Do FF miles have value and how to account for FFPs

[mcmbenjamin]

With a recent interest in how airlines account for FFPs I thought I would do some research. The only good piece of reading I have been able to find is 'IATA's Airline Accounting Guideline: Frequent Flyer Programme Accounting'.

Personally I agree that FFPs are an incremental cost as awarding miles/points based on distances flown but think that calling them deffered revenue would be more more correct if points awarded were a function of dollars spent (ie. iClub).

In anycase the paper by IATA offers insight on FFPs cost.

Your input is requested [:p][}:)] Thanks!

Nope, I'd treat them as a incremental promo cost. can't really see them as revrnue as you are not really selling them; so long as pax can choose to collect or not, there is no contract of sale.

So simple promo cost accounted for at the estimated cost of rewards. Accoumulate actual cost of rewards elsewhere and chatge it to profit as a rewards cost variance on a regular basis.
Voilla.

In my experience when a reward flight is booked there is always some revenue generated for the airline. For example, even if you book a complete 'free' trip there is an amount in the 'taxes' you have to pay that goes to the airline. Then you have the potential to spend on-board, but the most likely revenue generation is that you will take someone with you that has to pay a full or part revenue fare.

I ran a promo a while back offering any customer 1 hour free labour for future business. This increased my turnover and profit when these where called upon and picked up business that might potentially have gone elsewhere.

There are enough 'business minds' here to give you their insight into this, but look how many of us have a lot of loyalty to VS and part of that loyalty is down to their reward scheme.

Paul

[HighFlyer]

Hi Ben

You steering your accountancy coursework papers towards an aviation theme per-chance?

As said above, i think there is a lot of merit in these programs which benefit the airline, perhaps not necessarily in terms of immediate revenue but certainly in terms of generating future revenue. The old term of 'speculate to accumulate' applies here. Offering an incentive of free flights to customers to keep flying on qualifying fares ensures future bookings at a profit.

Also, the airlines are hardly likely to be out of pocket with FFP, as we all know, there has to be a non-rev/reward seat free in order to utilise the benefits and thats down to revenue management, if the money isnt being made then rewards dont (easily) get given. Rewarding points/miles actually cost nothing, its the redemption that costs the money, and that aspect is tightly controlled.

Personally, i agree with Paul in that the VS FC FFP really works for me and my loyalty comes from how quickly i was able to start collecting and redeeming miles and VS have certainly made their money out of me over the years.

Just to throw this into the mix...
You could join FC as prefered choice , take 2 return flights to New Zealand with Air New Zealand (or Singapore I suppose!), earn circa 50,000 points/miles/whatever - and take a free flight on Virgin.... Those who chose to do so wouldnt be revenue generators for Virgin....
Similar if you convert your Amex. points etc.
Ive got approx. 30,000 FC points/miles already, Amex points Im hoarding until I can find a use (dont wanna convert to FC unless I need the extra for reward!) & I dont take my first Virgin flight until June.
I joined FC because I wanted to fly Virgin etc & figured they would work best for me - Im stockpiling the miles to get better future rewards (UC upgrade , or UC free) - but fact is I could actually work it to take a free-flight before I take my first fare-paying one if I really wanted to.

Originally posted by williestott
Just to throw this into the mix...
You could join FC as prefered choice , take 2 return flights to New Zealand with Air New Zealand (or Singapore I suppose!), earn circa 50,000 points/miles/whatever - and take a free flight on Virgin.... Those who chose to do so wouldnt be revenue generators for Virgin....

True, but I suppose the guys at Virgin will be hoping that for everyone who does this, there is another who is doing the reverse.

>

Air New Zealand and American Express purchase those miles from Virgin. Miles and points are merely private currencies.

dennis