fb

ACCA SUMMER SALE 20% OFF

How much does it cost to buy your loyalty?

How much does it cost to buy your loyalty?

Last week one of the top policemen in the UK admitted to getting discounted flights for his family by using air miles obtained on tax payer funded flights.

John Yates, who is the Assistant Commissioner of the Metropolitan Police (i.e. the  Greater London Police), is entitled to fly business class on official trips abroad. This enables him to amass significant amounts of air miles which can then be used for free flights in the future.

With a nice corporate governance angle the rules of the Metropolitan Police say that these air miles must be used for future work related flights and not personal ones. In what he claimed was an oversight, Mr Yates however used these air miles for a number of personal flights.

I’m sure it was the last thing on Mr Yates mind but from the Airline’s point of view, the provision of air miles can involve big figures.

The IFRS Interpretation Committee (formerly known as IFRIC) didn’t make many friends when they wrote IFRIC 13: Loyalty Programmes.

Broadly, IFRIC 13 says that when you are given loyalty programme points by a business, they have to recognise a proportion of the total sale to you as a sale of loyalty points.  In other words, they are buying your loyalty, rather than rewarding it.

This means that each sale has to be unbundled into two components – a sale of loyalty points at the value to the customer (which is likely to be very much higher than the cost of delivering the promised service) and the underlying sale itself.

As the loyalty points are used up or expire, the deferred revenue from loyalty points sold is recognised as revenue.

Previously, the accounting policy of most companies had been to recognise loyalty costs as a provision at the expected marginal cost of delivering the service.

This can be a fairly significant figure.  By “fairly significant”, we naturally mean “completely massive”.  Have a guess what the effect was on shareholders’ equity in the restated 2008 accounts of British Airways for implementation of IFRIC 13.

The answer is £206 million.  Nope, that’s not a typo; getting towards a quarter of a billion British Pounds.  Ouch.

We at ExP travel fairly a lot for work and we’ve noticed that airline loyalty programmes have become a little less generous of late.  Maybe the new accounting rules are something to do with this?

Share this entry

Recent articles

View All Articles
The benefits of sleeping on the job…
Jul 21, 2025
Title
The benefits of sleeping on the job…
Excerpt

My guess is that not a lot of you have gone up to your boss and said that […]

A car wash, wallet and apartment – laundering explained…
Jul 18, 2025
Title
A car wash, wallet and apartment – laundering explained…
Excerpt

Money laundering might sound like something from a gangster movie, but it’s a serious real-world issue that affects […]

Take a selfie and then return it…
Jul 16, 2025
Title
Take a selfie and then return it…
Excerpt

The latest must-have outfit trending on TikTok might be out of fashion by the time it arrives on […]

When auditors overstay their welcome…
Jul 11, 2025
Title
When auditors overstay their welcome…
Excerpt

A cornerstone of audit is independence. A recent stumble by EY – one of the Big Four accounting […]

It’s all hands on deck moving from Big 4 to 4 people…
Jun 17, 2025
Title
It’s all hands on deck moving from Big 4 to 4 people…
Excerpt

When multinational companies switch auditors, it’s usually a move that signals routine rotation, cost management, or strategic realignment. […]

From whisky to wickets…
Jun 16, 2025
Title
From whisky to wickets…
Excerpt

Diageo, the global drinks giant behind brands like Guinness, Smirnoff and Johnnie Walker, is reportedly considering a sale […]

“Just Build It” – the Nike LEGO collaboration
Jun 12, 2025
Title
“Just Build It” – the Nike LEGO collaboration
Excerpt

Nike and LEGO are teaming up to launch co-branded products and experiences aimed at inspiring kids through active […]

Laziness and intelligence.
Jun 12, 2025
Title
Laziness and intelligence.
Excerpt

Whilst a lot of you won’t admit to being lazy (and I’m sure most of you aren’t in […]