Alaska Airlines and Horizon Air 2007 Annual Report Download - page 173

Deferred Revenue
Deferred revenue results primarily from the sale
of mileage credits. This revenue is recognized
when award transportation is provided or over
the term of the applicable agreements.
Operating Leases
The Company leases aircraft, airport and
terminal facilities, office space, and other
equipment under operating leases. Some of
these lease agreements contain rent escalation
clauses or rent holidays. For scheduled rent
escalation clauses during the lease terms or for
rental payments commencing at a date other
than the date of initial occupancy, the Company
records minimum rental expenses on a straight-
line basis over the terms of the leases in the
consolidated statements of operations.
Leased Aircraft Return Costs
Cash payments associated with returning leased
aircraft are accrued beginning immediately after
the last heavy maintenance visit prior to the
scheduled aircraft return date. This accrual is
based on the time remaining on the lease,
planned aircraft usage and the provisions
included in the lease agreement, although the
actual amount due to any lessor upon return will
not be known with certainty until lease
termination.
As leased aircraft are returned, any payments
are charged against the established accrual. The
accrual is part of other current and long-term
liabilities, and was $6.9 million and $9.2 million
as of December 31, 2007 and December 31,
2006, respectively. There have been no material
changes in our estimate of leased aircraft return
costs during 2007
Revenue Recognition
Passenger revenue is recognized when the
passenger travels. Tickets sold but not yet used
are reported as air traffic liability. Passenger
traffic commissions and related fees are
expensed when the related revenue is
recognized. Passenger traffic commissions and
related fees not yet recognized are included as a
prepaid expense. Due to complex pricing
structures, refund and exchange policies, and
interline agreements with other airlines, certain
amounts are recognized as revenue using
estimates regarding both the timing of the
revenue recognition and the amount of revenue
to be recognized. These estimates are generally
based on the Company’s historical data.
Freight and mail revenues are recognized when
service is provided. Other-net revenues are
primarily related to the Mileage Plan and they are
recognized as described in the “Mileage Plan”
paragraph below.
Mileage Plan
Alaska operates a frequent flyer program
(“Mileage Plan”) that provides travel awards to
members based on accumulated mileage. For
miles earned by flying on Alaska, Horizon and
other airline partners, the estimated cost of
providing free travel awards is recognized as a
selling expense and accrued as a liability as miles
are earned and accumulated. Alaska also sells
mileage credits to non-airline partners such as
hotels, car rental agencies, a grocery store chain,
and a major bank that offers Alaska Airlines
affinity credit cards. The Company defers the
portion of the sales proceeds that represents the
estimated fair value of the award transportation
and recognizes that amount as revenue when the
award transportation is provided. The deferred
proceeds are recognized as passenger revenue
for awards redeemed and flown on Alaska or
Horizon, and as other-net revenue for awards
redeemed and flown on other airlines. The portion
of the sales proceeds not deferred is recognized
as commission income and included in other
revenue-net in the consolidated statements of
operations. Alaska’s Mileage Plan deferred
revenue and liabilities are included under the
following consolidated balance sheet captions at
December 31 (in millions):
Balance Sheet Captions 2007 2006
Current Liabilities:
Other accrued
liabilities ........... $239.7 $196.6
Other Liabilities and Credits:
Deferred revenue ...... 387.8 328.3
Other liabilities ........ 21.0 20.7
Total ................ $648.5 $545.6
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ŠForm 10-K