Originally Posted by
MickG0105
The money received goes into revenue. The equivalent value is then held on the balance sheet as a Liability. It is not held as an asset and it is therefore not "capital". The whole thing is a simple and basic business practice with well established accounting rules.
The cash is held as an asset - no business would sustain a liability of '000s of millions of $ without an offsetting asset on their balance sheet. Revenue in Advance is therefore not revenue, but a balance sheet boost.
But the value of the asset exceeds the value of the liability by the expected profit margin - cash in is measurable. Cost of providing the service can be smoke and mirrors allowing Qantas (and others) to pump up the balance sheet (or vice versa) by minimising the associated liability. That cash earns interest - and that's a 'free' revenue stream.
Originally Posted by
MickG0105
What is often instructive is the ratio between total passenger revenue received by an airline and "Revenue received in advance". For Qantas the ratio is about 29 percent. This is not, by any means, unusual.
For comparison, Southwest sees an "air traffic liability" (one of the US terms for "Revenue received in advance") to total passenger revenue ratio of around 26 percent. Singapore Airlines runs a similar "Sales in advance of carriage" ratio of 26 percent. Delta, United and American Airlines typically see lower ratios; often somewhere in the teens.
Virgin Australia currently has a ratio approaching 40 percent. I'm yet to see much hand wringing about that.
Virgin also holds $290 million of unredeemed Future Flight credits that are currently due to expire by 31 December 2023. When that liability is written down to zero that will be the equivalent of Virgin converting passenger revenue paid in advance into capital. And I'm yet to see much hand wringing about that either.
And Virgin has assets of just over $3.7 billion and liabilities of a shade over $5 billion for a balance sheet that is underwater to the tune of $1.3 billion (a shade over $1 billion come the New Year thanks to those written down flight credits, or "theft" as it is known in some circles).
What's instructive is how difficult it is for Joe Public to get their money back or even the grounds on which its being held. Qantas specifically took money for a flight they knew they weren't going to operate and didn't tell the customer and when they finally got around to it, made it very difficult for the customer to get their money back thus allowing the balance sheet to remain inflated and the cash to earn interest. Then, when said customer wanted an alternative option via credit etc - the "service" was no longer available at that price - the liability to provide the service was unchanged but hey, look, we now get more money by charging more for the same flight on a different day.
I think the whole "we only guarantee to get you somewhere when WE feel like it" defence is laughably flimsy. If that were true, why aren't all seats on all flights on a given day the same price? Why would I pay additional $$$ for a morning flight when according to Qantas I hadn't bought anything other than an assurance that I'd get there sometime? Sure, my additional $$$ might increase my chances of getting a flight closer to the one I booked (or even the one I booked) but I think that where they've charged premium prices on a ghost flight then their argument starts to fall apart. I also wouldn't be surprised if the ACCC takes their defence and adds abuse of market power and deceptive & misleading conduct to the charges.
Australia needs legislation like the EU and Canadian compensation models. I think if you surveyed and said - hey, you ticket price will go up, but would you like these protections in their place? - you'd get an overwhelming yes. Heck, even let passengers opt-in or opt-out if they are that price sensitive. Then airlines who can't organise a proverbial in a proverbial will suffer either through loss of business (if they pass their costs on fully) or loss of profit (if they don't) compared to the ones that can get their stuff together.
And on Virgin - I think that 'steal' should also come to bite them. I reckon a large part of the Bain business model is tied to keeping that cash. They'll be far less likely to succumb to external pressure and unfortunately I don't see the current transport minister with anything approaching the credibility or political capital to take them on. Of course it helps that they're not currently up in front of the ACCC nor warring with every worker in sight.