Teasing the Jet Privilege value to investors

The Jet Airways collapse is bad news on many fronts, but one part of the organization is looking forward to an “accelerated growth plan” that might prove a strong investment. Or perhaps it is a delusional dream.

It is an independent company – Jet Privilege Pvt Ltd (JPPL) – mostly owned by Etihad group with Jet Airways holding a 49.9% stake. The team managing the bankruptcy process of Jet Airways sees the loyalty program as an attractive investment option as it looks to clear the books. Alas, its opportunities for success are limited if history is considered.

The good news with the program is that it makes money. Profits were near $19mm in 2018, up 5% on the prior year. The program also believes it is poised to turn a corner, to separate itself further operationally from the airline and establish an independent loyalty program that includes earn-and-burn on travel components, but also takes advantage of growing partner relationships, currently numbering more than 200.

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Can it maintain its margins and value with a revised and dramatically smaller version of Jet Airways in play? Can it survive and thrive separate from the core airline? All signs indicate this is far harder than the current insolvency administrator (and debt holders) would hope.

One need not go too far back in history to realize examples with significant similarities that suggest an independent loyalty program, split off from a failed airline, faces massive challenges. Not long ago airberlin’s TopBonus program (also funded by Etihad Group, in a similar transaction to prop up the underlying airline without running afoul of foreign ownership laws) pursued a similar course. It was a separate company and managed to secure access to some flight rewards, though not quite the same as the Jet Privilege situation. In the TopBonus example the loyalty program tried to transition to a fully independent loyalty operation and could not make the jump. Maybe with more funding there was a chance, but it was not to be.

Read More: A last hurrah for topbonus loyalty

Other independent loyalty programs have shown some success, though not generally with a travel-related focus. The PINS program, owned by AirBaltic is perhaps the best example of success on that front. But it also has a core airline partner. A small airline, but an airline nonetheless.

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Bank-driven loyalty programs have had some success with building travel-related or travel-adjacent loyalty offerings, at least in the United States. Both Barclay’s and Chase have strong portfolios on this front, but they are supported by the relatively high discount rate paid by merchants on transactions. It is unlikely the Indian market could support a similar model.

And then there are programs like LifeMiles and Aeroplan, separate companies but tied to the airline. Losing the airline as a partner was bad news for Aeroplan and likely would deliver similarly for LifeMiles. Maybe the AirAsia BIG loyalty program can deliver value across that diversity of operation, but it remains tied to an airline, at least in appearances. It, too, is a separate company.

Loyalty programs can drive massive profits directly for their operators, as well as indirect value for an associated company. But in the travel space consumers generally want to know that their points grant access to an airline network, not just theoretical future cash discounts/rebates on a purchase. It is a difficult market to navigate and since the cessation of airline operations the challenges for JPPL have grown significantly, even as the company claims to be running business as usual.