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Frequent Flyer Accounting. Introduction ... no. 2: frequent-flyer programme accounting.
Montreal, Canada: International Air Transport Association. ...
Accounting Case. The company launched a frequent flyer program in January
2001; this is the item that concerns me the most. As of ...
... information systems. These systems include supply applications, financial
management, frequent flyer accounting. Other systems that ...
... room reservations, rental car reservations, frequent flyer program mileage ... activities •
Firm infrastructure – budgets, accounting, regulatory compliance ...
... market share of the low fare market to 47%, accounting for more ... become increasingly
popular as airlines offer code-sharing, frequent flyer program reciprocity ...
Submitted by pgethin on February 25, 2008
Category: Business
Words: 1246 | Pages: 5
Views: 273
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Introduction
Frequent flyer loyalty programs are a valuable marketing tool for airlines, however accounting for frequent flyer points (FFPs) is not a straight forward process (Bowman 1995). The aim of this assignment is to examine the concept of how FFPs should be accounted for according to the Framework, compare how Qantas Airways Limited (Qantas) and Virgin Blue Holdings Limited (Virgin) account for FFP’s, and determine the potential consequences of different accounting treatments.
Accounting procedure for frequent flyer points according to the principles of the Framework
The major accounting issue with FFPs is how an airline accounts for their economic value (Bowman 1995). Although FFPs have a relatively low estimated value of between US$0.01 and US$0.10 each, the large number of kilometres flown by a multitude or airline customer’s means that to any one airline FFPs can represent a significant liability (WebFlyer 2006).
Because FFPs represent a present obligation for an airline to provide customers with air travel at a later date, they can be considered a liability (Bowman 1995, AASB 2004). The complexity in recording these liabilities comes from the fact that the liability has to be estimated, as FFPs can be realised any time before they expire (IATA & KPMG 1995). Once determined, these liabilities should be recorded as provisions, based on the estimation of potential liability, until the points are redeemed. To further add to the complexity of accounting for FFPs the liability has the potential to be recorded as a deferred incremental cost or deferred revenue (IATA & KPMG 1995).
The incremental cost approach to accounting for FFPs involves a provision being set up based on estimated value of points that are going to be redeemed and the timing of redemption, with the amount of the provision being based on the likely incremental costs associated with the redemption of...
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