Avianca Increases Stake In LifeMiles Loyalty Program

Avianca has just increased its stake in the LifeMiles loyalty program, according to a new regulatory filing. This shouldn’t have any major implications for members, but it’s an interesting development nonetheless.

Avianca now owns 89.9% of LifeMiles

Avianca has just increased its equity stake in LifeMiles by 19.9%, at a purchase price of $195 million. That includes:

• $26.5 million paid with cash
• $168.5 million paid with Tranche A-1 loans

Previously Avianca owned 70% of LifeMiles, while the other 30% was owned by Advent International. With this latest purchase, Avianca owns 89.9% of LifeMiles, and Advent International owns 10.1%.

For context, Avianca used to own 100% of the LifeMiles program, but back in 2015 a 30% stake was sold to Advent International for $344 million. We know that Advent International was looking to sell its stake as far back as mid-2018, so it doesn’t seem like this is entirely pandemic-driven (though I imagine the price is).

What makes this move so interesting

There are a couple of noteworthy things here. First of all, Avianca is essentially buying back the stake it sold to Advent International for ~17% less than it sold it for five years ago.

While loyalty programs don’t have quite as much downside exposure as airlines, I’m somewhat surprised it didn’t sell for less. While the program has presumably increased in value over the past five years (pre-pandemic), the financial future of Avianca (and most airlines) is still in limbo, and it’s going to take years for a recovery.

And that brings me to the second point. Avianca is in bankruptcy protection and just recently secured $2 billion in financing, to help it continue operations. Now the airline is turning right around and spending $195 million on repurchasing a large chunk of its frequent flyer program. This also comes after the airline sought government support.

Don’t get me wrong, long term I think it makes a lot of sense for Avianca to own LifeMiles, it’s just an interesting prioritization.

Bottom line

Avianca has just increased its stake in the LifeMiles frequent flyer program from 70% to 89.9%. The company sold 30% of the program to Advent International about five years ago, and is now buying back roughly two-thirds of that at a lower cost.

While there’s definitely value in the long run for an airline to own its frequent flyer program, this seems like a controversial way to spend money as the industry struggles to stay afloat.