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?
https://www.theexpgroup.com/wp-content/uploads/2018/06/styleguide-EXP-4.png00Steve Crossmanhttps://www.theexpgroup.com/wp-content/uploads/2018/06/styleguide-EXP-4.pngSteve Crossman2010-09-29 23:35:222010-09-29 23:35:22How much does it cost to buy your loyalty?
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