In the early 1980s, airlines introduced frequent-flier awards to develop passenger loyalty to a single airline. Free tickets and possibly other awards were made available to passengers when they accumulated a certain number of miles or flights on a particular air carrier. These programs were potentially good for the passenger and the airline as long as the awards were not too generous and the airlines could minimize revenue displacement from a paying passenger.
a. In your opinion, are the outstanding (unused) miles a liability to the airline? (Substantiate your answer.)
b. Comment on the potential problems involved in estimating the dollar amount of any potential liability.
c. 1. What is a contingent liability?
2. In your opinion, are unused miles a contingent liability to the air carrier?
3. Recommend the recognition (if any) for unused miles.