accounting flier Essay

Submitted By huziwei
Words: 2854
Pages: 12
Open Document
Accounting for Frequent Fliers
Harvard Business School 9-192-040 Rev. June 22, 1993 Accounting for Frequent Fliers By 1991, almost all U.S. airline companies offered frequent flier programs to their passengers. Under these programs, passengers could become members of a program where the miles they flew would be recorded and accumulated to earn free future flights. The proliferation and growth of frequent flier programs created concerns about the proper way to account for and report them in financial reports. The airlines, the Securities and Exchange Commission (SEC), the American Institute of Certified Public Accountants (AICPA), and the Financial Accounting Standards Board (FASB) had each voiced concerns about measuring the expenses and reporting airlines’ obligations under frequent flier programs. The percentage of revenue passenger miles (the number of miles flown by revenue passengers including free-flight-award passengers; computed by multiplying the number of revenue passengers by the miles they have flown) flown under free travel awards was less than 5% for all U.S. airlines combined. However, on some routes for some airlines (U.S. mainland to Hawaii, for example) the percentage of revenue passenger miles represented by free flights exceeded 12%. And there was some evidence that the problem was growing. Background of Frequent Flier Programs American Airlines first introduced frequent flier programs in 1981. Initially the program was meant to be a promotional gimmick designed to attract more customers. The program’s immediate success in generating repeat business shocked the industry. This success forced other carriers to introduce their own free mileage programs, each promising better and better rewards to customers who would sign up. Through agreements with hotels, auto rental companies, and financial institutions, airlines made it possible for program participants to earn free miles by choosing where to stay, what auto to rent, or what credit card to use. By 1988, frequent flier programs were so popular that airlines owed more than 3 million round-trip domestic tickets to their free mileage program members. These tickets amounted to a minimum of 5.4 billion free miles according to one published report. The question was how, when, and whether participants would use their free miles. The worst scenario for the airline industry would have all their free fliers cashing in over a short period of time, taking up revenue-producing seats on many flights. In 1984, for example, Pan Am forced frequent fliers to use their awards or lose them, and the result was chaos at the check-in counter and a $50 Susan S. Harmeling, MBA ’91, prepared this case under the supervision of Professor William Bruns as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 1991 by the President and Fellows of Harvard College. To order copies, call (617) 495-6117 or write the Publishing Division, Harvard Business School, Boston, MA 02163. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.
Accounting for Frequent Fliers million revenue loss. By 1991, all airlines limited the number of free travel award seats on some flights and used "blackout" dates during peak holiday travel periods when very limited or no free travel awards could be used. However, controls such as these had to be used cautiously to avoid diluting the promotional value of the programs. Members of a program who had earned a free flight but who then found it hard to schedule could easily switch their allegiance to another airline. The Accounting Issue By 1990, all the major airlines offered similar frequent flier programs. Members of a program would receive miles credited to their accounts
Show More

Related Documents: accounting flier Essay

Airline Case Study

location, designating whether it is a window, middle, or aisle seat. The airline has a frequent flier program that provides free award flights and first-class upgrades. A customer may be a member of the frequent flier program, or not. A member can be either a Gold, Silver, or Bronze level member, depending on the number of miles flown on the airline. A member earns a specific number of “miles” (frequent flier credits) for each flight flown, depending on the length of the flight. Members may request…

Words 988 - Pages 4

The Rise Of Businesses In The 1800s

utensils, and initial supply of food and beverages. Marketing would cost around $25,000. These costs include signage, menus, fliers, ads, coupons, and business cards. Advertising would cost around $20,000. These expenses would include public relations services and a restaurant-opening event. There would also be some miscellaneous costs such as insurance, permits/licenses, accounting costs, and ordering and payment technology. Now that my business was up and running I could finally expand. Some ways I…

Words 484 - Pages 2

Essay Us Airways and Airline Industry

U.S. Airline Industry 2013 Kapil Rohra, Dongchen Chu, Haibing Xiang, Meng Wang, Wei Zhang, Zhe Wang 500 B Economics, University of La Verne 3/13/2013 Executive Summary Prior to 1978, the United States airline industry was regulated by the Civil Aeronautics Board. The airline companies in those days use to compete based on the quality and customer service. As the competition was not based on price, there was a certain dress code that had to be adorned to travel by an airplane. However,…

Words 3393 - Pages 14

Key Components of Strategic Planning: Southwest Airlines Essay

effectively (Cile, 2014 ). Southwest Airlines utilizes its functional level to explore and answer the following question to access how the company is progressing in the industry. How are we utilizing human resources, information technology, finance/accounting, marketing, or other functional areas to gain a competitive advantage? The primary marketing strategy for Southwest Airlines is to target business travelers because they are the most frequent buyers, most loyal, and are willing to pay more money…

Words 1281 - Pages 6

Group01 Report Essay

Diploma in Business (Advanced) (Level 7) Entrepreneurship and Innovation EI-701 New Venture Strategy - with Marking Guide Lecturers – Aimi Wood Group Strategic Marketing Planning Report Group-01 HASAN MAHMUD ID: 1311055 LIHUA YE ID: 1401020 MOHAMMAD ARAFAT RAHMAN ID: 1304030 MOHAMMAD MATIUR RAHMAN ID: 1404017 NUSRAT JAHAN…

Words 3676 - Pages 15

Developing An Effective Customer Loyalty Program

Developing an Effective Customer Loyalty Program Barry Berman oyalty programs are offered by both retailers and manufacturers to stimulate continued patronage among consumers through discounts, cash, free goods, or special services (such as free magazines on specialized topics of interest to loyalty program members). While retail cooperatives pioneered loyalty programs through giving members allowances based on their annual purchases, the more modern use of loyalty programs began with Raleigh…

Words 12131 - Pages 49

Strategic Management and Business Essay examples

1. Executive Summary Business overview Juiceit is a food services business and our main purpose is trying to create easy healthy drinks and keep people healthy while our main goal is happy customers. We will be using a Functional organisational structure. We will begin the business with the three of us as both managers and employees however once we begin to expand we will be looking at hiring more employees.The beginning of the business we will be a partnership which is an unincorporated business…

Words 2230 - Pages 9

Lawn Care Marketing Plan

Marketing Plan | 2011 | | Marketing PlanPrinciples of MarketingCasey Pate | Sunshine Lawn Care | This is a fictional Marketing Plan for Principles of Marketing 3113. | Table of Contents 1.0 Executive Summary 1 1.1 Goals 2 1.2 Mission 2 1.3 Keys to Success 2 2.0 Company Summary 3 2.1 Company Ownership 3 2.2 Start-up Summary 3 3.0 Services 4 4.0 Market Analysis Summary 4 4.1 Market Segmentation 4 4.2 Target Market Segment Strategy 5 4.3 Service…

Words 3052 - Pages 13

Essay about Financial Plan

Business Plan MR.BEAR Korean Barbeque (BBQ) Buffet Jinse, Zoe, Nicky, Nichole, Ying CONTENTS 1. Business Idea * Goods or services * Product, price, sizes, services, offers * Logo * Business name 2. Market * Market size * Market segment * Main competitors * 3. Research…

Words 6313 - Pages 26

Baskin Robbins Marketing Plan Outline Paper

Baskin Robbins Marketing Plan Final Outline Paper Lou Ann San Nicolas MKT 421 Marketing 1. Baskin Robbins Organizational Overview Baskin Robbins is a franchise based business operating in 35 countries for the last 65 years. The ice cream shops have more than 1,000 flavors since 1945. Baskin Robbins has more than 150 million consumers worldwide with 2,800 locations nationally and 5,800 stores globally. What began as a small business opportunity has grown into a solid…

Words 14987 - Pages 60