Author Topic: Airline's Entire Profit Margin From Mileage Sales?  (Read 5206 times)

Offline EJB

  • Dansdeals Lifetime Presidential Platinum Elite
  • *********
  • Join Date: Sep 2012
  • Posts: 5220
  • Total likes: 179
  • DansDeals.com Hat Tips 15
    • View Profile
Re: Airline's Entire Profit Margin From Mileage Sales?
« Reply #40 on: March 18, 2019, 05:57:48 PM »
How long is that NDA for anyway?

Can't answer that either

Offline ExGingi

  • Dansdeals Lifetime 10K Presidential Platinum Elite
  • *******
  • Join Date: Nov 2015
  • Posts: 10759
  • Total likes: 3375
  • DansDeals.com Hat Tips 14
    • View Profile
  • Location: 770
Re: Airline's Entire Profit Margin From Mileage Sales?
« Reply #41 on: March 18, 2019, 06:02:33 PM »
I haven't read the entire discussion, but read any of the numerous articles online about ASC 606 and how it impacts points accounting by airlines.
https://www.bna.com/airline-frequent-flyer-n73014463438/

Interesting, so it affects how to recognize actual revenue on revenue tickets. Seems crazy if they have to actually adjust the revenue on each ticket sold, rather than just recording the liability as the miles are earned. What happens with retro credit? What happens when credited to partners? How is all this accounted for (and what in the world do airlines pay each other for those miles and award seats?)
I've been waiting over 5 years with bated breath for someone to say that!
-- Dan

Offline EJB

  • Dansdeals Lifetime Presidential Platinum Elite
  • *********
  • Join Date: Sep 2012
  • Posts: 5220
  • Total likes: 179
  • DansDeals.com Hat Tips 15
    • View Profile
Re: Airline's Entire Profit Margin From Mileage Sales?
« Reply #42 on: March 18, 2019, 06:03:41 PM »
https://www.bna.com/airline-frequent-flyer-n73014463438/

Interesting, so it affects how to recognize actual revenue on revenue tickets. Seems crazy if they have to actually adjust the revenue on each ticket sold, rather than just recording the liability as the miles are earned. What happens with retro credit? What happens when credited to partners? How is all this accounted for (and what in the world do airlines pay each other for those miles and award seats?)
They defer and ďbreakĒ the revenue.

Offline ExGingi

  • Dansdeals Lifetime 10K Presidential Platinum Elite
  • *******
  • Join Date: Nov 2015
  • Posts: 10759
  • Total likes: 3375
  • DansDeals.com Hat Tips 14
    • View Profile
  • Location: 770
Re: Airline's Entire Profit Margin From Mileage Sales?
« Reply #43 on: March 18, 2019, 06:06:19 PM »
They defer and ďbreakĒ the revenue.
Does that mean they separate the revenue into two parts, one that would wash with the miles liability, and then the rest. And if the miles liability is claimed, so that just washes out that part of the revenue until the liability is cleared by expiration or redemption?
I've been waiting over 5 years with bated breath for someone to say that!
-- Dan

Offline EJB

  • Dansdeals Lifetime Presidential Platinum Elite
  • *********
  • Join Date: Sep 2012
  • Posts: 5220
  • Total likes: 179
  • DansDeals.com Hat Tips 15
    • View Profile
Re: Airline's Entire Profit Margin From Mileage Sales?
« Reply #44 on: March 18, 2019, 06:08:08 PM »
Does that mean they separate the revenue into two parts, one that would wash with the miles liability, and then the rest. And if the miles liability is claimed, so that just washes out that part of the revenue until the liability is cleared by expiration or redemption?
Yes, with the addition that they model how they expect the miles to be used and adjust if actuality differs from expectations , in many cases.

Offline churnbabychurn

  • Dansdeals Lifetime Presidential Platinum Elite
  • *********
  • Join Date: Jul 2012
  • Posts: 7273
  • Total likes: 287
  • DansDeals.com Hat Tips 0
    • View Profile
  • Location: Lakewood
Re: Airline's Entire Profit Margin From Mileage Sales?
« Reply #45 on: March 18, 2019, 06:10:34 PM »


Not to mention expiring miles that's pure income.

They adjust that out

Offline ExGingi

  • Dansdeals Lifetime 10K Presidential Platinum Elite
  • *******
  • Join Date: Nov 2015
  • Posts: 10759
  • Total likes: 3375
  • DansDeals.com Hat Tips 14
    • View Profile
  • Location: 770
Re: Airline's Entire Profit Margin From Mileage Sales?
« Reply #46 on: March 18, 2019, 06:13:22 PM »
Yes, with the addition that they model how they expect the miles to be used and adjust if actuality differs from expectations , in many cases.

Hence
They aren't selling tickets, they are selling an expiring currency of which they control the value. So they can use whatever creative formula they want for the liability. And upon redemption (other than partner redemption - which I would love to find out how those are accounted for) they erase the liability and recognize a small operating expense not directly related to the liability.
I've been waiting over 5 years with bated breath for someone to say that!
-- Dan

Offline churnbabychurn

  • Dansdeals Lifetime Presidential Platinum Elite
  • *********
  • Join Date: Jul 2012
  • Posts: 7273
  • Total likes: 287
  • DansDeals.com Hat Tips 0
    • View Profile
  • Location: Lakewood
Re: Airline's Entire Profit Margin From Mileage Sales?
« Reply #47 on: March 18, 2019, 06:13:44 PM »
https://www.bna.com/airline-frequent-flyer-n73014463438/

Interesting, so it affects how to recognize actual revenue on revenue tickets. Seems crazy if they have to actually adjust the revenue on each ticket sold, rather than just recording the liability as the miles are earned. What happens with retro credit? What happens when credited to partners? How is all this accounted for (and what in the world do airlines pay each other for those miles and award seats?)
I posted up thread the actual disclosure where they explain how they account for these

Offline EJB

  • Dansdeals Lifetime Presidential Platinum Elite
  • *********
  • Join Date: Sep 2012
  • Posts: 5220
  • Total likes: 179
  • DansDeals.com Hat Tips 15
    • View Profile
Re: Re: PSA: Don't swipe recklessly for others
« Reply #48 on: March 18, 2019, 06:15:00 PM »
Hence

Their models are audited by big 4 firms. But yes they have some flexibility in the timing that they recognize the revenue. They donít have the flexibility to not at all recognize the revenue.

Offline ExGingi

  • Dansdeals Lifetime 10K Presidential Platinum Elite
  • *******
  • Join Date: Nov 2015
  • Posts: 10759
  • Total likes: 3375
  • DansDeals.com Hat Tips 14
    • View Profile
  • Location: 770
Re: Airline's Entire Profit Margin From Mileage Sales?
« Reply #49 on: March 18, 2019, 06:15:54 PM »
I posted up thread the actual disclosure where they explain how they account for these

TLDR.

At least when I post something for you to read, it's in a language we use in day-to-day learning, and usually a clear image rather than a tiny font.  ;D
I've been waiting over 5 years with bated breath for someone to say that!
-- Dan

Offline ExGingi

  • Dansdeals Lifetime 10K Presidential Platinum Elite
  • *******
  • Join Date: Nov 2015
  • Posts: 10759
  • Total likes: 3375
  • DansDeals.com Hat Tips 14
    • View Profile
  • Location: 770
Re: Re: PSA: Don't swipe recklessly for others
« Reply #50 on: March 18, 2019, 06:16:27 PM »
Their models are audited by big 4 firms. But yes they have some flexibility in the timing that they recognize the revenue. They donít have the flexibility to not at all recognize the revenue.

I wasn't implying flexibility on revenue, but rather flexibility on how to model the liability.

And don't get me started on big 4 auditing. They aren't rating agencies, but no-one served time for the pristine ratings the agencies gave to junk sliced and diced MBS. And Enron took down Arthur Andersen.

I am not comparing. Let them do whatever they want with the liability. איך פארגין זיי דאס. What I can't stand is the games they play with YQ/YR.
I've been waiting over 5 years with bated breath for someone to say that!
-- Dan

Offline EJB

  • Dansdeals Lifetime Presidential Platinum Elite
  • *********
  • Join Date: Sep 2012
  • Posts: 5220
  • Total likes: 179
  • DansDeals.com Hat Tips 15
    • View Profile
Re: Airline's Entire Profit Margin From Mileage Sales?
« Reply #51 on: March 18, 2019, 06:20:40 PM »
I wasn't implying flexibility on revenue, but rather flexibility on how to model the liability.

And don't get me started on big 4 auditing. They aren't rating agencies, but no-one served time for the pristine ratings the agencies gave to junk sliced and diced MBS. And Enron took down Arthur Andersen.

I am not comparing. Let them do whatever they want with the liability. איך פארגין זיי דאס. What I can't stand is the games they play with YQ/YR.
Loyalty treatment has substantial assumption material to the financials of airlines. The assumptions are scrutinized. And significant changes in assumptions are usually published in published financials.

Offline cmey

  • Dansdeals Platinum Elite
  • ****
  • Join Date: Jan 2014
  • Posts: 389
  • Total likes: 187
  • DansDeals.com Hat Tips 0
    • View Profile
  • Location: lakewood
Re: Airline's Entire Profit Margin From Mileage Sales?
« Reply #52 on: March 18, 2019, 07:10:09 PM »
I have a hard time accepting that much of it is zero cost spoiling inventory. If they didnít have this means of disposing of it they would probably market it at low price points that would get some people to bite. Also whether you condone it or not, there is a whole industry geared toward brokering miles and they heavily market to paying travelers, often using points to buy premium tickets that would have sold for many multiples what the airline sold the miles for. I would be surprised if we arenít talking about a total value into the billions. Not all of it would have found its way into the airlines bank account as cash paying pax but a good chunk of it would likely have.

Offline Dan

  • Administrator
  • Dansdeals Lifetime 50K Presidential Platinum Elite
  • **********
  • Join Date: May 2008
  • Posts: 59964
  • Total likes: 7278
  • DansDeals.com Hat Tips 16442
  • Gender: Male
    • View Profile
  • Location: CLE
  • Programs: UA Global Services, AA Lifetime Plat, DL Dirt, SPG Plat, Hyatt Diamond, Fairmont Lifetime Plat, Hilton Diamond, Priority Club Plat, Avis Chairman, National EE, Hertz PC
Re: Airline's Entire Profit Margin From Mileage Sales?
« Reply #53 on: March 18, 2019, 07:12:48 PM »
I have a hard time accepting that much of it is zero cost spoiling inventory. If they didnít have this means of disposing of it they would probably market it at low price points that would get some people to bite. Also whether you condone it or not, there is a whole industry geared toward brokering miles and they heavily market to paying travelers, often using points to buy premium tickets that would have sold for many multiples what the airline sold the miles for. I would be surprised if we arenít talking about a total value into the billions. Not all of it would have found its way into the airlines bank account as cash paying pax but a good chunk of it would likely have.
So many bad assumptions, I'm not even sure where to start.
Save your time, I don't answer PM. Post it in the forum and a dedicated DDF'er will get back to you as soon as possible.

Offline ExGingi

  • Dansdeals Lifetime 10K Presidential Platinum Elite
  • *******
  • Join Date: Nov 2015
  • Posts: 10759
  • Total likes: 3375
  • DansDeals.com Hat Tips 14
    • View Profile
  • Location: 770
Re: Airline's Entire Profit Margin From Mileage Sales?
« Reply #54 on: March 18, 2019, 07:16:52 PM »
So many bad assumptions, I'm not even sure where to start.

Write a new post. You've got the MBA to be able to make a coherent explanation so that everyone can understand the accounting and math, especially those who are well versed in סדר נזיקין.
I've been waiting over 5 years with bated breath for someone to say that!
-- Dan

Offline churnbabychurn

  • Dansdeals Lifetime Presidential Platinum Elite
  • *********
  • Join Date: Jul 2012
  • Posts: 7273
  • Total likes: 287
  • DansDeals.com Hat Tips 0
    • View Profile
  • Location: Lakewood
Re: Airline's Entire Profit Margin From Mileage Sales?
« Reply #55 on: March 18, 2019, 07:17:07 PM »


I wasn't implying flexibility on revenue, but rather flexibility on how to model the liability.

And don't get me started on big 4 auditing. They aren't rating agencies, but no-one served time for the pristine ratings the agencies gave to junk sliced and diced MBS. And Enron took down Arthur Andersen.

I am not comparing. Let them do whatever they want with the liability. איך פארגין זיי דאס. What I can't stand is the games they play with YQ/YR.

Re big 4, people have a misconception of what audit really is. at most a reasonable assurance that it's more likely than not etc etc.. but not sure what the rating agencies failings have to do with B4 audits..

Offline cmey

  • Dansdeals Platinum Elite
  • ****
  • Join Date: Jan 2014
  • Posts: 389
  • Total likes: 187
  • DansDeals.com Hat Tips 0
    • View Profile
  • Location: lakewood
Re: Airline's Entire Profit Margin From Mileage Sales?
« Reply #56 on: March 18, 2019, 07:17:57 PM »
So many bad assumptions, I'm not even sure where to start.

Iím definitely not intricately familiar with the process. If Iím making mistaken assumptions please elaborate.

Offline ExGingi

  • Dansdeals Lifetime 10K Presidential Platinum Elite
  • *******
  • Join Date: Nov 2015
  • Posts: 10759
  • Total likes: 3375
  • DansDeals.com Hat Tips 14
    • View Profile
  • Location: 770
Re: Airline's Entire Profit Margin From Mileage Sales?
« Reply #57 on: March 18, 2019, 07:18:06 PM »

Re big 4, people have a misconception of what audit really is. at most a reasonable assurance that it's more likely than not etc etc.. but not sure what the rating agencies failings have to do with B4 audits..

I've worked for a company that passed audits and then saw the proprietors serve time when things unraveled. 'nuff said.
I've been waiting over 5 years with bated breath for someone to say that!
-- Dan

Offline churnbabychurn

  • Dansdeals Lifetime Presidential Platinum Elite
  • *********
  • Join Date: Jul 2012
  • Posts: 7273
  • Total likes: 287
  • DansDeals.com Hat Tips 0
    • View Profile
  • Location: Lakewood
Re: Airline's Entire Profit Margin From Mileage Sales?
« Reply #58 on: March 18, 2019, 07:18:35 PM »
TLDR.

At least when I post something for you to read, it's in a language we use in day-to-day learning, and usually a clear image rather than a tiny font.  ;D
Re the font I dafka copied and pasted the text.. the image was just for the data table. But i hear you, it is definitely accounting speak..

Offline ExGingi

  • Dansdeals Lifetime 10K Presidential Platinum Elite
  • *******
  • Join Date: Nov 2015
  • Posts: 10759
  • Total likes: 3375
  • DansDeals.com Hat Tips 14
    • View Profile
  • Location: 770
Re: Airline's Entire Profit Margin From Mileage Sales?
« Reply #59 on: March 18, 2019, 07:20:37 PM »
Re the font I dafka copied and pasted the text.. the image was just for the data table. But i hear you, it is definitely accounting speak..
Accounting speak doesn't scare me. But I have no patience to read lengthy small print. I need to be able to scan read it. I guess if I copied it to a word processor and reformatted with a more readable font, I'd have no problem. Just give us the executive summary.
I've been waiting over 5 years with bated breath for someone to say that!
-- Dan