current Reward sales and implications

Without wishing to state the obvious, a sudden blanket sale across most routes for miles redemption..lack of ANY news relating to VS's position on the rumours about alliances..

Somethings afoot, now personally I'm not keen on relinquishing a few hundred thousand miles on bad value Y rewards, agree makes it viable with the PE AMEX vouchers, but what does the near future hold, BA have thrown a curved ball in with their sudden changes, still not got my head round if its good news or bad. UC redemption still appears there dependant on your wanted route, Still mighty angry about the lack of balls in explaining the lack of SQ rewards in J.

Now do I hold out for 2012 and beyond with a healthy balance, or join the masses and relinquish in fear of the incoming unknown, my gut feeling is hold tight and see whats going to be announced.. A sudden blanket sale to reduce PAX mileage accounts suggests a ploy rather than a need for bums in seat exercise...

Without wishing to state the obvious, a sudden blanket sale across most routes for miles redemption..lack of ANY news relating to VS's position on the rumours about alliances..

Somethings afoot, now personally I'm not keen on relinquishing a few hundred thousand miles on bad value Y rewards, agree makes it viable with the PE AMEX vouchers, but what does the near future hold, BA have thrown a curved ball in with their sudden changes, still not got my head round if its good news or bad. UC redemption still appears there dependant on your wanted route, Still mighty angry about the lack of balls in explaining the lack of SQ rewards in J.

Now do I hold out for 2012 and beyond with a healthy balance, or join the masses and relinquish in fear of the incoming unknown, my gut feeling is hold tight and see whats going to be announced.. A sudden blanket sale to reduce PAX mileage accounts suggests a ploy rather than a need for bums in seat exercise...

Personally, as a holiday flyer, I am happy to take advantage of some reasonable deals in the 'lower classes'! Oddly enough, my wife and I were just talking earlier this week and saying that it won't be long before VS put a seat sale on as they do it every year :0
I think that there could be an ulterior motive for this sale (merger etc) but it could also be an opportunity for some people to benefit from their accounts

There are no doubt advantages to VS in reducing the number of FC miles still in the system and therefore potentially long term liabilities on their books. A few bums on seats will help their load factors too.

Just did a dummy booking for November to NYC and VS still want £ 278 for those fees and taxes of which £ 175 is the fuel surcharge.

A 'normal' Y fare is only ~ £ 100 more. I won't get into the debate whether that is fair axchange or not but as long as people are happy with the price in miles and £ and the availabilty thats all that matters. Though it is naughty that the 'sale' page does not mention the fees and taxes and they only appear on the select flights page of the booking engine and this may hack some people off.

Perhaps we need to look at this in the round and include the changes earlier in the year to Ag/Au renewal levels

What next? Reducing the longevity of miles to say 18 months or even a year. BA miles only last a year do they not? I know UA is 18 months.

I have just offloaded some on a UC reward seat to MCO on the exact dates I wanted :0 I just looked not expecting to find anything and there was plenty of availability next year, so I agree something is going on

Sunshine 8D

BA miles only last a year do they not?

I think BA miles last 36 months like VS.

BA miles only last a year do they not?

I think BA miles last 36 months like VS.

As in from the last activity, yes, the same.

And also by the Ts and Cs with the new Avios 36 months

I struggle a bit to understand why VS would be so keen to reduce their FC miles 'liabilities'. It is of course true that FC miles are a liability, but the airline can control its immediate exposure to them by throttling redemption availability. If only all liabilities were so easily controlled!

A possible alternative explanation for the sale is simply that loads don't look as healthy as they might for the next 12 months. After all, the chances of recession or minimal growth look high in the UK (and elsewhere).

Now do I hold out for 2012 and beyond with a healthy balance, or join the masses and relinquish in fear of the incoming unknown, my gut feeling is hold tight and see whats going to be announced..

I have redeemed a lot of my miles this year. If VS join an allicance, I don't imagine it will get much easier to get UC reward seats. Also, as I fly mainly TATL the possibility of using FC miles on new alliance partners is not all that attractive, because (as a rule) I would prefer to fly VS.

So the question I asked myself was, can I foresee a situation in which the redemptions I want are easier to find? My own answer was no, but others will have different responses.

The thing that is niggling me is the BA changes (and the ones still to come). I'll be interested to see if VS match the reduced NYC mileage fares, for example. Ditto I'm also keen to see what BA do with MFUs and so on.

I struggle a bit to understand why VS would be so keen to reduce their FC miles 'liabilities'. It is of course true that FC miles are a liability, but the airline can control its immediate exposure to them by throttling redemption availability. If only all liabilities were so easily controlled!

How are these things acccounted for? They must have a nominal value in the airline's accounts, but as you say if they throttle redemption availability then the value of the exposure to the outstanding miles should, as you say, presumably decrease....but how is that worked out? Some form of revaluation?

Interesting topic - the current sale could be as simple as others have said - light loads, and this will boost them.

Whether or not there's a longer term strategy? I don't know, there could be and it is interesting to debate the likely reasons.

Would a reduced liability in terms of miles help in positioning for an alliance? I can see it might...

The current sale was fotunate for me, I was planning a trip in July 2012 anyway, and it fell into my lap. Whatever the reasons, it worked well for me.

I'm watching what's happening over with Avios with great interest. My "loyalty" to brands is srely tested these days anyway, more and more I'm just doing the best for me, and gradually, that is pulling me away from VS - and this is partly due to the limited route network.

There will come a time when I seriously reconsider which reward scheem I focus on (Amex card, online shopping etc) - afterall, this is where I gain most rewards, and it might just be that Avios suits my travel patternas and collection criteria more than does FC.

However, were VS to join an alliance, that situation might change greatly - so I'll just have to keep an eye on what's happening.

The current sale could be in response to the oft quoted feeling that an alliance will reduce reward availability - without clear communication from VS, we just don't know.

[Darren Wheeler]

All airlines have miles sales from time to time. It just reduces their liability in miles, not to mention keeps people happy, just like a normal sale does.

Far too much being read into it in, IMHO.

If VS really wanted to reduce the amount of FC miles in circulation I do not think they would simultaneously be offering a 15% reduction to purchase miles.

My feeling (based on personal behaviour) is that regular paying customers do not book months in advance so the forward bookings will always be low for revenue seats. Therefore filling a given number of seats by whatever means (money or miles) well in advance is better.
UC is pretty much excluded from the mileage sale seats as these seats are easier to sell and certainly do not need to be filled using miles until the last minute. Most UC customers will not be using 100% mileage redemption.

The changes to FC made this summer also do not indicate a wish to reduce the number of miles in circulation as Gold members now get double miles plus fare bonus.
So the current redemption sale is pretty much for the back of the plane during the low season (valid until March 2012) so I do not think it is more than a way to forward sell seats that would remain empty anyway.

As for alliance speculation - this is my favourite topic - but no time now !

You say "valid until March 2012"??? I got them on flights in early July 2012...curious.

I agree with the points made by JCBR above.

How are these things acccounted for? They must have a nominal value in the airline's accounts, but as you say if they throttle redemption availability then the value of the exposure to the outstanding miles should, as you say, presumably decrease....but how is that worked out? Some form of revaluation?

In general (I believe)... The revenue from earning and purchase of miles is deferred. This creates a miles liability, but when the miles are redeemed the liability vanishes and the revenue is credited to the P&L. At this point the redemption costs are incurred too.

That last bit is important, because mileage programmes are (or should be) highly profitable because if yield management is done well you are simply selling seats that would otherwise fly empty. There are, or should be, good margins on reward seats.

Another factor is the spoilage of miles (when they expire or the owner dies). Rates are said to be much higher than people imagine.

So I tend to think that the 'reducing liabilities' argument is a red herring explanation for a sale.

There are doubtless many other explanations and viewpoints and my explanation may be inaccurate.

I realise I haven't really answered your question about mileage 'value' -- I imagine there must be some accounting measure of it which takes into account spoilage and the costs of redemption, etc.

yep - what at240 said

I believe IFRIC 13 would apply to their handling of miles

Essentially - most loyalty programs historically would report revenues on one side of their P&L and then show expenses related to rewards programs on the other side of their P&L, reflecting the + and - of these lines completely seperately.

Now I believe the standard practice is to "defer" a % of your revenues (in this case - a small % of each miles earning air fare or the revenue from a points purchase, revenue from credit card miles etc) which is effectively held [deferred] as a liability until those points are redeemed/expired. This ensures that a companies reported revenues directly reflect the cost of any miles earned rather than reflecting them as entirely seperate lines on the P&L.

The "held" revenues are eventually released/ realised on the P&L as miles are redeemed or expire over time, so this is just a different way of showing revenues and expenses.

The way that the liability is calculated for loyalty programs varies - however it is usually an extremely complex equasion that uses deep analysis of rewards expense, historical miles redemption behaviour - with additional adjustments made to the calculation in order to factor in future expected behaviours and trends and also any "known events" - things like marketing plans, sales, airlines joining and leaving alliances - and anything that could cause a "run on the bank" (ie. trigger mass redmeptions of miles) such as material changes being announced to the program terms or the value of miles.

The equation of course factors in the assumption that not all miles earned are redeemed and that a proportion of miles earned expire or are left unredeemed. It will also factor in a calculated average or blended "cost per mile" for all the miles in the bank - calculated by looking at the award seats that are typically redeemed using both historical and predicted future redemption behaviour.

Controlling the amount and type of reward inventory that is made available for miles redemption can have a material impact on your reported program expenses and that is why award seat availability is carefully monitored and managed very closely.

Large auditor companies are brought in to review and approve the liability calculation methodolgies and expense calculations that companies like Virgin use to ensure these are sound and adhere to any relevant accounting principles.

AT and Frenchy - thanks for the explanations.

Paul

[mcmbenjamin]

A few bums on seats will help their load factors too.

More folks on the plane will increase the 'passengers carried'

Load Factor is the Revenue Passenger Mile (RPM) divided by Available Seat Mile (ASM). Award tickets are non-revenue. And they still collect that fuel surcharge....