Using miles to help the economy?

Discussion in 'Off Topic' started by samonyc, Aug 5, 2011.  |  Print Topic

  1. samonyc
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    samonyc Silver Member

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    In the last month I've burned through more than 100,000 Delta SkyMiles, redeeming them for $1150 in gift cards. I don't fully understand how airlines account for their liability in miles, but it occurred to me that the $1150 must count the same towards measures of consumer spending as if I were using my own cash, right? It's my own little economic stimulus, but without borrowing money from foreign government.

    Legend has it those 100,000 SkyMiles could get me a business class ticket to Europe, but surely $1150 in retail spending would be more of a stimulus than one business class trip, wouldn't it? (I know the flight has a greater potential cash value than $1150, but a business class flight is not something I need now or anytime soon.)
     
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  2. MSPeconomist
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    MSPeconomist Gold Member

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    You ask an interesting question about national income accounts. When you buy the gift card, it's purely a financial transaction with only a very minimal amount added to the goods and services in our economy, or to productivity, employment, etc. However, when you spend the resulting gift card, it should be treated as any other purchase, just the same as if you had purchased something for cash :eek: or using a credit card. :(

    I don't think any of us know how much imputed value is counted when a FF ticket is redeemed, either on our home carrier or when the miles are used for a ticket on a partner airline.
     
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  3. Gargoyle
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    Gargoyle Milepoint Guide

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    I went through a similar amount of those gift cards last winter. Spent them at local stores, cafes, gas stations, so much of it then passed through local hands.
     
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  4. samonyc
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    samonyc Silver Member

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    I should be so thoughtful. Most of mine have gone to big-box retailers. It's so hard to find a local store that can match the selection of the big chains.
     
  5. samonyc
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    samonyc Silver Member

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    Thanks for your expertise. I was hoping you would answer.
     
  6. MSPeconomist
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    MSPeconomist Gold Member

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    To amplify a bit, when there's an unambiguous market price at which a transaction occurred, its' straightforward, but when there's no such price or reasonable way of computing one, then a complex set of somewhat arbitrary rules comes into play. As a very general principle, financial items are tough to assign values to logically and consistently. For FF tickets, one could argue that the revenue price at the time the FF ticket was booked should be used, the fare for which the last sold seat transacted, some average, or even zero if the flight had empty seats, in which case should there be an assessment for any food and beverages provided on board or should any fuel surcharge be considered? I'm not an expert here, just aware of some of the issues. I don't think we should argue for zero, because clearly the FF receives a benefit for which he/she has already implicitly paid and the airline receives a goodwill benefit or alternatively the value of additional or more expensive tickets purchased by the FF, with discounting over time. If it were legal to sell FF miles and awards openly, there would be a basis for assessing these things!
     

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