spend your points

Hey folks, Pratham here.

Welcome back to Paradox Weekly, a Masters' Union University newsletter, where we break down the ideas, trends, and contradictions shaping business today.

If you’re an Indian millennial, Jet Airways probably still gives you a little nostalgia (the hot meal without an extra cost).

On 17 April 2019, it grounded every flight it had.

By then the fleet had gone from more than 120 aircraft to six, it owed its lenders around ₹8,000 crore, and more than 16,000 people were about to find out they didn’t have a job.

What almost nobody noticed is that JetPrivilege, the company that handed out Jet’s free flights, was making a profit the entire time the airline was dying, and it is still in business today.

By mid-March 2019 the stock market valued the entire airline, planes, slots and all, at ₹2,679 crore, while analysts were putting JetPrivilege at around ₹5,000 crore.

So the business that handed out free seats was worth nearly twice the business that flew them, which should tell you where the real money in an airline sits.

Every time you flew Jet and earned miles, Jet paid JetPrivilege for them.

JetPrivilege then paid Jet for reward seats when members redeemed their miles, though it also bought tickets in advance.

That means the programme collected cash today for a flight it might owe you years later, or might never owe you at all.

The industry calls miles that go unredeemed breakage. The programme can recognise the corresponding revenue without paying for a reward.

And when you do redeem, a seat that would otherwise fly empty costs the airline relatively little to provide.

But on a busy flight, a reward seat can displace a paying passenger.

The programme gets paid before you use the miles, often by the airline, a bank or another partner.

And until you redeem them, it holds the cash against a future reward.

Jet sold a majority stake in JetPrivilege, then used its remaining stake and advance ticket sales to raise more cash.

When Naresh Goyal needed money, Etihad bought 24% of the airline in 2013, and took 50.1% of JetPrivilege, for $150 million in 2014.

In October 2018, TPG and Blackstone were looking at Jet's remaining 49.9%, in talks that valued JetPrivilege at around $900 million.

Then the lessors started taking planes back, and Jet went to the one part of the group that still had cash.

I'd call that spending its flyers' future holidays to pay that month's bills.

When the planes were grounded, JetPrivilege had over 9.5 million members and their balance miles, so in November 2019 it rebranded the programme as InterMiles and carried on.

After Jet stopped flying, JetPrivilege had to source its flight rewards from other airlines.

One member later wrote under that post that his 1,17,000 miles would once have gotten him 23 tickets between Coimbatore and Chennai.

InterMiles had made those balances much harder to use.

In November 2024, the Supreme Court ordered Jet Airways liquidated after its proposed buyer failed to meet the revival plan's terms.

If Jet showed what the miles are worth when the airline is dead, Air Canada just showed what they’re worth when it’s still flying.

In August, it sold 25% of Aeroplan to investors led by Blackstone and Quebec's La Caisse for C$2.5 billion, valuing the whole programme at C$10 billion, while Air Canada's own market value has hovered between C$5.5 and 7.5 billion this year, per Skift.

Skift points out the comparison isn't quite like for like, since the airline's number is after debt, but the gap is still large.

In 2019, Air Canada bought Aeroplan back for C$450 million in cash, plus C$47 million in closing adjustments, and took on about C$1.9 billion in liabilities, including members' unused points.

The programme can also change how many miles you need for a reward.

One blogger who tracks loyalty programmes counted 10 redemption devaluations at Delta between 2015 and 2023, roughly one a year.

Air India's new chart this April cut prices on many routes.

At the lowest business-class award level, Delhi to New York went from 180,000 points to 130,000, but in the same update Chennai to Singapore went from 42,000 to 50,000 and Abu Dhabi to Mumbai from 31,000 to 50,000.

Most of us treat miles as the airline saying thank you, and some of them do pay for a real trip, but every month they sit unused is a month the airline gets to change what they buy.

Your balance depends on the company behind it keeping useful rewards available. Jet's flyers kept their miles after the planes stopped, but the redemption options later shrank.

So the next time an app shows you a big points number, look at when it expires and what it buys today, and then spend it.

As for me, I now spend my points within a few months of earning them.

I read every email.

Until next week,
Pratham