AA hints at annual revenue from AAdvantage mile sales to partners

[FWAAA]

Here's something (the bolded part) that I don't remember seeing in the past annual reports:

American sells mileage credits and related services to other participants in the AAdvantage program, There are over 1,000 program participants, including a leading credit card issuer, hotels, car rental companies and other products and services companies in the AAdvantage program. The Company believes that program participants benefit from the sustained purchasing behavior of AAdvantage members, which translates into a recurring stream of revenues for AAdvantage. Under its agreements with AAdvantage members and program participants, the Company reserves the right to change the AAdvantage program at any time without notice and may end the program with six months notice. As of December 31, 2007, AAdvantage had approximately 60 million total members, and 613 billion outstanding award miles. During 2007, AAdvantage issued approximately 200 billion miles, of which approximately one-half were sold to program participants. See Critical Accounting Policies and Estimates under Item 7 for more information on AAdvantage.

So AA sold about 100 billion miles to program partners like Citi; even if the average price was as low as one cent each (it may be higher), that's a cool $1 billion of revenue from the sale of miles. AA's asking price is 2.5 cents each for small buyers, but Citi no doubt gets a much better deal.

With that much annual revenue, it's no wonder those Icelandic Wizards at FL Group wanted AA to spin off/sell AAdvantage in their desparate attempt to recover some of their losses on AMR. AAdvantage might bring some real money if sold.


In other areas, advertising expense continues to grow:

Advertising Costs The Company expenses on a straight-line basis the costs of advertising as incurred throughout the year. Advertising expense was $164 million, $155 million and $144 million for the years ended December 31, 2007, 2006 and 2005, respectively.

Still represents a small fraction of Southwest's ad spend as a percentage of revenue.

AA's fuel hedging efforts have been paying off lately:

For the years ended December 31, 2007, 2006 and 2005, the Company recognized net gains of approximately $215 million, $88 million and $58 million, respectively, as a component of fuel expense on the accompanying consolidated statements of operations related to its fuel hedging agreements, including the ineffective portion of the hedges.

Still a long way to go to match the results at WN, which has saved a couple billion dollars over the past few years due to its well-publicized fuel hedging activities.

 

[TIME FOR CHANGE]

More money we will never see.
Cant wait to clock in tomorrow and give 110 percent