United Airlines books $64 million from expected expiration of frequent flier miles

UAL books $64M from expiring frequent flier miles

CHICAGO — United Airlines is getting a $64 million revenue boost from frequent fliers that it thinks will stay home.

United said in a filing on Friday that it has changed the way it estimates how many frequent flier miles will expire, which will add $64 million to first-quarter revenue. The change is expected to have a similar impact through the rest of the year, which would boost revenue by $256 million for the year.

Shares of UAL rose $1.16, or 5.3 percent, to $22.87 in afternoon trading.

United announced in January 2007 that frequent flier miles in inactive accounts would expire after 18 months.

It is refining its expectation for expirations now that it has more years of data to go by, spokesman Michael Trevino said.

The airline reviews its estimates for expirations (called “breakage”) once a year.

When someone flies on United, the airline books some of the revenue right away, and defers some of it into the future, to account for frequent flier miles that will eventually be ticketed. Now that it’s changing its expectations for the number of miles that will never be used, it’s going to book more of that revenue right away.

JP Morgan analyst Jamie Baker wrote that by deferring revenue for frequent flier miles, United appears to be accounting for them the same way as Delta Air Lines Inc. — and more conservatively than American, Continental, and US Airways. Those three count miles as a liability which is reversed when they give away travel. That means that even with the change, United’s accounting is still more conservative than most, he wrote.