Jet Airways sells loyalty miles in advance to raise Rs 2.5 billion

Jet Airways has tapped into its loyalty programme to overcome its tight liquidity situation.

The cash-strapped airline has raised over Rs 2.5 billion from the advance sale of redemption miles to its subsidiary. The loyalty programme is run by Jet Privilege Private Limited (JPPL), a company Jet Airways co-owns with Etihad Airways.

Accrual and redemption of miles is a transaction between two companies.  While Jet Airways pays JPPL for accrual of miles,  it gets paid by JPPL on redemption of those miles by a customer. The redemption cost is agreed on per mile basis and accounts are settled every month. With this transaction, JPPL has paid in advance for the entire year, a source said.

“This is like a forward sale of tickets and is legitimate. JPPL would have secured a discount on redemption payment for making the advance purchase,” said an aviation source. In the past too, Jet Airways has sold redemption miles in advance to banks to tide over its financial crisis.

The fundraising will help Jet make salary payments and settle vendor dues. A report by newswire ANI said that the fundraising plan was proposed by Jet's strategic partner Etihad Airways.

“The plan includes a $35 million (over Rs 2.5 billion) cash pre-purchase payment to Jet Airways by Jet Privilege, which is majority-owned by Etihad Airways,” the airline said in a statement.

In an emailed response, Jet Airways said JPPL concluded a pre-paid ticket purchase agreement under the normal course of business. “ JPPL regularly purchases these tickets to offer its members against redemption miles and hence the said transaction is no different," the airline said.

Jet Airways, which has announced Rs 20-billion cost-saving initiative, is also looking to raise funds through a stake sale in JPPL. Private equity firms Blackstone and TPG are in discussions to acquire a stake in JPPL. Etihad acquired 50.1 per cent in JPPL in 2013, while the remainder is held by Jet Airways.