97 billion (yes, billion) Avios issued in 2013 …. and what that means

The ‘Number of the Day’ today is ….. 97 billion.

I was quoted in The Sunday Times yesterday (page 2 of the ‘Money’ section) in an article on the lack of Avios reward availability.  The journalist who wrote it wanted some information on the size of the Avios scheme so I dug out the International Airlines Group accounts for last year (large PDF file).

The Count

It tells you what I already knew – that there are 5.9 million ‘active’ Avios accounts out there.  Given that Iberia in Spain accounts for part of this, that there is an Avios scheme in South Africa and that British Airways Executive Club has a lot of members outside the UK, I estimate that around 4m accounts are UK based.  Many people will also have two or even three accounts across the three schemes.

The 2013 accounts also told me something I didn’t know.

97 billion Avios points were awarded in 2013.

That is a LOT of Avios.

You shouldn’t be too surprised by this number.  After all, IAG flies over 140 billion passenger seat miles per year – albeit not at 100% capacity – and you earn at least 1 Avios per mile flown.  Many people do not collect but they are offset by those who collect additional miles from Tesco, Amex etc.

If all of those people chose to redeem their Avios for return economy flights to New York on BA at 20,000 Avios each-way, it would require 4.8 million seats each year.  That is 13,287 economy seats per day.  That would require 66 aircraft at an average of 200 economy seats per plane.

That is a huge number.  Think about that for a minute.  BA and Iberia need to give away the equivalent of EVERY economy seat on 66 New York departures EVERY DAY just to keep the number of Avios in circulation constant.

You can also look at it as a % of flown seat miles.

IAG flew 230,000,000,000 passenger kilometres in 2013, ie 143,000,000,000 miles.  That is ‘number of seats on aircraft (empty or filled) x distance flown’.

As a rough rule of thumb, I would say that you need to redeem 5.5 Avios to fly one mile in economy.  (New York is 20,000 / 3,466 miles = 5.8x.  Los Angeles is 25,000 / 5,464 miles = 4.6x, Dubai is 20,000 / 3,408 miles = 5.9x, Tokyo is 30,000 / 5,966 miles = 5.0 etc)

Divide 97 billion Avios issued in 2013 by 5.5 and you get 17,600,000,000 flown miles.  BA issues enough Avios each year to fly 17.6 billion miles.

As a percentage of IAG capacity, that gets you (17.6/143) 12.3%.

If IAG fills 12.3% of its total seat numbers with Avios redemptions then it will absorb all of the new Avios being printed each year.

Of course, to fill 12.3% of seats it needs to offer up more than that.  Plenty of planes go out every day with unfilled Avios redemption seats.  IAG probably needs to make at least 20% of seats available for redemption to fill 12.3% of seats.  Of course, IAG isn’t offering up anywhere near 12.3% of its capacity, let alone 20%+.

This is obviously a very simplistic analysis.  However, in my experience of doing very complex and very simple financial models over the years, it doesn’t make much difference.  If we adjusted for Avios that expired, redemptions for non-flight products, redemptions on partners, redemption by other airline schemes on BA etc etc, I would expect the end number to be close to the initial educated guess.

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Comments

  1. Frenske says:

    Interesting count Von Count … however not all Avios end up being used for IAG flights.

    • See the last paragraph! Remember that an American Airlines member using AA miles on BA take their seat from the Avios availability pot, so it averages out.

  2. mrtibbs1999 says:

    “However, in my experience of doing very complex and very simple financial models over the years, it doesn’t make much difference.”

    That’s true in my experience, but boy can you sell the complex ones for more money 😉

    • Karen Brown says:

      “However, in my experience of doing very complex and very simple financial models over the years, it doesn’t make much difference.”

      What a fantastic statement. Financial analysis in a, for once, true nutshell.

      You are a man of many talents !

  3. Cheshire Pete says:

    Be interesting to know how many 2 for 1 redemptions are used and at what average amount, as you can’t predict this in advance can you? If just 10 were used at 100,000 each that’s 1 million Avios being used for free from just 10 people! I’m sure it must be much more than this!

  4. Richie says:

    There will also be thousands of people each year who open a baec account , fly with ba, and never use the miles. . Some people just don’t get in to it like us lot.

    • Agreed. It would be interesting to find out what proportion of Avios are cancelled each year due to non activity etc. I suspect the number is far higher than many people think.

    • Pretty much everybody I know collects avios. Pretty much nobody I know knows how to get use/value out of them.

      My parents let something like 200,000 expire last year because they forgot that they’d put them in my mum’s account and were now collecting in my dad’s account, or something. They have been collecting airmiles/avios for over a decade – they have never redeemed one point.Their friends use Avios exclusively for hotel bookings. My brother paid £250 for a return flight to Germany last night on a budget airline, and even when I pointed out he had the 9,000 avios needed to book it for £35 (assuming – ha! – availability), he just shrugged his shoulders and said it would probably work out at about the same cost.

      I guess it’s a bit like clubcard points, and gambling. For a few of us who spend/waste time doing this, the value in collecting clubcard points or Avios is obvious and we are able to attribute value to the points (albeit diminishing value for Avios). For others, they will be going on holiday and might check if they have enough avios to reduce the price of their hotel a bit – they will be more concerned about whether they have enough avios to do something, rather than working out if they could get more value for those points elsewhere. But for most, I imagine they get on a BA flight or go shopping in Tesco and don’t bother to collect points/Avios, or do so and just forget about them. We probably represent a tiny minority of people really. A bit like card-counters, just far less sexy.

  5. Raffles, forgive me if I’ve got this wrong but I think you have a background in economics (or, at least, the finance industry)? If so, what’s the likely effect of having growing amounts of Avios in the system?

    To my mind, an increase in the ‘money’ supply leads to higher levels of inflation…

    • Mr Bridge says:

      There are factors that reduce the supply;
      1 suspense – this is avios issued that have not been redeemed, so out of the figures quoted what is the annual redemption for flights
      2. I think i am right in saying ba avios expire if you have no activity for 2 years. obviously small amounts that people have earnt, probably from flights have expired.

      • 3 years.

        The expiry rules are ‘soft’ though since ANY activity (earning or burning) resets the 3 years. Compare to Emirates or Lufthansa where they expire after 3 years whatever you do. This, interestingly, is what I think BA will choose to do if they start getting worried about the liability rather than jacking up redemption rates.

        Note too that lack of seat availability on BA makes it more likely that you will redeem on another airline or for Eurostar, a hotel etc, which is bad news from BA – they have to start handing over real cash.

        • Karen Brown says:

          They can always devalue then. As you’ve often pointed out we are in the hands of the airlines who can change the rules anytime as they choose.

        • Well it works the other way too, you can redeem for BA seats with AA/CX/JL/AY miles.

      • Andrew (@andrewseftel) says:

        Don’t forget redemptions!

  6. Erico1875 says:

    Divide 97 billion by 5.9 million members you only get aprox 16.5K Avios per member.
    Considering most people on HFP and Flyertalk BA probably collect at least 10 times that, somr much ,much more, then the amount of users actually redeeming Avios is probably less than a million.
    Maybe half those issued are never redeemed

    • There is a low floor for redeeming Avios – 2,250 Avios gets you a one-way to Amsterdam using ‘Avios and money’ and that redemption is still a decent deal compared to paying cash. I doubt a huge percentage expire if the user is smart enough.

      Lufthansa, on the other hand, has no redemptions worth making – given the crazy short haul taxes – unless you have 30,000 Miles & More miles or so. LH also has a very tough expiry policy as miles expire 3 years after you earn them, whatever other activity you have. The ‘break’ rate with them is huge. But don’t give BA ideas ….

  7. AviosNewbie says:

    Raffles, do you know what’s the accounting treatment for these liabilities? Especially, as most people would be able to keep their avios from expiring?

    • No. It may be in the US filings which require more detail than UK filings. There are two issues:

      a) how does BA measure the liability? Remember that some redemptions (eg Eurostar, hotels, partner airlines) involve BA paying out money to a third party. Avios do therefore create a real cash liability for the company. This will be adjusted for the % that expire and the % that get redeemed on BA. Totally finger in the air, but I guess at a liability of 0.2p per Avios in circulation.

      b) how does BA treat the income from Avios sales to Tesco etc? You can either take it immediately to profit, or it becomes a deferred liability and you only treat the Tesco money as ‘income’ when either i) the Avios are redeemed or ii) they expire.

      • Erico1875 says:

        What do you think Tesco and other partners pay for an Avios?

        • No. It is probably higher than we think, because there are so many avios.com ‘non flight’ redemptions which involve BA paying money to third parties. These tend to come out at 0.5p per Avios, eg Eurostar, hotels, car hire, fine wine, sports tickets.

          It is hard to see BA selling them at under 0.5p given that they will be paying out 0.5p if the person immediately redeems for, say, a crate of fine wine or Eurostar. I’d need to see the numbers though. If only 5% of people redeem for something that involves Avios paying 0.5p / point to a third party then they could afford to sell them for less.

          • It is in the annual accounts the liability occurs at the point of redemption. From memory in previous years it was based upon when the points were created. Cant remember exactly but it is something along those lines…

  8. Mikeact says:

    I guess of course, that numerous Avios are redeemed for many other OW and other carriers etc., not just BA.

  9. Raffles – as I wont be wanting to buy yesterdays Sunday Times I would be interested in the discussion on Avios redemption availability, I still maintain it has become an issue with noticeably fewer opportunities available. Although I may count myself as having a big pile of avios that’s only because the reward seats on the routes I had previously planned on redeeming aren’t available, even 12 months in advance. I would much rather be avios poor having bagged my First Class or Biz Class flights to routes I would genuinely want to use (and on which there used to be some availability).

    • Cheshire Pete says:

      I’m currently planning a trip to the US next May, and actually you can find seats especially to New York. Yes other destinations much harder! It especially infuriating often only 1 business seat. No good for 2 people!

      Even more infuriating for me is for some annoying reason there is next to no Avios seats on the London/Manchester routes for next May. I don’t understand this, but that then stops me from making a through booking to the States or in fact anywhere else.

      Then even more interesting if you do start your route in Manchester it does infact then reveal a lot more Business availability for the onward leg to the US. Just that I can’t find return availability back to Manchester due it the Domestic legs being totally devoid of Avios seats! I can force a break in the journey and come back in June however to Manchester!

      Just a crazy system I think which needs a serious rethink in the way if offers availability.

      • I feel your pain! I start my flights in EDI/GLA and get similar issues, as well as BA trying to fly me to LGW for a long haul flight from LHR. But if i search for a flight just to London that day it sends me to LHR (which is what i want, but without spending further avios).

        One trick is to use the stopover option in London – but choose the same dates i.e. fly to London and ‘stopover’ then fly onwards all on same day, it can sometimes show a lot more options!

        After trying to trick the BA website into working correctly (!) phoning BA booking line may be of use too.

        • Cheshire Pete says:

          I could phone, and then you end up paying! I had to do this in May just gone when I’d booked a return (2for1) from MAN>LHR>LAX. On the return it insisted on only letting me get back to Manchester on the last flight at 21:00 or something. The LA flight lands at 16:15. When I booked this last August I was just to pleased to actually get 2 Club seats to LA on the A380 that I would have taken any flight back to Manchester to just secure the CW legs!

          I had to pay something like £78 to move my flight to the 17:50 back to Manchester. So, yes, they can do this at a price I should add! But this time is totally different, having no flights at all back to Manchester in May is just more infuriating! How can that be anyway? 12 flights each way a day is 24 flights for the whole 31 days in May, they have a handful on the 06:40 only scattered about and that’s it. Which cannnot connect with any incoming flight to make it useful, even if the dates worked.

          And it’s one thing moving the time of the Manchester Leg on the same day, but having to move the actual day by weeks might cost an arm and leg! And at the end of the day I can book a one way to Manchester for the same price they’d charge me to change it on my redemption booking by not opening any meaningful seats at all for the entire month!

          You know, did someone just forget to press an ‘IT’ button to open them up?

          The point being, I shouldn’t have to use all these tricks to spend my well earned Avios!

        • Cheshire Pete says:

          Oh, and feel luck you can get to Gatwick from EDI! One of my favoruite avios trips used to be MAN>LGW>MCO. Out on the 06:20 and then the 10:00ish to Orlando.

          I can’t even do that anymore. I have to fly to Heathrow and then have a 5 hour connection to Gatwick on the the later 13:20 to Orlando. So, that was good of BA erasing one of their Hubs from Manchester. So basically, I’ll fly with Virgin direct. Or waste 5 hours and spend a small fortune to connect to Gatwick from Heathrow with my 3 pieces of Club luggage

          Thanks BA, for doing this.

      • John F says:

        Had a similar issue with availability re returning to MAN when planning for USA next April/May ,(having a trip for 40 yrs of wedded bliss) managed to get MAN/LHR/SEA in first, doing train(Empire Builder) SEA to MKE, bought 2 eco MKE/JFK with Delta (to keep Flying Blue points from expiring) then business JFK/DUS with Air Berlin(£3 taxes for the 2 of us) and yes no avios flight back to MAN from DUS, however will use Flying Blue DUS/AMS/MAN as they seem to have plenty of options either via AMS or CDG, however I often have to mix and match to get back to MAN, not so much of an issue for me but the other half prefers BA or avios for the whole booking

    • I’d rather they added 50% to the avios price of flights across the board but actually did have some availability.

      Avios are brilliant for flights if you want to go to New York, or you want to go to somewhere in Europe later this week. Otherwise it’s more like a lottery – if you are incredibly lucky there might be a redemption available at an airport somwhere in the country you want to go to, at some point in the month you want to fly. Of course there will be no return flight so forget the 241.

      • I’ve just used 7,500 Avios to get my daughter home from Spain. She was on a post A level girls holiday flying Ryanair who cancelled her flight home due to the French air traffic control problem. With just 48 hours to get back before we all leave for Sri Lanka (241 in Club World) it was a great use of points as the cash price was 200 euros and I wasn’t prepared to trust Ryanair.

  10. Warren says:

    Chase bank were handing out 100k Avios sign up bonus on their Amex in the US. If only 10k people took it up, that’s a billion Avios given out right there.

    And people wonder why availability to the US has suddenly flatlined, when other destinations haven’t changed much…

  11. LHR Tim says:

    I’d be happy if the tight wads opened up two seats TLS-LHR in August. Crikey hardly a popular destination. Sheesh!

    • Warren says:

      TLS is used by many (myself included) as a gateway to Carcassonne, Montpelier, etc.

      Gold availability tends to be much better on this route. I’m currently seeing 2 or more seats available every Mon-Thurs in Aug, with 2 or more available every Mon-Fri for the return.

      I think you’d be surprised at the popularity of this route.

    • Karen Brown says:

      TLS in holiday time seems to disappear. Could you try Bordeaux which does not seem to be as popular?

  12. Howard says:

    Now our kids are older we have much more flexibility . Booking 11 months out is not an issue to us as you can easily cancel. Obviously other people would have different criteria. Overall I am happy with BA and prepared to be loyal. We needed return flights from Venice as there was no availability for rewards and happy to pay. I checked Easyjet and incredibly BA was the same price to City (which is close for us).

    Flyer talk and this site (especially) are brilliant for all the tips. I have had two returns to Vegas in past three years in First. Brilliant experience. We are looking to go to New York next year and availability is very good if you book 11 months in advance. We have done well well with Europe with rewards also.

    I have about 1m Avios plus 90k AA and have just started collecting some Virgin points so we hope to get some decent flights in next few years.

    So again I say thanks Raffles. For me watching my wife (she is not really snobby -just joking) getting into First is worth all the hard work.

  13. The digital Sunday times doesn’t carry the article from page 2 u mention. Can u post it for us who are out of country? Only article was on stretching from the 19 th and it didn’t use your figures etc
    Thanks

    • It is that article – the digital edition dates it as the 19th. Yes, the numbers I discuss today were not in the article although you will see that Mel uses the ‘5 million members’ number I gave her.

  14. Reminds me of this piece
    http://www.economist.com/node/1109840

    • Worzel says:

      A useful warning.

      In particular the last paragraph:

      ‘The airlines will be all right. The small print allows them to restrict seat availability and to change the rules of their schemes at will. Inflation hurts the mugs left holding the currency. Either airlines will increase the number of miles required for a free flight (not for the first time), or travellers will find that booking the flight of their choice becomes even harder than it is already. Both are a form of devaluation. Spend them while you can’.

      • flyforfun says:

        I’d like to see that article updated, but 12 years on, it would probably end the same way!

        I had been treating my points as a pension savings planning with the odd treat along the way. Now I think I’ll start to burn more of them as it may be a race to see who gets to retire first!

      • Well, we got screwed when Airmiles became Avios. Why would things be any different going forward?

  15. From the Avios Group Ltd YE2012 accounts, the Avios Redemption Provision note showed the following:

    At 1 Jan 2012: £129,399,000
    Charge [Avios issued in the period] :£38,655,000
    Utilised [Avios redeemed in the period]: £(42,959,000)
    Release*: £(16,378,000)
    At Dec 2012: £108,717,000

    * I assume the release is a combination of Avios that expired during the period & any reassessment of the Avios valuation.

    Using Raffles’ 2013 Avios issue number of 97 billion as a guide and a 2012 charge of £38,665k that would equate roughly to an IAG valuation of 0.04p per Avios assuming a similar number were issued the year before!

    The 2012 turnover note shows sales of Avios worth £52,639k and, assuming that AGL “sells” Avios to BAEC & IP as well as 3rd party partners, that would give a value of roughly 0.05p per Avios.

    Surely they don’t really value Avios as low as 1/20th of a penny each!

    • Very interesting, I will take a look at these accounts. Difficult to see the accountants signing off that valuation frankly.

      • squills says:

        Wouldn’t that mean they are playing down/ minimising external perceptions of the liabilities associated with Avios?

        • Auditors would requires the provisions to be realistic and based on accurate estimates of potential cost though.

          AGL wouldn’t just be able to pick an unsupportable estimate when it is one of the largest figures in the accounts and the fundamental “business” of the company simply to lay down expectations, especially when the average investor wouldn’t even be interested in this entity’s accounts (as they would focus lore on the IAG group figures.

  16. It appears that Avios Group (AGL) Limited historically file their stat accounts close to the deadline so the latest publicly available are YE 31/12/12.

    AGL say that their aim is for Avios to be the leading travel rewards provider by 2020.