Directly by the issuing airline and/orthrough normal financial channels by licensed securitiesbroker/dealers.
5. How is an airline ticketpurchased if ATM™benefits are to be used?
It is purchased and paid for normally; i.e.,online, through airlines, travel agents, travel service companies,etc.
After properly identifying oneself as an AIR TRAVEL MILE™ customer to aselling entity, the special AIR TRAVEL MILE™ fare isautomatically computed and provided. If a purchase is made, it is paidfor just as any other ticket is.
Manually computing the AIR TRAVEL MILE™ fare, forplanning purposes, is much easier than determining "frequent flyer"mile benefits. Thiscomputation is shown elsewhere.
Also, through electronic ticketing and paperlesstravel one will be able to determine the fares and ticket oneselffrom a personal computer unassisted.
6. What about the fare? Is it reasonable? What is it?
The fare is easy to compute. It is reasonable and considerablylower than the standard walk-up fare for most given flightsegments; however, it will always be a profitable fare for theairline.
It is computed by multiplying the number ofmiles to be flown by a known rate per mile.
The rate varies with the class of travelchosen and the form of AIRTRAVEL MILE™ instrument owned.
All three classes maybe available; first, business, and coach.
An AIRTRAVEL MILE™ coach fare instrument is used in thisoverview as an example and is based on an airline’s operating costplus 15%. However, theactual cost-plus factor used in real-world instruments will bedetermined by the issuing airline.
7. How about anexample?
MIA to NYC = 1095 miles
Airline’s system-wide cost per ASM =10¢
ATM™ Rate = Cost per ASM +15% = 10¢ + 15% = 11.5¢
ATM™ Fare = Rate x Distance = 11.5¢ x 1095 miles = $125.93
8. How does the airline makeout in this example?
Airline's profit on this transaction is 15%. This fare is an easysell. The unrestrictedwalk-up fare ($534 when GEC recently checked), however, is a verytough sell and one that usually irritates, and can even alienate,the customer.
The 15% profit margin is used here for exampleonly. This margin will be set by the issuing airline duringimplementation planning and will vary with the type of instrumentoffered. It will also reflect theairline's own specific financial objectives.
9. Is 10¢ per ASM a cost usedas a basis for all ATM™ farecomputations?
No. The 10¢ per ASM cost used in the previous example was forexample only. It represents a roughindustry-wide average ASM cost of major airlines in the USA. For our examples, we calledit a system-wide ASM cost for Any Airline, Inc.
The cost figure ultimately usedfor AIR TRAVEL MILE™fare computations will vary by airline and could also be structuredto reflect either the actual cost, or the approximatecost, (versus system-wide average cost) for aspecific flight by a specific airline.
Because airlines experience economies of scale,and because ASM costs can vary significantly with flight length andspecific aircraft efficiency, AIR TRAVEL MILE™ fares could beeasily computed to reflect these cost variances. They couldalso reflect other airline esoteric costs as well.
10. What otherfactors impact the fare equation? Taxes? Fees?
Not taken into account here, and beyond the scopeof this overview, is the ratio of first class and business classseats to coach class seats on a particular flight. If fine-tuning were done toinclude this computation, the actual specific cost per ASM for thevarious seat classes would be affected.
Also not taken into account here are the many,ever-changing taxes and fees levied on passengers by airports andgovernments. Generally, these are added to the base price of the ticket and paidfor by the passenger, not the airline. Because taxes and fees are not anintegral part of the airlines’ cost structure, it is assumed thatthis add-on policy would be applied to AIR TRAVEL MILE™ faresalso.
11. What if thereis a fare available that is lower than the ATM™ fare?
If all things are equal, the lower fare wouldprobably be utilized and the AIR TRAVEL MILE™ benefit savedfor another trip.
Because one owns an AIR TRAVEL MILE™ instrument, oneis not obliged to use it for all air travel.
The AIRTRAVEL MILE™ benefit is used as required to:
· Obtain a lower fare.
· Avoid undesired regular fare travelrestrictions and purchase issues.
12. What is thefare from JFK to SFO if Airline requires an off-route stop inDFW?
There are several ways to compute thisfare. Ideally, theshorter, direct distance would be used for computation; however,this will be determined by the issuing airline duringimplementation planning.
13. Are there any restrictionson the ATM™ benefit orusage?
Preferably, and ideally, no; however, thereare possible exceptions.
The benefit should be cumulative, transferable,and assumable by subsequent owners.
Also, the benefit should be unrestrictedwithin the mileage limit of the instrument.
This means, there are no advanced bookingrequirements, no stay-over requirements, no limiting number of AIR TRAVEL MILE™ seat usersper flight, and it may be used on any flight, any time, any where,as seats are available for sale.
Having no restrictions may not always bepractical, especially for certain situations. Therefore,an issuing airline may be forced to impose certainrestrictions as it feels is necessary. Discussion of thesepossible situations are beyond the scope of thisoverview.
14. What is meantby cumulative, transferable, and assumable by subsequentowners?
The AIRTRAVEL MILE™ Financial Instruments shown in this overviewprovide a benefit of 5,000 AIR TRAVEL MILES™ per year. (This 5,000 mile figure isfor example only and could be any amount determined by the issuingentity.) If any ofthis mileage benefit goes unused in any given year, or years, it iscumulative and may beutilized in subsequent years for as long as the instrument is inforce.
It is not required that the owner of theinstrument be the only person to use the mileage benefit, or thathe use it at all. Hemay transfer hisbenefit to other designated people at his discretion: e.g., familymembers, friends, employees, clients, etc. -- anyone -- and severalpeople may use the benefit from one instrument at the sametime.
This transferability feature makes theinstrument especially attractive to large corporate andinstitutional customers for use by their personnel forbusiness-related travel.
Also because of this feature, the instrument isattractive to resellers (travel agents, wholesalers) who could ownit, and in turn, sell the travel benefits to their customers at apremium.
When the instrument is sold, the new owner isentitled to assume allcurrent and accrued benefits.
These features make the instrument highlyattractive and more marketable, especially to individuals,families, groups, businesses, and government entities withsignificant travel budgets and a need for accurate travel-costforecasting and more accurate budgeting.
Also, in the secondary market, thesefeatures provide additional factors for computing instrumentvalue.
15. What about "frequent flyer"benefits? How are theyaffected?
They are not affected in any way. There are no penalties forusing AIR TRAVELMILES™.
AIRTRAVEL MILE™ passengers are profit-paying passengers andentitled to all "frequent flyer" benefits.
These benefits continue to be earned and redeemednormally.
16. How much dothese ATM™ financialinstruments cost?
Their cost will vary greatly and will depend onthe structure of the instrument, the benefits attached, and thetarget market.
They will also vary because they will be adjustedand custom-engineered by the issuing airline to achieve its desiredfinancial and operational objectives.
We have provided two examples denominated at$5,000 and $10,000 in this overview. These cost figures have beenshown for purposes of explanation, quantification, and exampleonly.
17. How many milescan be flown with one of these ATM™instruments?
In this overview we have provided twoexamples providing 5,000 miles per year perinstrument.
This figure is another that will vary and will bedetermined by the issuing airline.
18. How can owning an ATM™ instrument help one budgetfor air travel?
By being able to easily calculate in advance, andinto the future, what it will cost to fly to any place, at anytime, in any class of seating, at a reasonable rate, as opposed toattempting to deal with the many unknowns and uncertainties ofcurrent pricing practices.
This calculation is a very simple multiplicationproblem:
1. AIR TRAVEL MILE™ fare = Distance to be Flown x Cost Per Mile to the InstrumentOwner
2. The distance to be flown isdetermined by the amount of travel required by the instrumentowner.
3. The cost per mile to the instrumentowner is determined by the type of instrument purchased.
4. This cost is based on the operating cost perseat mile of the participating airline, or airlines, plus areasonable profit.
Despite the fact that an airline's ticket pricesare unpredictable and vary greatly, its actual operating costs perseat mile vary only slightly over any given time segment and aregenerally fairly stable. When they do change, thesechanges are usually gradual in nature. Therefore, when the AIR TRAVEL MILE™ formula isapplied to these relatively stable seat mile costs, highly accuratetravel-cost forecasting and budgeting is not only made possible,but made very simple as well.
19. Can these ATM™ instruments be tradedafter their initial purchase?
Yes. If they are public, registeredsecurities, they may be traded just as other similar securities aretraded; however, because of their unique financial and travelbenefits, their valuation in the secondary market will be morecomplex. The degreeof this complexity will vary most largely as a function of whetherthe owner is permitted to spin off, or sell as a separate fungibleinstrument, the travel benefit from the underlying security. This will be determined bythe issuing airline.
No. If they are issued asunregistered private securities, generally, they may not betraded.
20. Who will be the issuingentities of these securities?
· Mostly, airlines.
· Possibly, travel servicecompanies.
· Possibly, other third parties.
21. Will theATM™ be available to allof the world's airlines?
Yes. It will be available toany airline in the world that wishes to participate that isqualified legally, financially, and operationally.
22. Why should airlinesparticipate in ATM™instruments and fares?
Because they can provide low-cost, newcapital.
Because they can provide new revenue fromnew-capital ROI.
Because they provide a profitable product-solutionto growing, low-fare demand.
Because they can bring back travelers who havesought other alternatives to airline travel.
Because, by their inherent nature, they createcustomer loyalty to the issuing airline.
Because their fares, which are airline-engineeredand airline-specific, are all profitable, fairly predictable,and help stabilize the revenue formula.
Because they can create renewed excitement andinterest in the issuing airline and air travel.
23. Who andwhat determines which ATM™ instruments are issued?
This determination is made by the issuingairline.
The specific capital needs and financialgoals of the issuing airline are the principal factors determiningwhich instruments are issued.
In some instances, all forms of theinstrument may be issued by the same airline, regardless ofspecific needs and goals, simply to provide more choice for theconsumer.
24. Whodetermines which ATM™instrument will be purchased?
Each consumer/investor will make his ownchoice.
His first consideration will be to satisfy histravel requirements; i.e., availability, cost, benefits,etc.
His second consideration will be to satisfyhis investment requirements; i.e., growth, income, etc.
25. Will ATM™ revenue be new, orwill it supplant existing revenue?
Both.
The AIRTRAVEL MILE™ is expected to generate new revenue with moreprofit-paying customers.
Initially, it may supplant some existingrevenue. This will depend on the targeted market and how theinstruments are constructed and priced.
Ultimately, it will provide more, andmore profitable, revenue.
New revenue will also come from the ROI on capitalreceived from the sale of the instruments.
Additionally, new revenue will come from two typesof leisure and/or personal travelers; those who are attracted bythe more consistently affordable and rational fares but who wouldnot travel much otherwise, and those who are attracted for the samereasons who already travel a modest amount and will now travelmore.
Significant new revenue will also come fromadditional business travel for the same reasons. Much business travel, which isnow avoided because of perceived irrational prices andrestrictions, will now be feasible.
26. Won'tairlines resist the ATM™ if it could reduce high-yieldrevenue?
This question belies the fact thathigh-yield revenue is already being seriously reduced as more andmore high-yield customers desperately seek alternatives to airlinetravel.
The current pricing system in manymarkets is driving customers away and, most especially, previouslyhigh-yield customers. This produces strong and palpable pressure from the marketplace tochange to something more reasonable, understandable, andperceptively fair.
It isanticipated that, when utilized, the AIR TRAVEL MILE™will be implemented in measured, incremental amounts so as tominimize, or prevent, any diminution of high-yieldrevenue.
The AIR TRAVEL MILE™ is a very realanswer. And,ultimately, the AIR TRAVEL MILE™ should provide moretotal revenue, more profitable revenue, and better overall yieldthan exists in today’s system.
27. Why do consumers feel thatairline ticket pricing is confusing and unfair?
Because, unless they've purchased their ticketstogether, no one person on any given flight seems to have paid thesame price as any other person for exactly the same product. For very appropriatereasons of yield management this makes perfect sense to airlinesbut, unfortunately, not to the consumer.
The consumer finds this to be confusing andillogical. He perceives it to be unfair as well.
Also, the typical air traveler does notrelate the laws of supply and demand to air travel.
He subconsciously thinks of it like a taxior bus ride and expects his cost to be based just as it is on theseconveyances; i.e., on the distance traveled.
This, of course, is a major reason that the AIR TRAVEL MILE™ is soappealing.
28. What if anairline/issuing entity does not need capital?
This is a nice problem to have. An airline that does not needcapital may hold the capital received from the issuance of AIR TRAVEL MILE™ financialinstruments in either a collateral fund (if bonds were issued) or asimple corporate investment fund. It could then use this capital toearn ROI.
It could also use this fund to more easily providecredit to AIR TRAVELMILE™ customers per the credit benefit suggested as an integralpart of the instruments.
It may also find a need for the capital at alater date as its circumstances change.
29. What aboutother operational, “what-if?” issues?
This question refers to operational issues such asbroken flight segments, international/other-carrier connections,code share partners, diversions, indirect routings, no-shows, andcancellations etc.
The required solutions to these operational, “what-if?”issues will be determined by the issuing airline. Participatingtechnology providers (Amadeus, Galileo, Sabre, Worldspan, etc.)will need to be flexible and capable of providing several solutionsto each issue in order to accommodate their customer’sneeds.
30. Could ATM™ financial instrumentsbe used for a stock buy-back?
Yes. Depending on how they are issued, theycan be used as an attractive tool for a stock buy-back by swappingnewly issued AIR TRAVELMILE™ financial instruments for existing outstandingshares.
They could also be advantageously swappedfor debt instruments as well.
31. What is an “adjustable” ATM™ financialinstrument?
This refers to the ability of theissuing entity to “adjust” certain elements of the instrumentafter issuance if it constructs the initial instrument withthis intrinsic feature. These adjustments may take manyforms.
Under certain circumstances, thisadjustability feature may be advantageous for competitivereasons. It has notbeen shown in any of the example instruments presented herein inorder to keep them simple.
32. Is the ATM™ travel benefittaxable?
No. Not in the U.S., and probably not inmost other countries either.
While no official IRS opinion has been sought inthis matter, precedent would indicate that it is no more taxablethan other like benefits received by any business owner oremployee.
Neither is it any more taxable than the well knownand popular "Frequent Flyer Mile" benefit.
And, neither is it any more taxable than thebenefit one receives as the result of buying any product at a saleprice or a price lower than the original asking price.
Also, this benefit is not a gift or awindfall. It has beenbought and paid for and still requires its beneficiary to pay aprofitable amount for the purchase of the product.
No opinionhas been sought from other countries on this matter as it isfelt that the logic described above for the U.S will probably applyin most other countries also.
33. What wouldmost probably cause a sudden increase in the cost of an ATM™?
Fuel. Other than labor and general inflationary cost increases, the onefactor which can impact cost stability the most dramatically andthe most abruptly is the cost of fuel; however, even changes in thecost of fuel are generally gradual in nature.
34. How aretravel agents compensated when selling ATM™ fares?
Travel agent compensation when selling an AIR TRAVEL MILE™ fare isexactly the same as when selling any other fare and is predicatedon the existing agreement between the agent and the respectiveairline and/or client.
Said another way, when a travel agent's clientowns an AIR TRAVEL MILE™instrument and is utilizing his own instrument's travel benefits,if the agent books the flight for him, the agent is entitled to hisnormal compensation from the airline and/or client.
Additional compensation may come, however, whenthe agent owns an AIRTRAVEL MILE™ instrument.
In this instance, the agent may book aflight utilizing his instrument's travel benefits, pay theairline the normal AIRTRAVEL MILE™ fare, charge his client a premium above that fare,and also collect his normal compensation from the airline and/orclient.
35. How willhotels, car rental companies, etc. participate in the ATM™?
These businesses can purchase AIR TRAVEL MILE™ instruments andaward the travel benefits to their customers in a similar fashionto their purchasing of Frequent Flyer Miles for their customersnow.
Two advantages are, however, that thesebusinesses will now own a financial asset for their capitalspent and the business, or customer, will earn Frequent FlyerMiles after the AIR TRAVEL MILES™ are used.
36. Does theATM™ buck the trend byairlines to eliminate the middleman?
No. Recently, airlines have beenmoving more toward online sales and reservations as opposed tousing travel agents and other ancillary service providers. With proper identification,AIR TRAVEL MILE™ ticketsmay be bought online just like any other ticket, with no middlemaninvolved.
Securities broker dealers will be involved in thetrading of AIR TRAVELMILE™ financial instruments, however -- just as they do nowwith the airlines’ conventional, publicly traded securities -- butwill not be involved in ticket sales in any way.
37. May ATM™ benefits be used onall, some, or only one airline?
If a single airline issues the instrument, withoutcode share partners, travel benefit use will probably be on thatairline only.
If a single airline issues the instrument, withcode share partners, travel benefit use will be on that airline andpossibly its code share partners also.
If an airline alliance issues the instrument,travel benefit use will probably be on all members of thealliance.
If a travel service company (e.g., AmericanExpress) issues the instrument, travel benefit use will probably beon many airlines.
As the AIR TRAVEL MILE™ concept evolvesfurther, and as the product matures in the marketplace, a universaluse of the travel benefits may develop.
38. Will largecorporate entities receive better ATM™ benefits by buying inbulk?
Yes, probably. This will depend on the issuingairline, however.
Notdiscussed in this overview is the CORPORATE AIR TRAVEL MILE™financial instrument.
These instruments are specifically designed forlarge corporate and institutional customers. They can also be scaled down forsmaller entities as well.
Information on these instruments will be providedupon request to qualified enquirers.
39. May the underlying ATM™ concept be applied to otherproducts and services?
Yes. Its application isuniversal. It may beapplied to almost any product or service in any industry and may bestructured as a cost-plus, cost-minus, or price-minus system.
The AIRTRAVEL MILE™ is only one of many Consumer ParticipatingFinancial Instruments™ being developed by GEC.
40. Will the ATM™ andother CPFI™ financial instruments impact a usernation's economy?
Yes. Ultimately, they should helpstimulate, strengthen, and stabilize a user nation's economybecause:
· The underlying concept of the CPFI™,embodied in the ATM™, is applicable to many industries and willeventually be utilized by a substantive share of national andinternational commerce. This broad use of such apowerful, positive, new approach to certain commercial transactionscan’t help but favorably impact a usernation's economy.
· More capital will flow into the financialmarkets seeking consumer purchase benefits and investorinterest/dividend payments. As a result, less will flow tothe more volatile, capital-appreciation-onlyinvestments.
· These instruments/investments, by beingrelatively low risk, will tend to act like savings for theirowners, thereby raising a nation's savings rate and providingan improved financial safety cushion for that nation.
· They ensure an always-profitable transactionfor their participating producers, thereby helping stabilize andstrengthen their financial structure. This in turn benefits allstakeholders; i.e., shareholders/owners, employees, suppliers,consumers, and, in many instances their communities.
· They will provide much needed new capitalfor many entities. This can then be used to pay down debt and/or pay for other capitalexpenses. All of thiscapital will eventually flow back into their economies buildingmore business, creating more jobs, and furtherstimulating those economies.
· Cumulatively, stronger, healthier companiesstrengthen a nation's overall industrial base and,naturally, positively impact its economy. They also contribute more totheir respective taxing authorities, thereby relieving otherstrained tax sources and providing additional tax revenue.
· With an improved tax revenue picture forgovernment, more capital expenditures and infrastructureimprovements may be made. This further stimulates thatnation's economy.
Please contact GECdirectly to obtain detailed information about theAIR TRAVELMILE™ andthe licensing requirements for its use.
Patentpending
