JetPrivilege to be spun off from JetAirways as a subsidiary
I was going over the annual report of Jet, and turns out this year they are going to go the AAdvantage/MileagePlus way, by making a separate company for marketing the loyalty program. A special resolution has been voted upon by the shareholders, and a co. with a capital of 50L to be established.
And one more interesting thing out there, last year (2011-12), jet provisioned for 32% of the amount in 2010-11 miles, indicating that the travel must have been really hit bad. Also redemptions went up 4 folds, and expiry of miles as well. Have a look at this extract below:
Interesting data, somehow doesnt make sense with what we have seen on seat availability on Jet. So in that sense the large chunk of redemption increase has to have been on partners. I think it is also a fair assumption that the partners reddeming on Jet would in all probability be lower so Jet must have had to pay the partners in some form for the partner redemptions that have happened.
Anyone here has an idea on how airlines settle partner travel liability and what financial impact could that have had on JetPrivilege?
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Quote:
Originally Posted by A2A
I was going over the annual report of Jet, and turns out this year they are going to go the AAdvantage/MileagePlus way, by making a separate company for marketing the loyalty program. A special resolution has been voted upon by the shareholders, and a co. with a capital of 50L to be established.
very interesting....i hope this change is for the better....
Any input on how they think this is going to help them? Financially, or in their ability to service their customers better.
miles are usually provisioned on the b/sheet of the airline co. so i am trying to find out if this move makes the miles go to this subsidiary or keeps it with the parent only. either ways, the intention is clear, to sell as many miles as possible .... that will help financially.
customer service... well, more depression on the way [I cannot redeem my miles :P]
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IFRIC 13 requires you to accrue for customer loyalty programs, most airlines have it spelled out deep in the annual reports. Aeroplan is the first completely independent FFP spin off. Actual cash flows between them and AC for the points earned/burned. Supposedly a great success and a way to earn some cash for the airline to show on balance sheets and annual reports and give a unusual one time revenue jump.
Outsourcing or separating training facilities to eventually sell/spin it off is not unusual either. SAS for example sold its flight training ops to Oxford and can make use of their facilities worldwide at reduced rates.
I was going over the annual report of Jet, and turns out this year they are going to go the AAdvantage/MileagePlus way, by making a separate company for marketing the loyalty program. A special resolution has been voted upon by the shareholders, and a co. with a capital of 50L to be established.
And one more interesting thing out there, last year (2011-12), jet provisioned for 32% of the amount in 2010-11 miles, indicating that the travel must have been really hit bad. Also redemptions went up 4 folds, and expiry of miles as well. Have a look at this extract below:
Thank you A2A. I read your blog too. It's interesting that you point pointed out what my lay mind, or shall we say, astute mind, concluded that JP members have too many non-BIS miles.
It's one thing to make your loyalty programme more attractive by allowing JP members to earn miles in ways other than flying, but quite another, risky behaviour, to turn it into an ATM.
Quote:
Originally Posted by A2A's blog
It already has the most number of partners who award miles for non-flying transactions.
Thanks for the table also.
The table gives absolutely no indication of what 31st refers to. I presume, it's March 31st.
It appears the numbers represent financial liability of accrued JP miles. It's clear that the number of JP miles redeemed more than quadrupled,which also confirms my feeling about the insatiable appetite ( (entitlement) JP members have. This must mean a major expense for Jet.
How are miles redeemed by other members of Jet's partners accounted. Or is this just an accounting of JP miles?
Every JP mile is future, though limited by expiry date, liability. Every mile JP members earn through other partners, whether flying or non-flying is revenue. Members of partners' FF programme redeeming their miles on Jet, also represent revenue. How is this revenue accounted on the books?
If loyalty programme is in check, it's not necessary to make it a separate entity. When you intend to milk it the way Jet has, it becomes unfunded liability that must be taken off the books. Hence the spin off.
I suspect, Jet thought expiry will take care of JP miles becoming a big unfunded liability. But it did not count on JP members watching their miles like a hawk. I can't see anything but devaluation of JP miles ahead as Jet continues with its addiction to revenue by selling miles to partners.
For those, who asked "What will it do for me?", a reasonable question, though it betrays the simplicity of their mind, my answer is, "At best, nothing! It means more frustration with JP miles. "
I do hope that people realise that a JP mile, is not currency backed by assets despite Jet's claims to the contrary. It's not even a fiat currency as it has no monetary face value beyond Jet's books. In the real world, JP miles, and vouchers have no monetary value. I know it;s frustrating to not be able to use your miles, but it's naive to think that they will be able to redeem them easily.
IFRIC 13 requires you to accrue for customer loyalty programs, most airlines have it spelled out deep in the annual reports. Aeroplan is the first completely independent FFP spin off. Actual cash flows between them and AC for the points earned/burned. Supposedly a great success and a way to earn some cash for the airline to show on balance sheets and annual reports and give a unusual one time revenue jump.
Outsourcing or separating training facilities to eventually sell/spin it off is not unusual either. SAS for example sold its flight training ops to Oxford and can make use of their facilities worldwide at reduced rates.
I couldn't quote you accounting rules, but it should be quite obvious to any one that accrued miles have to be funded, just like pensions and health care plans have to be funded. There is no free lunch--neither for airlines, nor for loyal members. This is something that seems to have been forgotten by airlines, as well as frequent flyers.
I know pension and healthcare plans are also governed by law. Even them corporations fail to fund them adequately.
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Quote:
Originally Posted by Yaatri
I couldn't quote you accounting rules, but it should be quite obvious to any one that accrued miles have to be funded, just like pensions and health care plans have to be funded.
Well... until IFRIC 13 came along it was pretty vague on how much was required to be accrued for, AA for example initially said that awards would be seats that would go empty anyway, so the absolute minimum was accrued.
very interesting....i hope this change is for the better....
Better for whom? The purpose to "disappear" liability represented by miles. After spinoff, they become the other company's liability. How it affects JP members will depend on how well the spun off company plays the game of hedging and arbitrage.
Well... until IFRIC 13 came along it was pretty vague on how much was required to be accrued for, AA for example initially said that awards would be seats that would go empty anyway, so the absolute minimum was accrued.
So you make money selling something to your customers that could use in future, that you assumed would not cost you anything.
And now with load factors high, that assumption no longer holds true, not unlike the returns assumed by many state and city govt pension plans.
You sell too well or too much, you put yourself in a jam.
With easy sell miles, Jet is sitting on a log with its tail between two halves (JP miles and JP members) of the log, and the JP members are ready to pull the wedge out.
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Quote:
Originally Posted by Yaatri
Better for whom? The purpose to "disappear" liability represented by miles. After spinoff, they become the other company's liability. How it affects JP members will depend on how well the spun off company plays the game of hedging and arbitrage.
better for the jp members of course....at this point jet can't really get any worse....so any change raises hopes for better things to come....i guess time will tell....
Better for whom? The purpose to "disappear" liability represented by miles. After spinoff, they become the other company's liability. How it affects JP members will depend on how well the spun off company plays the game of hedging and arbitrage.
at this point, not. the new co. will be a subsidiary of jet airways so in the consolidated balancesheet, it wil still show the liability. however, under the new guidelines for domestic transfer pricing notified under the current budget, i suspect the arm's length valuation will only take the liability upwards.
