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~beckoa, co-moderator Information Desk

I'm not an accountant, but I don't believe whatever revenue matching is retained as a reserve to cover 100% of these potential liabilities.

If you haven't spent a penny in two years, I think that ship has sailed....


Yes, "liability" is an accounting debit on the balance sheet.

AA had a $2.45 billion liability as of 2015.

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.

Exactly. Us occasional travelers (for us, usually 1/year TPAC to her relatives) aren't the target, if we build up enough points for a free ticket that's basically a pure loss for them.

To hold cash assets against the liabilities incurred by handing out miles would require airlines to hold hundreds of millions in cash on the balance sheet, which isn't a particularly useful use of cash.

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.