avidflyer

BINGO. They are a massive accrual that is instantaneously released and the benefit flows through the Balance sheet.

pbarnette

Actually, this would become an abandoned asset and be turned over to the state, in most instances. You can usually claim it, but the bank doesn't have bear the record-keeping costs.

Regardless, this is probably a very poor analogy. A much better analogy would be something like a coupon or rebate, which usually have much more stringent expiration policies than DL imposes on their FF accounts. And I've never gotten a reminder to use a coupon or rebate.

DL doesn't need to close the accounts to recognize the deferred revenue. They explicitly state the following in their 10-k:

An account with no activity for years is almost certainly a candidate for "breakage". This is doubly true for low balance accounts.

Not sending out mailers saves money and cash flow. Do the math. Your $3200 for 10k mailers becomes $1.6m if you have 5m accounts.

sxf24

pbarnette already provided a response regarding the principles of escheatment. I would like to add that financial institutions in most states are not responsible for warning/notification prior to escheatment, as the assets belong to the account holder, who holds responsibility for their management.

Even if this analogy was applied in this situation, it ignores the fact miles are not your (as the participant in the program) asset.

sxf24

I'm not sure that the reduction in this accrued liability would be substantial enough to materially improve DL (or any airlines) financial position, nor would it boost the airline's standing with investors.

motytrah

It wouldn't be something that automatically upgrades the stock with analysts, but it's certainly possible that it could positively impact the amount of cash reserves they have to keep. I'm sure DL has a number of agreements with contractual cash reserve requirements. Since this is a challenging credit market, and they aren't exactly making money, I could see $500M as a pretty big deal. Even if it's not money for the bank.

hazelrah

Delta/NW management is already backpedaling from the much touted merger "efficiencies". Management is citing failure to realize "efficiencies" as a result of the current business climate.

To be sure the current business climate is lousy, but didn't WN have a pretty much neutral 1st Quarter and FL had a great first quarter?

DL/NW could give a fig about the other legacies. It's focus is on FL and now WN.

pbarnette

I believe that DL values their miles at around $0.005 per mile, but the numbers can add up, obviously. Regardless, they don't have to close the account to recognize the revenue. They only have to show that it is unlikely that the miles will be redeemed.

I am pretty certain that DL would have reviewed the liability at the time of the merger and recognized the revenue at that time. Indeed, I would have to think that NW probably recognized much of the revenue well before the merger. A line item like this on the Balance Sheet would be reviewed carefully by the auditors and you would have a hard time justifying an accrual for long-dormant, low mileage accounts.

sxf24

I'm not aware of any airline keeping restricted cash or other identified reserves to offset frequent flier liabilities. There are contractual agreements with reserve requirements, but I'm not sure how/why you think they're connected to miles...

avidflyer

They are a liability and need to be accounted for in some way. I am honestly not sure how they do it but they must.

pbarnette

The entry for mileage earned is debit - Revenue (Income Statement), credit - Deferred Revenue (Balance Sheet).

No reason that cash need play into it, and DL doesn't mention anything about restricted cash in the note on the FF liability.

Robert Leach

To be honest, my perception has been that this is not being hyped that much at all. They have acknowledged that a 4th tier is coming, but that announcement has not, IMO, been associated with any significant hype.

I think it could be anything from a few marginal benefits to a game changing shift in the FF world. I suspect it will be more the former, but we can always hope for the latter.

Gargoyle

I did a bit of Googling (wikipedia has a very limited article on the subject), but it looks like there's more to it. It appears Pars is a reservation system, whereas Deltamatic is a full airline control system. Pars is like a subset of Deltamatic, and while Pars does some things better, Deltamatic is the backbone of all operations. Lots of the stuff we were seeing at OCC is based on Deltamatic; remember when the meteorologist told us about how critical it is to predict how much fuel to load? (It takes 1/4 gallon of fuel to carry one gallon of fuel, and if you overload, costs go up dramatically; and Deltamatic helps them determine that).

So, they couldn't just do a Pars vs. Deltamatic choice, and nwa.com won't plug into Deltamatic.

SkyTeam777

Was I correct in remembering that 2009 EQMs from NW would be combined with DL MQMs to determine the 2010 status? and that EQMs and MQMs would be combined to create MMs? When will this take place...at the October combination date or at the end of the year (or Feb 2010)?

mersk862

Yup - they'll all be combined. I forget if it was in October (I think it was) or sometime after that, but it was definitely before 12/31/09.

ADLFO

If memory serves, I believe the stated goal is to combine the EQMs and MQMs on October 1.