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Frequent Fliers If You Think George Clooney's Character in the Movie Up

question 107

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Frequent Fliers
If you think George Clooney's character in the movie Up in the Air was pure fiction,think again.Clooney portrayed a frequent flier who enjoyed top-of-the-line perks the likes of which even most "elite" fliers don't experience.That's because he was a member of American Airline's invitation-only ConciergeKey recognition program.Most airlines maintain these unpublished super elite frequent-flier plans,such as Continental's Chairman's Circle and Delta's Executive Partner programs.These programs are reserved for the highest-volume customers in terms of miles flown or highest-value in terms of revenue.You'll have to fly upwards of 300,000 miles or spend $50,000 a year to be invited.
-Refer to Frequent Fliers.Airlines have estimated the future value of these elite fliers and found that they are very profitable for their business.What technique did the airlines use to project the future value of these fliers over a period of several years?

Definitions:

Normal Rate Of Return

The average or expected return on investment in a normal market condition, often considered the minimum acceptable compensation for investment risk.

Depreciating Capital

Assets that lose value over time due to wear and tear or obsolescence.

Normal Rate Of Return

The average or expected return on an investment or project, often considered the minimum acceptable return given the risk involved.

Rental Car Industry

A sector of the transportation industry that offers vehicles for hire on a short term basis, typically ranging from a few hours to several weeks.