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Airline Trust Accounts(?)

Posted: Mon Mar 23, 2015 9:14 pm
by intsim
What do airlines do with the airfare from a passenger buying a ticket? Is it a liability until the travel is completed and held in a trust account? If it is in trust can they earn interest on the money?

I am not having luck with the google, I don't know what terminology to use.

Jeff

edit to modify title

[Edited 2015-03-23 14:20:28]

RE: Airline Trust Accounts(?)

Posted: Mon Mar 23, 2015 10:35 pm
by roseflyer
Public charter airlines in the United states must hold all funds in a trust or separate account until people finish their trip. The rest of the airlines bank the money immediately.

RE: Airline Trust Accounts(?)

Posted: Mon Mar 23, 2015 11:23 pm
by intsim
Interesting. Thank you for your input.

Jeff

RE: Airline Trust Accounts(?)

Posted: Tue Mar 24, 2015 8:34 pm
by Viscount724
Quoting Roseflyer (Reply 1):
Public charter airlines in the United states must hold all funds in a trust or separate account until people finish their trip. The rest of the airlines bank the money immediately.

But don't even scheduled airlines consider ticket revenue as a liability until the passenger actually flies? That was always the case in the past. I'm not sure whether that has changed with most fares now being non-refundable. At least for those fares it would seem logical to reflect the revenue when the ticket is sold, but not for fares that are refundable.

RE: Airline Trust Accounts(?)

Posted: Tue Mar 24, 2015 11:01 pm
by aklrno
Quoting intsim (Thread starter):
What do airlines do with the airfare from a passenger buying a ticket? Is it a liability until the travel is completed and held in a trust account? If it is in trust can they earn interest on the money?

Sure, they earn interest on the money. From an accounting point of view I suspect it shows up on the balance sheet as a liability under unearned revenue. Frequent flier miles are probably there too, but they might have their own category instead of unearned revenue

RE: Airline Trust Accounts(?)

Posted: Wed Mar 25, 2015 1:55 pm
by nws2002
It should be a liability until the service is provided, at least for accounting purposes. However, with the exception of public charters, the airline is free to use the money as required by cash flow needs.

Nearly every business operates on an accrual basis, not a cash basis. Accrual accounting means you account for the money when services occur. In the airline case, the customer is prepaying for services and the money is placed in a liability account (commonly called unearned revenue) until services occur and it is transferred to the appropriate revenue account.

RE: Airline Trust Accounts(?)

Posted: Fri Mar 27, 2015 12:48 am
by intsim
Thank you for everyone's responses. I appreciate it.