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Delta Air Lines May Drop Preparation For Chapter 11 Filing



 
 
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  #1  
Old October 27th, 2004, 01:41 AM
Frank F. Matthews
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Default Delta Air Lines May Drop Preparation For Chapter 11 Filing

More details have come out. It turns out that AE negotiated a priority
position in case of default. I wonder what the accounting implications
for that are? Delta may have a problem with how the payment is carried
on the books. I suppose their team of crack ex Enron accountants has
approved it though.

nobody wrote:

"Frank F. Matthews" wrote:

will not go 11. Interesting that 500 ,million is prepayment for
frequent flyer miles. That indicates that AE expects them to stay
around but seats will be really hard to find.



It won't make a difference to seat availabily. Amex already sends big fat
cheques to Delta every month for the purchase of Delta FF miles which Amex
then gives to customers for every dollr tehy spend on the card. The $500
million is simply prepayment for the miles AMEX will be giving to customers
over the next X period.

It would be interesting to know just how long it will take for AMEX to
distribute those miles.

If Amex negotiated a rate of say 2 cents per mile, that gives them 50*500 000
000 = 25000000000 FF points to hand out. It may take a while before
cardholders of AMEX cards spend that much money.


  #2  
Old October 27th, 2004, 05:35 AM
nobody
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Default

"Frank F. Matthews" wrote:
More details have come out. It turns out that AE negotiated a priority
position in case of default. I wonder what the accounting implications
for that are?


FF points are a virtual liability. It costs nothing for Delta to provide the
service AMEX paid for (authorize Amex to add points to customer FF accounts).

And then, this virtual debt is slowly converted to a slightly less virtual
debt (FF points in customer accounts) each year.

Are all of FF points in customer balances aco****ed as liability now, or are
airlines in the USA only declaring as debt the capacity that is allocated to
FF freebies each year ?

If AMEX usually gives 2.5 billion points per year, it means it would send
DELTA $50 million bucks a year in payment for those points. So the deal could
last 10 years.

What is likely to happen is that Amex has minumum cash requirements as
covenants for this debt, so that shoudl Delta liquidate, there would be enough
cash to cover the cash balance remaining (which goes down as AMEX awards
points each month)
  #3  
Old October 27th, 2004, 05:44 AM
anon
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Default

nobody wrote:
"Frank F. Matthews" wrote:

will not go 11. Interesting that 500 ,million is prepayment for
frequent flyer miles. That indicates that AE expects them to stay
around but seats will be really hard to find.



It won't make a difference to seat availabily. Amex already sends big fat
cheques to Delta every month for the purchase of Delta FF miles which Amex
then gives to customers for every dollr tehy spend on the card. The $500
million is simply prepayment for the miles AMEX will be giving to customers
over the next X period.

It would be interesting to know just how long it will take for AMEX to
distribute those miles.

If Amex negotiated a rate of say 2 cents per mile, that gives them 50*500 000
000 = 25000m000m000 FF points to hand out.
It may take a while before
cardholders of AMEX cards spend that much money.



25 billion divided by over 50 million cardholders? That's $500 per AMEX
card holder.
  #4  
Old October 27th, 2004, 06:42 AM
nobody
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Default

anon wrote:
25 billion divided by over 50 million cardholders? That's $500 per AMEX
card holder.



No. Credit cards typically give one point per dollar spent, and points cost
anything between 2 to 4 cents. But in the case of Amex, it is likely that it
is paying at the low end of the cost per point.

Number of cardholders isn't so important. It is the number of cradholders with
the Delta affinity card (eg: those who have their "goodies" converted to Delta
FF point) with average spending for those customers.
  #5  
Old October 27th, 2004, 07:17 AM
anon
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nobody wrote:
anon wrote:

25 billion divided by over 50 million cardholders? That's $500 per AMEX
card holder.




No. Credit cards typically give one point per dollar spent


500 points per cardholder = $500 spent per cardholder. Did I miss
something in the math?
  #6  
Old October 27th, 2004, 09:40 AM
Keith Willshaw
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Default


"anon" wrote in message
m...
nobody wrote:
anon wrote:

25 billion divided by over 50 million cardholders? That's $500 per AMEX
card holder.




No. Credit cards typically give one point per dollar spent


500 points per cardholder = $500 spent per cardholder. Did I miss
something in the math?


Yes - you get points worth one cent per dollar spent. To receive $500
worth of points you need to put $50,000 through the account.

Keith


  #7  
Old October 27th, 2004, 02:44 PM
Clark W. Griswold, Jr.
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Default

nobody wrote:

Are all of FF points in customer balances aco****ed as liability now, or are
airlines in the USA only declaring as debt the capacity that is allocated to
FF freebies each year ?


FF points were initially accounted as 100% liabilities. However, they've long
since converted to a set percentage.
  #8  
Old October 27th, 2004, 06:06 PM
Sarah Banick
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Default

No. Credit cards typically give one point per dollar spent

500 points per cardholder = $500 spent per cardholder. Did I miss
something in the math?


Yes - you get points worth one cent per dollar spent. To receive $500
worth of points you need to put $50,000 through the account.


My Amex Delta card gives double points on all regular purchases at grocery
store, postage, gasoline, etc. Plus they're always handing out extra
points for buying your ticket at Delta.com, or some other promotion.


  #9  
Old October 28th, 2004, 04:47 AM
anon
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Default

Keith Willshaw wrote:

"anon" wrote in message
m...

nobody wrote:

anon wrote:


25 billion divided by over 50 million cardholders? That's $500 per AMEX
card holder.



No. Credit cards typically give one point per dollar spent


500 points per cardholder = $500 spent per cardholder. Did I miss
something in the math?



Yes - you get points worth one cent per dollar spent. To receive $500
worth of points you need to put $50,000 through the account.

Keith


Yes, but they didn't pay 25 BILLION DOLLARS. I am talking about 25
billion points based on the previous post estimating a price of 2 cents
per point for the 500 million dollars AMEX paid. So, if AMEX bought 25
billion miles and has 50 million cardholders, that would be 500 miles
per cardholder
  #10  
Old October 28th, 2004, 08:22 AM
nobody
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Default

anon wrote:
per point for the 500 million dollars AMEX paid. So, if AMEX bought 25
billion miles and has 50 million cardholders, that would be 500 miles
per cardholder


Only a small proportion of AMEX's worldwide customer base have chosen the
affinity AMEX card which yields Delta points.

One would have to know more about the relationship between Amex and Delta to
know how many cardholders are involved, and what their average spending per
years is and this how long AMEX expects this bank of points to last until AMEX
needs to buy more points.

Having such a big bank of points to distribute amy allow Alex to make some
more interesting offers (eg: 10,000 when you join, double the normal airport
allocation campaigns etc).
 




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