Avianca to Make Frequent-Flier Program a Separate Unit, CEO Says

Avianca Holdings SA, Colombia’s biggest airline, is splitting its LifeMiles frequent-flier rewards program into a separate operating unit, Chief Executive Officer Fabio Villegas said.

LifeMiles is growing on average 40 percent a year and now has 5 million members, Villegas said today in an interview in his Bogota office. He said the company hasn’t decided whether it makes sense to eventually do an IPO for the unit.

“We want it to be an independent business unit within Avianca Holdings,” Villegas said. “That will allow us to establish the relationship between the company and the frequent-flier program, understand how that contractual relationship works and produce independent accounting results.”

Brazil’s Gol Linhas Aereas Inteligentes SA took its Smiles SA frequent-flier unit public last year, while Sao Paulo-based Tam SA, which is now part of Latam Airlines Group SA, did an IPO of its Multiplus SA rewards program in 2010. Grupo Aeromexico SAB, Mexico’s biggest airline, is considering an IPO of its frequent-flier rewards program, two people with direct knowledge of the talks said earlier this month.

Airline rewards programs make money by selling miles to banks or hotels to give to customers, earning interest on the cash before awards are redeemed by customers. They can also sell points to carriers and retailers and then buy airline seats and other rewards at a discount, pocketing the difference.

Avianca expects to take delivery of four Boeing 787 Dreamliners this year starting in October and another four next year of the 15 it has ordered, Villegas said. As Avianca incorporates the Dreamliners to its fleet, it will replace Airbus A330 planes, he said.

This year Avianca’s available seat kilometers, a measure of capacity, will grow about 8 percent, Villegas said.

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