By Alison Sider

Delta Air Lines Inc. is the latest carrier to use its frequent-flier program to secure cash to weather the coronavirus pandemic, announcing plans to raise $6.5 billion backed by its SkyMiles program.

Delta said on Monday that it will issue a private-notes offering and enter a term loan facility backed by the program, its biggest fundraising yet as it looks to build its war chest. While Delta has raised $16.5 billion since the start of the pandemic, the carrier is still bleeding about $27 million in cash a day, Chief Financial Officer Paul Jacobson said last week.

U.S. carriers received $25 billion in government funds under the Cares Act, a broad stimulus package passed in March, to help them keep their workers employed through the summer. But that money is due to run out at the end of this month, and negotiations for a new pandemic relief package that could include more assistance for airlines have stalled. Airlines have outlined plans to furlough tens of thousands of employees at the start of October, including over 1,900 Delta pilots.

With travel demand hovering at around 30% of last year's levels and showing few signs of rebounding, airlines' survival depends on their ability to raise as much cash as possible. After mortgaging planes, slots at congested airports and lucrative routes, airlines have been turning to frequent-flier programs to secure loans.

United Airlines Holdings Inc., in July raised $6.8 billion backed by its MileagePlus program. Spirit Airlines Inc. said earlier this month it would raise $850 million backed by its loyalty programs.

American Airlines Group Inc., meanwhile, has put its frequent-flier program up as collateral for a nearly $4.8 billion government loan as part of another airline aid program under the Cares Act. Though Delta is eligible for $4.6 billion under that program, the airline has decided not to pursue the government loan, a spokesman said.

The International Air Transport Association has said it doesn't expect passenger demand to recover until 2024. International travel restrictions and minimal demand from corporate travelers have pushed many airlines around the world to the brink.

Cathay Pacific Airways Ltd., Hong Kong's flagship carrier, said Monday that it is burning through hundreds of millions of dollars in cash each month and closing in on a restructuring plan as passenger demand remains a fraction of its pre-pandemic level.

The airline said passenger volumes scarcely improved in August and that it will continue to burn through as much as 2 billion Hong Kong dollars, equivalent to $258 million, a month, until the market recovers.

Airlines introduced frequent-flier programs in the 1980s as a way to encourage repeat business among their best customers with the lure of free trips. They exploded in popularity, and in recent years have become major sources of airline earnings.

Carriers mainly earn money from frequent-flier programs by selling miles to banks and retailers that then award them to customers who sign up for credit cards and make purchases. That means airlines stand to benefit from every swipe of a co-branded card, whether customers are buying plane tickets or clothing. Airlines have said those revenues have proved stable even at times when flying has dropped off.

Delta said holders of its co-branded American Express Co. cards kept spending this year, even as they have largely eschewed travel. Delta's passenger revenue fell 60% in the first half of the year, but the airline said Monday that it still received $1.9 billion in cash from sales to American Express -- less than a 5% drop from the first half of 2019.

Delta's shares rose 2% to $32.33.

Airline loyalty programs can also be alluring to banks because of their typically high-value membership. When it renewed its co-brand partnership with American Express last year, Delta said it expected its benefit from the relationship to double to nearly $7 billion annually by 2023, up from $4 billion in 2019. Delta accounts for about 20% of AmEx balances world-wide, making it AmEx's largest co-brand account.

Airlines have said for years that their frequent-flier programs had untapped potential but that they hadn't hit on the best way to monetize them. Mr. Jacobson said in July that United's financing could pave the way for similar deals by other airlines.

In past downturns, airlines have sold big chunks of miles to their credit partners, but the approach has drawbacks. Airlines that do it sacrifice future cash flows, and the amount an airline can raise from a single bank through such a sale is limited, executives have said.

Some airlines around the world have sold stakes in their frequent-flier programs, or spun them off altogether, but U.S. carriers have been hesitant to go that route, arguing that giving up control of the programs can result in them becoming less beneficial.

--P.R. Venkat contributed to this article.

Write to Alison Sider at alison.sider@wsj.com