Delta Q&A Meeting with Execs - NOTES

 

Old Jun 30, 09, 10:41 pm
  #151  
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Originally Posted by Jaimito Cartero View Post
I believe that once they've nuked them, they can clear them off their balance sheet.
BINGO. They are a massive accrual that is instantaneously released and the benefit flows through the Balance sheet.
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Old Jul 1, 09, 1:24 am
  #152  
 
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Originally Posted by Jaimito Cartero View Post
If you have $500 in the bank, and had forgotten about the account, would it be okay for the bank to just take it?
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.

Originally Posted by Jaimito Cartero View Post
If you're a bunch of beancounters though, and want to make your bottom line look better, you can rid yourselves of hundreds of millions of liabilities.
DL doesn't need to close the accounts to recognize the deferred revenue. They explicitly state the following in their 10-k:

For mileage credits which we estimate are not likely to be redeemed (“Breakage”), we recognize the associated value proportionally during the period in which the remaining mileage credits are expected to be redeemed. The estimate of Breakage is based on historical redemption patterns.
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.
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Old Jul 1, 09, 6:39 am
  #153  
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Originally Posted by Jaimito Cartero View Post
Yawn.

If you have $500 in the bank, and had forgotten about the account, would it be okay for the bank to just take it? Fold it into its profit margin?

Unless you're a sleazeball company, why not just give them two years, and send out notices and such? Sure, many people are going to ignore it. At least you've done the right thing.
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.
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Old Jul 1, 09, 6:41 am
  #154  
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Originally Posted by avidflyer View Post
BINGO. They are a massive accrual that is instantaneously released and the benefit flows through the Balance sheet.
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.
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Old Jul 1, 09, 7:08 am
  #155  
 
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Originally Posted by sxf24 View Post
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.
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.
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Old Jul 1, 09, 7:50 am
  #156  
 
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Originally Posted by Surge2009 View Post
Going back to specifically talking about current NWA/DL flight prices - the merger was touted as a way to save millions of dollars through operating efficiencies. If this was the case, then these savings should've been passed down to their customers to better compete against other airlines and truely offer the customers "the best of the merger".
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.
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Old Jul 1, 09, 8:14 am
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Originally Posted by motytrah View Post
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.
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.
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Old Jul 1, 09, 8:19 am
  #158  
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Originally Posted by motytrah View Post
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.
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...
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Old Jul 1, 09, 8:26 am
  #159  
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Originally Posted by sxf24 View Post
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...
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.
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Old Jul 1, 09, 8:36 am
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Originally Posted by avidflyer View Post
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.
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.
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Old Jul 1, 09, 9:16 am
  #161  
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Originally Posted by Crazyhotelguy View Post
The unveiling of the infamous 4th tier should be interesting. Hopefully the hype is comparable to the reality.
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.
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Old Jul 1, 09, 10:26 am
  #162  
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Originally Posted by MikeMpls View Post
NW's PARS is also a dinosaur built originally on S/360 systems in the 1960's. My take on it is that switching to PARS would be one step forward, 3/4 step back.
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.
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Old Jul 3, 09, 3:53 pm
  #163  
 
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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)?
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Old Jul 3, 09, 3:57 pm
  #164  
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Originally Posted by SkyTeam777 View Post
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)?
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.
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Old Jul 3, 09, 4:01 pm
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Originally Posted by mersk862 View Post
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.
If memory serves, I believe the stated goal is to combine the EQMs and MQMs on October 1.
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