CUN Saturday Service

[AirwAr]

 
Incorrect.
 
When AA sells an AAdvantage mile (to a credit card company to give to a cardholder, to AVIS to give to a renter, to Hilton to give to a guest, etc.) or deposits one directly in a flyer's account based on flight activity, a liability is instantly created and remains on the company's balance sheet until it expires or is redeemed.  In general in accounting, this liability is called "unearned revenue," but in the specific context of the airline industry it is typically referred to as "air traffic liability."
 
As such, burning miles actually does generate revenue because the frequent flyer's redemption of the miles - for a free flight, a bouquet of flowers, whatever - constitutes AA's having "earned" the revenue.  When and only when the revenue is "earned" can it be booked on the income statement as revenue, and until then (or, again, until it expires) it remains a liability on the balance sheet.

 
I guess I look at this way.  If I gave you $500 for an IOU...would you rather I turned in that IOU...or let it expire.
 
If a passenger uses miles for a hotel or car...that is real money out the door.  Wouldn't we rather the customer use it on AA?  In general, yes, because the "cost" to us is just the cost of carriage...minus any revenue lost due to a paying customer not getting the seat.
 
Selling miles is money in the bank.  Fulling mile redemptions are a necessary cost...but it is a cost. 

 

[commavia]

I guess I look at this way.  If I gave you $500 for an IOU...would you rather I turned in that IOU...or let it expire.

 
All else equal, the airline would rather the miles simply expire.  The problem is that this isn't necessarily always the choice the airline has - it's not a case of "customer uses miles for a free flight, or miles expire."  In some cases, that mileage "IOU" may, in fact, be redeemed, but for something other than air transportation that - under certain circumstances - actually has a higher marginal cost than just giving them a free seat would have.  It all depends on what product/service they redeem the miles for, and what the (highly proprietary) contractual relationship is between AA and the provider of that product/service.  Additionally, if the customer is going to redeem miles to fly, AA may well rather than use those miles on one flight versus another if AA thinks it has a higher likelihood of selling the seat to a higher-yielding passenger on one flight versus another.  Indeed, that may well be precisely one of the factors in play here - if AA is going to release 11 seats of T inventory each Saturday in March from RDU to CUN that presently get spread across morning flights from RDU to CLT, DFW and MIA, perhaps AA would rather consolidate some or all of those 11 T seats on the nonstop RDU-CUN so as not to displace AA's opportunity to fill up to 11 more sellable seats with fare-paying passengers, at higher yields, on routes to the hubs.
 

If a passenger uses miles for a hotel or car...that is real money out the door.  Wouldn't we rather the customer use it on AA?  In general, yes, because the "cost" to us is just the cost of carriage...minus any revenue lost due to a paying customer not getting the seat.

 
Again - it all depends.  In some cases probably yes, and in other cases probably know.  I clearly don't know the actual financial details, but I'm virtually certain that there are some mileage redemption options available to AAdvantage members that are more profitable to AA than allowing said members to redeem for free flights, and other redemption options that are less profitable to AA than allowing said members to redeem for free flights.  It's highly variable, changes day to day and flight to flight, and is precisely the reason why modern revenue and yield management systems exist - to analyze billions of pieces of data and make decisions just like that.
 

Selling miles is money in the bank.  Fulling mile redemptions are a necessary cost...but it is a cost. 

 
Both provide "money in the bank," and both also have "a necessary cost."