Historical figures from Lufthansa’s annual reports:
Code:
Year Provisions Change Outstanding Change Value
end for miles miles per mile
(mio €) (mio) (cent)
1999 283
2000 322 13.78%
2001 441 36.96%
2002 524 18.82%
2003 491 -6.30%
2004 548 11.61%
2005 599 9.31% 151500 0.40
2006 714 19.20% 165400 9.17% 0.43
Lufthansa mentions the provisions for outstanding miles in its annual reports since 1999, the number of outstanding miles only since 2005. It’s interesting to note that the number of outstanding miles increased by 9.17 % in 2006 while the provisions increased by 19.20 %. 2006 saw the integration of Swiss Travel Club: According to the annual report, 900,000 members converted their miles to M&M. We can assume that the average conversion was at least 13,000 miles as STC members with very small amounts of miles may have abstained from a transfer. Under this assumption, at least 11700 mio. miles have been converted from STC to M&M, while the total increase was only 13900 mio. miles.
What are possible explanations for the 19.20 % increase in provisions?
About 9 % can be explained by the integration of STC (55 mio. Euro), while 10 % or 60 mio. Euro are unexplained as there is no substantial increase in outstanding miles to justify this increase. If Lufthansa sold more miles to third parties, provisions should also increase – but if they sold more miles, why didn’t the overall total of miles increase accordingly?
The explanation could be that more miles have been burned, but burning miles in the usual way that was observed in the past would lead to a decrease of provisions. However, if the observed burning of miles lead to significantly higher costs for Lufthansa, this could explain why the provisions increased by 10 %.