Alaska Airlines and Horizon Air 2013 Annual Report Download - page 148

estimated useful life of the software, generally
three to five years. Capitalized costs primarily
include contract labor and payroll costs of the
individuals dedicated to the development of
internal-use software.
Deferred Revenue
Deferred revenue results primarily from the sale
of Mileage Plan miles to third-parties. 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 $15 million and $2 million as
of December 31, 2013 and December 31, 2012,
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. Air traffic liability includes
approximately $26 million and $26 million
related to travel credits for future travel, as of
December 31, 2013 and December 31, 2012,
respectively. These credits are recognized into
revenue either when the passenger travels or the
date of expiration, which is twelve months from
issuance. Commissions to travel agents 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. Taxes
collected from passengers, including
transportation excise taxes, airport and security
fees and other fees, are recorded on a net basis
within passenger revenue in the consolidated
statements of operations. 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 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. Other—net also includes certain ancillary
or non-ticket revenues, such as checked-bag
fees, reservations fees, ticket change fees, on-
board food and beverage sales, and to a much
lesser extent commissions from car and hotel
vendors, and from the sales of travel
insurance. These items are recognized as
revenue when the related services are
provided. Boardroom (airport lounge)
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 award travel is recognized as a selling
expense and accrued as a liability as miles are
earned and accumulated.
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