nk15

That's not necessarily true, unless people already know what they want to book. What is the cancellation/redeposit deal with IB Avios? This would affect any speculative bookings.
If miles post in order booked, this will also definitely give an advantage to those who booked on day 1.

wheatbeer

Not everyone will want to redeem straight away though. People have until 1st Dec to redeem 330/355 days in the future.

You can also redeem for hotels which means award space isn't an issue.

wheatbeer

Think it is 25EUR cancellation fee on Iberia bookings. On OW partners they are non-refundable.

taxicabnumber

That directly contradicts IFRS - revenue for a ticket would only be booked when the flight is actually taken (or "missed"). The points liability actually precedes most of the tickets here. I wonder if they'll make any disclosure about expected (or actual) breakage re: this promo. Would be fascinating.

Even though it *is* IB, I would hope they at least know how to not engage in accounting fraud ..

glocklt4

Haha, whoops. Yeah, I should have listed mine as Jul 5th.

TEDisgone

I think Iberia has modified their website since yesterday to make searching for those few award seats that much more frustrating: every search I've tried today requires me to prove that I'm not a robot and enter the characters from a captcha. Change the date, another captcha. Evil genius?

rrgg

petey2428

When I called, the agent said it would be posted within 48 hours. Obviously that didn't happen...

david_oz

Correct. The cash from the sale of the ticket sits as a liability on the balance sheet until it is taken into revenue when the flight is flown (whether or not the passenger actually shows for the flight). The cost for the avios on the other hand, will hit Iberia as soon as they are awarded.

I was racking my accounting brain about possible reasons why a rational company would engage in a promotion like this. The only reason I could think was an elaborate form of earnings smoothing whereby the cost of the avios is recognized immediately in Q2/Q3, traditionally the strongest quarters for airlines. The revenue from the flights more or less offsets the cost of issuing the avios, making the promotion effectively cost-neutral over the entire life of the promotion and redemptions. However the revenue is recognized (mostly) in Q1 which is seasonally much quieter for the airline industry. Therefore, they have effectively shifted profits from Q2/Q3 into Q1. If the avios are redeemed they don't care because they already have a liability accrued for it, and if they expire unused that's a nice little Q4 bonus for them in the form of breakage revenue. Probably none of this is material to Iberia (let alone IAG), and I'd be surprised if the accountants were even aware of the promotion before it happened, let alone consulted about the effect.

ps. I'm in for US$220 on 10 flights. If the promotion doesn't work out and I lose the cash maybe I can at least get a job in their accounting / finance department.

skywardhunter

Based on the accrual system I'd expect revenue to appear immediately, with three or more liabilities (regardless of Avios having been issued): Avios for issue, open tickets and tax control account (s) (1 for each form of duty or tax).

Once the Avios are issued the Avios for issue account goes down and a new liability "Avios outstanding" or whatever opens up. They've basically made their Q2 income look great but their balance sheet is massively skewed now (though all that revenue will appear in their bank account as an asset to offset, and we don't know what values open tickets etc hold)

more4less

PLATINOIB

Only IB+ Platino has free cancellation, not for others emerald.

taxicabnumber

Not quite the case - deferred revenue will appear immediately, but that's a liability. Under cash accounting the revenue would occur right away, but under accrual accounting you book revenue only once you have satisfied the performance obligations -- in this case, providing the flight (or reaching a point at which you know the flight won't be taken -- ie after the customer has missed it).

david_oz's post provides a nice potential explanation, IMO, as to what they could be doing...I sort of buy the potential earnings smoothing explanation, but the puzzling thing is that quarterly reporting isn't as big a deal in Europe as it is in the US. Note that IAG, for example, publishes annual reports both for IAG as a whole and for each individual airline (BA, IB, VY, EI), but their quarterly reports are quite short (for example Q3 2017 was just 7 pages!) and just at the consolidated IAG level.

That said, a lot of the tickets booked were probably for 2018 -- maybe IB is more generally worried about 2018 and is trying to smooth across 2017 and 2018? Like david_oz I have no idea about the materiality of the Avios "sold" or the volume of tickets booked through this promo though.

skywardhunter

Though in the case of a non-refundable ticket couldn't it be shown immediately as revenue/income, rather than income received in advance or deferred revenue? Presumably they were counting on people booking cheap non refundable tickets to max the promo and this way boost their revenue, if this is the conspiracy theory we're going with

taxicabnumber

Nope, even in the case where money cannot be returned, they still cannot book the revenue until the flight has been delivered -- IFRS (and IFRS 15 especially, the new revenue recognition standard that went into effect 1/1/2018) has over time become quite clear about this. I think the "conspiracy theory" you mention still has more-than-0 percent chance of holding, but to boost future revenue at the expense of an increase in current-period liabilities.