Probably tl;dr for most, but here is how CoPilot describes the accounting treatment by Air Canada for the issuing and redemption of Aeroplan points:

Recognition of Revenue

Air Canada recognizes revenue related to Aeroplan points using the “deferred revenue” approach required under IFRS 15. When Aeroplan points are issued—either from the sale of airline tickets or through partners (e.g., credit card spending)—Air Canada allocates a portion of the transaction price to the points as a “performance obligation.”

· At the time of sale: When a customer purchases an airline ticket or a partner purchases points to offer their customers, Air Canada defers a portion of the revenue attributable to the Aeroplan points issued as a liability.

· Upon redemption: Revenue is recognized when the points are redeemed by the customer (i.e., when a flight or reward is provided and the performance obligation is satisfied). Air Canada then reduces the related deferred revenue and recognizes it as revenue in the income statement.

· Breakage: Air Canada estimates “breakage,” which refers to the portion of points expected never to be redeemed. Revenue for breakage is recognized in proportion to the points redeemed, based on historical and forecasted trends.

Recognition of Expenses

The cost incurred to deliver rewards (e.g., free or discounted flights, merchandise, or partner redemptions) is recognized as an expense at the time of redemption—that is, when the customer uses their Aeroplan points and Air Canada fulfills the obligation.

· Cost upon redemption: The incremental cost of providing the reward (e.g., cost of operating the flight, ancillary services, or cost of purchasing goods from partners) is recorded as an expense in the period the reward is delivered.

· Breakage adjustment: No expense is recognized for points estimated to expire unused; instead, breakage is reflected in the recognition of revenue.

Recognition of Assets

Aeroplan points themselves are not recognized as assets by Air Canada. Rather, assets are recognized in the form of cash or receivables when Air Canada sells points to partners or collects cash from customers. The only asset related to Aeroplan points is the cash or receivable from the sale of points, recognized at the time of sale.

· Receivables: When points are sold to partners, a receivable for the transaction price is recognized until cash is collected.

· No intangible asset for points: The points issued do not constitute an asset for Air Canada, as they represent a future obligation, not a resource controlled by the company.

Recognition of Liabilities

A liability is recognized for the obligation to provide future goods or services when Aeroplan points are issued. This liability is typically called “deferred revenue” or “loyalty program liability.”

· Initial recognition: At the time points are issued, Air Canada records a liability representing the estimated fair value of the future rewards to be provided when the points are redeemed.

· Reduction of liability: As points are redeemed and the performance obligation is satisfied, the liability is reduced and the corresponding revenue is recognized.

· Breakage adjustment: The liability is also reduced over time for the estimated portion of points that are not expected to be redeemed.

Timing Summary

· Revenue and corresponding liability are recognized at the time points are issued, based on the relative stand-alone selling price of the points.

· Revenue is recognized and the liability reduced when points are redeemed.

· Expenses are recorded upon fulfillment of rewards at redemption.

· Breakage revenue is recognized in proportion to redemptions, based on expected unused points.