Here is how they describe it:
"American applies a relative selling price approach whereby the total amount collected from each passenger ticket sale is allocated between the air transportation and the mileage credits earned. The portion of each passenger ticket sale attributable to mileage credits earned is initially deferred and then recognized in passenger revenue when mileage credits are redeemed and transportation is provided. The estimated selling price of mileage credits is determined using an equivalent ticket value approach, which uses historical data, including award redemption patterns by geographic region and class of service, as well as similar fares as those used to settle award redemptions. The estimated selling price of miles is adjusted for an estimate of miles that will not be redeemed based on historical redemption patterns. "
Great. So now, why don't you explain this with a practical example of a revenue ticket sold for $1,000 that earns 3,000 miles which are subsequently redeemed. But oddly enough, 2,000 of those 3,000 miles end up being redeemed as part of a 25,000 economy ticket redemption that would cost $300 as a revenue ticket. And 1,000 were redeemed as part of a 60,000 mile business class redemption that would cost $2,400 as a revenue ticket. Add to the mix 100,000 miles that were sold to a bank for $0.0125 per mile, and presuming that 50% of all miles issued will eventually expire.
@Dan please correct my hypothetical assumptions to something closer to reality so CBC can put them into the explanation that might eventually get published.