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Originally Posted by Magna
(Post 29654325)
I don't know what you mean by liabilities, in an accounting sense? If yes, aren't the cost of the points they give out built in to the price? Sort of like the price of most everything is increased by 3% to cover their costs of taking on credit cards.
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Originally Posted by Magna
(Post 29650155)
Why do many of these programs have points expiration? I would think the whole reason these corporations set up these marketing loyalty programs is to entice you to keep coming back,
Yes, "liability" is an accounting debit on the balance sheet. The obligation to provide free or reduced-fare travel to passengers who redeem their accrued frequent flyer program (FFP) benefits represents a significant liability on every major U.S. airline’s balance sheet. Yes, the airline has assets (the cash from selling the ticket that accrued the miles), but that doesn't make the liability disappear. If you paid AA $100 and they gave you a $100 AA gift card, there would be a $100 asset and $100 liability on the balance sheet. |
Originally Posted by diburning
(Post 29654195)
If someone don't generate enough activity to keep points active, then is that person really loyal? If someone isn't making the company any money in a reasonable amount of time, then they're not the company's target audience.
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Originally Posted by Magna
(Post 29654325)
I don't know what you mean by liabilities, in an accounting sense? If yes, aren't the cost of the points they give out built in to the price? Sort of like the price of most everything is increased by 3% to cover their costs of taking on credit cards.
For reference, AA's SEC filling from 2017 indicates the outstanding value of $677 million for all AA miles at 31 December 2017. AA's cash position at that same time was $287MM. Admittedly there's a lot more in short term investments, but it illustrates that there is no offsetting value held against miles. |
Selling points/miles has become one of the biggest profit makers in the airline industry. This article in Bloomberg calls the co-branded miles earning credit cards "A Golden Goose."
Here's a couple of quotes: At American, which has the largest program, Stifel estimates a mile’s sale price is about three times its cost at redemption. (Naturally, any miles that are canceled, expire, or are otherwise never redeemed flow to airline coffers at a 100 percent margin.) and In many ways, the Big Three U.S. airlines have organized themselves into two distinct businesses. There’s the traditional activity—the one with jets—which involves pricing seats for as much as possible, collecting a bag fee, and selling some food and drinks while keeping a close eye on costs. The other business is the sale of miles—mostly to the big banks, but also to companies that range from car rental firms to hotels to magazine peddlers. The latter has expanded so much that it accounts for more than half of all profits for some airlines, including American Airlines Group Inc., the world’s largest. (bolding mine) https://www.bloomberg.com/news/artic...les-than-seats |
According to this, the revenue per sold mile was about 1.2 cents and the marginal cost per redeemed mile was 0.14 cents.
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