wjv144

"enhancements" is what Flying Blue is giving their members for many years..... Now FB is one of the poorest FFP around

percysmith

Incywincy: miles are a liability of an airline, but they aren't a financial liability (have monetary value) or legal liability (can be sued upon). I'll explain:

Certainly miles have no $ value. This seem to trip up a lot of lawyers and agencies in my complaint last year against that bank - if I had to pursue a court action I have to seek something called Specific Performance (I'm not going to explain it).

Partners buy miles from CX, sure. But the price they pay are confidential and different - I'm told the more they buy per year the less they pay per mile. The sale price might not be a good indication of how much miles really cost CX.

Are they a legal liability? Well, legally qualified FTers can help me out here, but from my lay opinion:

- yes they is an general obligation for CX to fly us; but

- nothing in law stops CX from zeroing availability or multiplying the redemption table by 10^10 tomorrow. Or announcing some rule change that devalues the miles to practically nothing.

So IMHO, no.

Are they an accounting liability? Yes. Because accounting liabilities include legal, constructive and equitable obligations. Constructive obligations are obligations between companies (airlines) and its customers (passengers) based on past practices (prior record of redemption availability).

For CX to wipe out the accounting liability it will either have to do a very overt change to the redemption table or deny availability for sustained period of time. Of course we will notice and stop accumulating (manufacturing) miles, which will reduce CX's sales of miles to its partners. So there is a cost to CX for killing the AM golden goose.

percysmith

Sounds like a hefty bid for ICN J. Let us know whether it clears or not. I probably won't bid $80

percysmith

When there are LCCs on a route CX behaves like a LCC.

GE90-115B

Exactly, and if the value of bids are not high at all, I don't see why they won't process a 85000 mile J redemption (or any other hefty mileage award) over a bid that is worth a dissatisfying amount. 85000 Asia Miles is NOT a cheap currency by any bit @:-)

So fackecd, CX may not necessarily snub award/redemption for bids during every single instance. Only time will tell if the former will occur more regularly.

IncyWincy

Agree.

IncyWincy

Was it the complaint against SC? Not sure what happened and what you were told. I do know specific performance as a form of relief.

In any case, in essence, we are agreed that miles is a liability of CX, you actually brought up (and we all know) that CX has been selling miles to banks etc (valued at whatever scale). Miles are used as an incentive and whoever has been collecting has been relying on the overt promise that they can use them albeit not without blackout dates and subject to quota etc and hence paying good money in the course of accumulating.

percysmith

Yes but given CX's penny wise pound foolish attitude at present there is a real and significant possibility that CX kills the golden goose and captures the value of all currently outstanding miles in our accounts.

Possibly I reckon the redemption table has to be massively changed in order to capture the current value, otherwise we run down our current accounts on partners like QF QR and BA. Doubt CX will want the Apple publicity though.

fakecd

with respect I disagree on monetary value of contingent liability CX holds under Asiamiles program. Granted under accounting terms yes it might show up under the Liability with some number, but this value can be changed to virtually anything. i'm not an aviation lawyer but the very first T&C states "rules can change at absolute discretion of CX bla bla bla", so to me, Asiamiles is just a monopoly money. Nothing stops CX from devaluing the asiamiles at any point... it could be one weekend suddenly it cost 10x more Asiamiles to claim an award, thus that liability $xyz has gone down by factor of 10 folds...

It is an extremely poor commercial PR stunt to pull this off, but unlike say Retirement benefits or employee benefits which is real ongoing liability, Asiamiles is just a ficticious intangibles.... (may I remind this killed many airlines like JAL or Auto company like GM etc) So if CX was facing a commercial crisis, they can wipe off the Asiamiles liability to improve their balance sheet.

so bottomline, I would say there's zero chance CX will give preference over this Asiamiles award waitlist over a HARD cash $$$$ "enhancement bid"

mitwg

The truth is probably somewhere in between this and the other extreme.

I'm not an accountant myself so I can be 100% wrong on this but I'm a CFA trained investment manager so I have a general understanding of the IFRS (and thus HKFRS) accounting system.

What is certain for sure is, CX definitely has the option to devalue their miles by tenfold which would significantly reduce their liability on the balance sheet. This would also translate to a nice little profit for the reporting period as the write-down of liability would probably be reported as a net profit in comprehensive income.

But these days, financial statements are scrutinized by analysts and there is no way such devaluation can be reported on the statements without either a footnote, or a dedicated section on the MD&A (probably both). Here, the company would need to disclose the expected impact of such devaluation on future cash flow (which would undoubtedly translate to less cash flow generated through selling miles to banks, less MPO members etc.).

Obviously whatever happens here will translate to significant impact on equity value, which is what management is really worried about these days. As an analyst, I would view such devaluation as an airline desperate enough to trade long run profitability for a short run cash injection.

So yes, while a massive massive devaluation could happen, it is probably more of a last minute option (I'm thinking of QF's recent changes) on similar levels of selling aircraft to raise short run cash.

percysmith

Mitwg: here's CX's 2013 AR

http://www.cathaypacific.com/content...-report_en.pdf

I also looked at the investor relations slides to see of they let on anything there:

https://www.cathaypacific.com/cx/en_....html?switch=Y

The IR slides don't mention Asia miles
The AR mentions miles in the md&a, list of principal subsidiaries and accounting policies.

Most of the md&a is descriptive stuff on how well the program is going. Only meat is the following:

"There was a 21% increase in redemptions by Asia Miles members in 2013. More than 90% of Cathay Pacific and Dragonair flights carry passengers who have redeemed frequent flyer miles through the Asia Miles Program"

The second part is more self-congratulatory fluff
I presume the 21% is seats but doesn't shed any light into size of redemptions - they can be pure increase in HKG-TPE redemptions in Y for all I care.

Accounting policy just confirms what I said above.
There are no direct numbers, unless one analyses the following

Unearned transportation revenue (no footnote) (2013) 11,237 hkdm (2012) 9,581 hkdm

Increase in unearned transportation revenue 1,656 (or 17% yoy)

I may stand corrected, but I believe unearned transportation revenue is not solely comprised of what CX thinks the outstanding miles are worth - it may form part of it, but also includes everybody's in unflown tickets as well - hong Thai group tix, biz tix, our cx.com tix and so on. Probably also includes freight revenue received in advance.

Any analysis of this balance is meaningless. And probably CX won't be forced by anyone into breaking it down.

sxc

I don't think we need to continue debating accounting principles. Let's stick to the topic of "bidding for upgrades".

Thanks

sxc
Cathay Pacific Moderator

mitwg

Back on topic, has anyone have any updates on successful/unsuccessful bids?

I have a ICN-HKG sector booked this week in PE but it sucks that I can't try this out because I ticketed earlier

midlevels

Are tickets booked with CX Holidays eligible for this?

NYCtraveler

This program has been a tremendous success for Etihad Airways. To the Tune of Millions and Millions of dollars per month in additional revenue for seats that were normally just cabin rolled and given away.

Other airlines are rolling this out as well as the fact is that People WILL pay an additional $500-$1200 for that one way upgrade on the HKG-EWR flight Easy.....So why not make the money? I use this bidding on Etihad from J to F and have had some amazing flights. With Money....you get honey....simple as that.

Safe travels to all! NYC