% in FY22. There is no change to managements commitment to deliver A$500-600m of underlying EBIT for QAN loyalty by FY24. In 1H FY21, QAN loyalty delivered A$125m and we forecast A$268m for the full year.At this point in time, we are cautious on the pace of r
37、ecovery in travel demand particularly across the international market, which is likely to weigh on growth in the loyalty business, in our view. Accordingly, our forecast for QAN loyaltys underlying EBIT in FY24 is below managements target range.Singapore Airlines - KrisFlyer:We believe KrisFlyer, SIAs loyalty programme, is the