Etihad wants to end exclusivity for JetPrivilege as part of rescue deal

Etihad Airways wants to open the JetPrivilege loyalty programme to other carriers as it negotiates fund infusion into the cash-strapped Mumbai-based airline. Jet’s loyalty programme is managed by Jet Privilege Private Limited (JPPL), a subsidiary company which is majority owned by Etihad. 

JPPL sells miles to Jet Airways, its partner airlines, banks and hotels, among others. However, it cannot sell miles to any other airline which is not a partner of Jet Airways because of an exclusivity clause. Now Etihad wants the exclusivity waived, thereby allowing JPPL to bring in other airlines as partners. Currently, Jet has frequent flyer partnerships with 25 airlines globally and JetPrivilege members can earn and burn miles while travelling on any of those airlines.  An industry source said Etihad may also consider integrating JetPrivilege with its own programme but an airline executive said there had been no discussion between the two partners on the issue. 

The demand has come up as the two airlines are discussing an emergency $35-million funding to Jet Airways. As Jet Airways’ liquidity position remains tight, the airlines are again discussing interim funding through purchase and sale of miles.  This is being discussed as Etihad seeks waivers for open offer and preferential share pricing norms from the stock market regulator.

Simultaneously, banks are considering converting Jet's debt into equity and offer fresh loans.

ALSO READ: SBI chief seeks Sebi's views on Etihad bailout proposal for Jet Airways

Accrual and redemption of miles is a transaction between Jet Airways and JPPL. 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 a per mile basis and is settled every month. In October Jet Airways had sold redemption miles for $35 million which amounts to an entire year's sale.

In his letter to State Bank of India chairman Rajnish Kumar last week, Etihad CEO Tony Douglas said the airline would be ready to support the release of $35 million by JPPL upon satisfactory completion of due diligence, binding commitment of all stake holders to the resolution plan and reasonable assurances regarding receipt of regulatory approvals. Douglas further said no amount would be allowed to be infused in Jet Airways till satisfactory completion of due diligence.

Etihad said it would not respond to “rumour and speculation’’. Jet Airways did not respond to a query.

Etihad owns 50.1 per cent in JPPL (Jet owns remainder) and 24 per cent in Jet Airways. In FY 18 JPPL reported a revenue of Rs 622 crore and net profit of Rs 177 crore. "Etihad may be looking to protect its investments in Jet and JPPL," an aviation industry observer remarked. The move would help the programme increase its revenue, he said. Others believe seeking exclusivity waiver could just be a hard negotiating tactic and that tie-ups with other airlines may not happen soon.

“Jet Airways needs a large dose of fund infusion and $35 million will not last more than a few days. The airline has not paid its vendors while pilots and senior management have not received salaries for the last two months. A delay in finalising the resolution plan will only hurt the airline further,” a source pointed out.

About  the programme

Jet Privilege Private Limited (JPPL), set up in 2014, is co-owned by Jet Airways and Etihad, and it manages Jet's loyalty and rewards programme 

9.2 million JetPrivilege members. Membership grew 30% YoY in FY18
150 Programme partners, including banks, retail chains, dining joints, hotels and airlines. Members can earn and burn miles on 25 partner airlines
$35 million: Jet secured in October from advance sale of redemption miles to JPPL. It proposes to raise another $35 million from the firm as interim financing

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