how do airlines reimburse one another for earned/redeemed miles?
 

Anyone in the industry care to enlighten us with the mechanism by which airlines account for mileage earned and redeemed on other airlines (or other partners, for that matter)?

For instance, if I redeem UA miles to get a SQ ticket, does UA have to pay SQ (with real cash, or miles-in-kind?)?

Similarly, when I earn UA miles on a SQ flight, does SQ have to reimburse UA?

I'm not an insider, but an explanation given to me that has made sense out of every situtation is this:

The company being relieved of a future obligation (miles) pays the company assuming the obligation.

If I fly X and earn on Y, X pays Y for assuming the obligation.

If I redeem X miles for a Y flight, X pays Y for the ticket.

Yes, this would make sense. I'm also wondering if the airlines actually pay each other cash according to a pre-determined cost per mile, or if this is done via accounting entries.

For instance, if airlines A and B owe each other the same amount at the end of each accounting period, do they just compare and cancel out both sides of the 'inventory'? Or if cash actually changes hand on a, say, monthly basis.

I do not have any insider info on it, but I would imagine that they work it like a barter if there are awards working both ways and they reconcile the net difference monetarily every so often.

If you go by some of the earlier posts on FT and other news articles it has been suggested that airlines periodically "settle" their award redemptions and mileage accruals. It does not seem as though they simply buy miles for $0.YYY. Instead they seem to settle net awards granted to each other and also miles granted to each others FF programs on a periodic basis.

This means that both redemptions and miles granted are taken into account. This makes sense. If only redemtptions are taken into account and not miles granted (future liability) what happens when a partnership is terminated? This is a big issue when airlines liberally grant awards for partners flts (for example AA gives 100% Plat bonuses on partner flts - only 4 AA flts needed per year and not even one if you take the PLAT challenge).

IN most cases, the value placed on miles "purchased" from a partner seem to be higher than the liability they carry on their own books (as everyone knows that this number is way too low for accounting purposes) but much lower than the wholesale price charged to non-airline partners.