What is the Accounting For Prepaid Gift Cards - Prepaid Cards, Airlines, Flying Public and the FTC
Why are some companies in the most competitive industries so incredibly innovative and how do they consistently bring new creative concepts in commercial applications? Not long, ago Wal-Mart began teaming up with some of the largest retailers so they could sell gift cars at their check-out stands. These would be bought by Wal-Mart Shoppers as gifts.
The gift card strategy is one that works extremely well in that companies realize that 20% of the gift card value is never actually used. This means the retailer can make a deal with the company to sell the cards and retain a percentage of this known quantity. Sounds good doesn't it?
Indeed, this makes for a nice concept, I do recall recently being in Wal-Mart and seeing the rack for "pre-paid" cards and it said coming soon; 'Southwest Airlines $150 Prepaid Cards."
It got me thinking that the future of airline travel for the consumer will need to re-adjust with reality of the flying public and the challenges of fuel commodities. Now then, if 20% never gets used and the airline splits that with Wal-Mart, they have advanced sales. Wal-Mart pays the airline 60-days after the cards are sold and keeps the cash flow. The airline can then either discount the gift cards to Wal-Mart or split the profits of what is not sold.
Meanwhile, the airline still has some monies left over from what will never be used, everyone wins and the more they sell the lower the airline ticket prices can be to offset higher fuel costs. There is only one problem I see with this scheme from what I can see and that is that the FTC has recently been petitioned by the Consumers Union to make a stipulation in the laws on gift card sales to prevent companies from going bankrupt and consumers holding worthless gift cards. And let's face it, in the airlines we will see more bankruptcies this year, even if the price of fuel drops. Think on this.