What are the chances of AC emulating WestJet's Travel Bank concept?
Apr 3, 2020, 7:26 pm
#16
Join Date: Dec 2012
Location: YEG
Posts: 269
Travel bank vs AC-style credit, there's no difference. In either case, it sits on the balance sheet as liability for deferred revenue (specifically called Advance Ticket Sales), and becomes revenue when the flights are flown or when the credit expires.
The drawback to the travel bank approach (for AC) is that the breakage rate (i.e. amount that doesn't get used before expiry) on the travel bank is likely to be a lot lower. I don't think that will matter to the initial liability or the revenue that's ultimately booked, but it will mean the cost to earn that revenue may be higher.
P.S. I'm not an accountant, but my career in corporate finance, including being involved in preparation of public company financial statements, will hopefully be sufficient for you
The drawback to the travel bank approach (for AC) is that the breakage rate (i.e. amount that doesn't get used before expiry) on the travel bank is likely to be a lot lower. I don't think that will matter to the initial liability or the revenue that's ultimately booked, but it will mean the cost to earn that revenue may be higher.
P.S. I'm not an accountant, but my career in corporate finance, including being involved in preparation of public company financial statements, will hopefully be sufficient for you
I am not at all surprised that the airlines are trying to not issue refunds. It is free financing, That is better than any lending institution is going to offer.
Apr 3, 2020, 9:15 pm
#19
Join Date: Jun 2009
Location: Calgary
Programs: BA Silver
Posts: 771
Adam is correct the bean counters will be setting up a liability on the balance sheet for the credits. The question of whether or not it is deferred revenue is interesting. Deferred revenue usually an indication of future revenue that will recongnized sometime in the future. Deferred revenue can be used as an indicator of an airlines future ancillary revenues (baggage fees ,buy on board,etc.) that is generally recognized when the flight occurs. Given the pressure that the airlines are beginning to come under to refund fares in cash, auditors may be reluctant to allow a 100% of the amount sit in deferred revenue but rather charged to accrued liabilities (read future drain on cash).
I am not at all surprised that the airlines are trying to not issue refunds. It is free financing, That is better than any lending institution is going to offer.
I am not at all surprised that the airlines are trying to not issue refunds. It is free financing, That is better than any lending institution is going to offer.
All the airlines have made good profits up to now on the backs of travellers with fees etc (cramming us into the back ). It is a time of reckoning for the shareholders. I am deeply concerned about Govt bailouts for these airlines; these bailout are unfair and should not happen.
Oh dear>
Apr 3, 2020, 10:51 pm
#20
Moderator, Air Canada; FlyerTalk Evangelist
Join Date: Feb 2015
Location: YYC
Programs: AC SE MM, FB Plat, WS Plat, BA Silver, DL GM, Marriott Plat, Hilton Gold, Accor Silver
Posts: 16,767
Adam is correct the bean counters will be setting up a liability on the balance sheet for the credits. The question of whether or not it is deferred revenue is interesting. Deferred revenue usually an indication of future revenue that will recongnized sometime in the future. Deferred revenue can be used as an indicator of an airlines future ancillary revenues (baggage fees ,buy on board,etc.) that is generally recognized when the flight occurs. Given the pressure that the airlines are beginning to come under to refund fares in cash, auditors may be reluctant to allow a 100% of the amount sit in deferred revenue but rather charged to accrued liabilities (read future drain on cash).
Even with WS having the travel bank concept, their disclosure was no more detailed than AC's on this front.
Apr 4, 2020, 6:25 pm
#22
FlyerTalk Evangelist
Join Date: Mar 2005
Location: YYZ
Programs: AC*SE 2MM
Posts: 16,652
IIRC They also treat AC-related fees separately from third party taxes and fees. So if you have a $2,000 international booking comprising $1,900 of airfare and $100 of taxes and want to use it for a $2,000 domestic booking that has $1,700 of airfare and $300 of taxes you will be in for a surprise when they want to collect $200 for the higher taxes, while they pocket the $200 "fare" difference.
Apr 4, 2020, 8:20 pm
#24
Join Date: Feb 2020
Posts: 1,203
IIRC They also treat AC-related fees separately from third party taxes and fees. So if you have a $2,000 international booking comprising $1,900 of airfare and $100 of taxes and want to use it for a $2,000 domestic booking that has $1,700 of airfare and $300 of taxes you will be in for a surprise when they want to collect $200 for the higher taxes, while they pocket the $200 "fare" difference.