Alaska Airlines and Horizon Air 2009 Annual Report Download - page 164

Workers Compensation and Employee
Health-Care Accruals
The Company uses a combination of self-
insurance and insurance programs to provide for
workers compensation claims and employee
health care benefits. Liabilities associated with
the risks that are retained by the Company are
not discounted and are estimated, in part, by
considering historical claims experience, severity
factors and other actuarial assumptions. The
estimated accruals for these liabilities could be
significantly affected if future occurrences and
claims differ from these assumptions and
historical trends.
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 agreement.
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 when it is probable that a
cash payment will be made and that amount is
reasonably estimable. Any 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 $9.2 million and $14.2
million as of December 31, 2009 and
December 31, 2008, respectively.
Revenue Recognition
Passenger revenue is recognized when the
passenger travels. Tickets sold but not yet used
are reported as air traffic liability until travel or
date of expiration. 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.
Passenger revenue also includes certain
“ancillary” or non-ticket revenue such as
reservations fees, ticket change fees, and
baggage service charges. These fees are
recognized as revenue when the related services
are provided.
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. Other—net also includes certain ancillary
revenues such as on-board food and beverage
sales, commissions from car and hotel vendors,
travel insurance commissions. These items are
recognized as revenue when the services are
provided. Boardroom (airport lounges)
memberships are recognized as revenue over the
membership period.
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 or Horizon and
through 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.
68