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runningshoes, I think that you are partially correct in your assessment, and I personally think that whatever "liability" that is had is calculated in the sheer number of miles. Most airlines seem to do it this way, but it is my understanding that one or two actually do it in "awards". I also do not think it would be difficult for the airlines to figure out how many accounts are inactive for a certain amount of time (as a matter of fact miles do expire, just not if you do something within a 36 month period generally), and discount these miles. Furthermore, it would be relatively easy to do a sweep and see how many accounts are under 20 or 25 or 30,000 miles (whatever) and to discount those miles.
Remember this can be the best business in the world (externally in the mile selling business). You create a currency. You SELL the currency (which is purely electronic) to other companies at a huge profit. If it is redeemed you still make a profit. If it lays fallow for more than 3 years, you VOID it pocket all the profit. It's like the FED!!!! |
hfly,
We've now come full circle. When I started this thread, I was going to include a link to the NY Fed's financial statements to illustrate this point, but I didn't. Since you've brought it up, here's the link. (BYW, there are 11 other Fed banks, but NY is the most profitable, at least in total dollars.) Impressive margins, huh? http://www.ny.frb.org/pihome/annual01/finance.pdf |
<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by CountinPlaces: How much of a liability can it be when the airlines can decide if they are ever going to honor it? Further, they can simply restate its value by redetermining award levels. Generally speaking, this is a liability that should not be factored in when reviewing the Balance Sheet. However, the encompassing characteristics of the reward program can reflect on future profitability. In the end, it is an extremely subjective measurement which can be a problematic issue in some financial statements. I personally put more weight on cash flow from operations and their profit/loss.</font> |
<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by hfly: Remember this can be the best business in the world (externally in the mile selling business). You create a currency. You SELL the currency (which is purely electronic) to other companies at a huge profit. If it is redeemed you still make a profit. If it lays fallow for more than 3 years, you VOID it pocket all the profit. It's like the FED!!!!</font> |
A miles bank? That's what I believe points.com is trying to be, but of course their exchange rates are so lousy that no one would really consider using them for transfers. Except for the occasional 20 partner promo. http://www.flyertalk.com/forum/wink.gif
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