L02 13-2 Frequent Flier 1

L02 13-2 Frequent Flier 1 - Accounting for an Albatross....

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Accounting for an Albatross. Frequent Flyer Coupons and Airline Accounting Systems Source: Forbes, 13 June 1988 TEXAS AIR CORP.'S financials look bad enough: $5 billion in long-term debt, coupled to 1987 losses of $466 million--all piled atop a mere $252 million in shareholder equity. Worse may lie ahead. That's be- cause accountants have proposed new bookkeeping rules that would require the carrier to add as much as $200 million in liabilities to its balance sheet. What are these new liabilities? Unredeemed frequent- flier coupons, the bright promotional idea dreamed up first by American Airlines in 1981 and subse- quently copied by just about everyone else. The gimmick has acquired a life of its own and now has the look of an enormous albatross. Thanks to givea- way mileage, the industry owes passengers about 25 billion miles of free travel, according to John Hol- land, publisher of Business Flyer newsletter. This amounts to an industry-wide liability of about $500 million, based on current redemption rates of 30% of all miles flown. If all miles earned were
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.
Ask a homework question - tutors are online