{"id":14905,"date":"2017-10-06T05:00:41","date_gmt":"2017-10-06T05:00:41","guid":{"rendered":"http:\/\/www.ceo-na.com\/?p=14905"},"modified":"2017-11-01T19:11:53","modified_gmt":"2017-11-01T19:11:53","slug":"god-save-points","status":"publish","type":"post","link":"http:\/\/servidor-mxigen1.com\/ceona-antiguo\/opinion\/god-save-points\/","title":{"rendered":"God save the points"},"content":{"rendered":"

Loyalty programs: how much does it cost to airlines? In Brasil there are some second thoughts.<\/em><\/strong><\/p>\n

By<\/strong>\u00a0Oso Oseguera,\u00a0who is<\/em>\u00a0Editor in Chief at Chief Executive Officer North America and Latin America. He firmly believe life is better aboard a bicycle.<\/em><\/p>\n

Just because you have miles doesn’t mean you should use them.<\/p>\n

If a ticket is $250 and you can afford $250, it makes no sense to spend 25,000-50,000 points. That’s a bad cent per point value.<\/p>\n

\u201cIf I was going to blow 20,000 points, I’d want the ticket to be at least $400, giving me almost 2 cents per point of value\u201d, this is the recommendation from Gilbert Ott, an expert in travel and rewards and enthusiast who owns the website God Save the Points<\/a>.<\/p>\n

Listing loyalty programs have large tax burden inefficiencies for the airlines.<\/p>\n

Take care of your points<\/strong><\/h6>\n

UBS did a research report about it in Brasil. They calculate that having its programs separated from the airlines could cost US$71.5m to Gol in 2017E (2.2% of revenue) and US$69.9m to Latam (0.7% of revenue), due to tax inefficiencies on PIS\/COFINS and on income taxes.<\/p>\n

Gol and Latam do not consolidate their loyalty programs for tax purposes \u2013as that would require a higher level of ownership\u2013 which leads to intercompany transactions.<\/p>\n

Tickets bought by MPLU\/SMLE register revenues for Latam\/Gol while points bought by the airlines register revenues for MPLU\/SMLE.<\/p>\n

The monetization of such transaction incurs an extra payment of PIS\/COFINS, which is a tax levied by the Brazilian government upon revenues.<\/p>\n

UBS calculate that those extra taxes related to the loyalty\/airline split cost each year US$8.9m for Latam\/MPLU and US$7.6m for Gol\/SMLE \u2013the cost being shared by both parent and subsidiary\u2013 summing NPVs of US$79.5m (1% of LTM’s current market cap) and US$104.9m (7% of GOL’s market cap), respectively.<\/p>\n

Both Gol (ex-SMLE) and Latam\u2019s Brazilian operations (ex-MPLU) have not been profitable over the past few years. Will airlines renew their contract with loyalty programs?<\/p>\n

UBS see this as the million-dollar question for the sector. While listed loyalty programs generate large tax inefficiencies, they also generate value by stimulating other revenue sources and innovation.<\/p>\n

As contracts’ maturity approach (2025 for MPLU and 2032 for SMLE), if airlines do not disclose their intention to renew the contracts, UBS believe investors may stop pricing in contract renewals fully.<\/p>\n

In our base case, 62% of MPLU’s and 34% of SMLE’s fair value come from years after the renewal.<\/p>\n

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The Travel Tips & Deals You Need TODAY… – https:\/\/t.co\/ws25LlX0GA<\/a><\/p>\n

— \u2708\ufe0fGodSaveThePoints (@godsavethepoint) October 6, 2017<\/a><\/p><\/blockquote>\n