Author Topic: Airline's Entire Profit Margin From Mileage Sales?  (Read 1555 times)

Offline churnbabychurn

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Re: Re: PSA: Don't swipe recklessly for others
« Reply #30 on: March 18, 2019, 04:12:10 PM »
Do they record the outstanding mileage at a lower price than they sold it, recognizing an immediate profit, or do they only recognize the profit once the miles are used/expired?
Very important point. I don't really understand the whole discussion because of this.

They report revenue up front (with a liability offset), so all they are doing essentially is selling tickets to Citi instead of directly to pax. So all this is really is a agressivly sales technique.. Not sure how this is a material change in how they make money. It's not even a separate business model, and doesn't have different margins/prices/loads etc

Offline churnbabychurn

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Re: Re: PSA: Don't swipe recklessly for others
« Reply #31 on: March 18, 2019, 04:16:12 PM »


Nope.
Everything else is a traditional cost or profit of doing business.
Miles are something that were not intended to be a profit center, but became one and could not be replaced. It also allows them to dump practically zero cost inventory that was spoiling before and recognize those revenues on the books.

If you are correct that they wouldn't be able to sell this inventory otherwise, then I can accept that this is a major profit driver.

In other words, though it appears to be only a top line item, it's really about selling spoiled inventory, which is an expense reduction as well...

Offline Dan

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Re: Re: PSA: Don't swipe recklessly for others
« Reply #32 on: March 18, 2019, 04:20:31 PM »

If you are correct that they wouldn't be able to sell this inventory otherwise, then I can accept that this is a major profit driver.

In other words, though it appears to be only a top line item, it's really about selling spoiled inventory, which is an expense reduction as well...
Just try to find a a business saver award on DL or UA to TLV. These go out full, so they don't open them up for saver awards except for the rare cases where inventory management decides that there would be spoilage.

Same reason why CX and LH open premium space close-in.
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Offline ExGingi

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Re: Re: PSA: Don't swipe recklessly for others
« Reply #33 on: March 18, 2019, 04:20:34 PM »
Very important point. I don't really understand the whole discussion because of this.

They report revenue up front (with a liability offset), so all they are doing essentially is selling tickets to Citi instead of directly to pax. So all this is really is a agressivly sales technique.. Not sure how this is a material change in how they make money. It's not even a separate business model, and doesn't have different margins/prices/loads etc
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!
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Offline Joe4007

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Re: Re: PSA: Don't swipe recklessly for others
« Reply #34 on: March 18, 2019, 05:36:54 PM »
Just try to find a a business saver award on DL or UA to TLV. These go out full, so they don't open them up for saver awards except for the rare cases where inventory management decides that there would be spoilage.

Same reason why CX and LH open premium space close-in.
I'm guessing this is only true to an extent (an acceptable one to the airlines I'm sure), as there are pax that would've paid cash if not for mileage availability.
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.
Not to mention expiring miles that's pure income.

Offline ExGingi

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Re: Airline's Entire Profit Margin From Mileage Sales?
« Reply #35 on: March 18, 2019, 05:38:36 PM »
According to my calculations
Can we have the formula please? (and while you're at it, tell us what the airlines pay each other for partner awards).
« Last Edit: March 18, 2019, 06:04:13 PM by ExGingi »
I've been waiting over 5 years with bated breath for someone to say that!
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Offline Dan

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Re: Re: PSA: Don't swipe recklessly for others
« Reply #36 on: March 18, 2019, 05:45:39 PM »
and while you're at it, tell us what the airlines pay each other for partner awards.
@EJB
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 EJB

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Re: Re: PSA: Don't swipe recklessly for others
« Reply #37 on: March 18, 2019, 05:51:58 PM »
@EJB

I have no idea what you’re talking about  ;D

Offline Dan

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Re: Airline's Entire Profit Margin From Mileage Sales?
« Reply #38 on: March 18, 2019, 05:56:39 PM »
I have no idea what you’re talking about  ;D
Booo milts
How long is that NDA for anyway?
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Offline EJB

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Re: Re: PSA: Don't swipe recklessly for others
« Reply #39 on: March 18, 2019, 05:57:31 PM »
I'm guessing this is only true to an extent (an acceptable one to the airlines I'm sure), as there are pax that would've paid cash if not for mileage availability.Not to mention expiring miles that's pure income.

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.

Offline EJB

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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

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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

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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 “break” the revenue.

Offline ExGingi

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Re: Airline's Entire Profit Margin From Mileage Sales?
« Reply #43 on: March 18, 2019, 06:06:19 PM »
They defer and “break” 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

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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.