Alaska Airlines and Horizon Air 2013 Annual Report Download - page 149

Alaska also sells miles to non-airline partners, such
as hotels, car rental agencies, and a major bank
that offers Alaska Airlines affinity credit cards. The
Company defers passenger revenue related to air
transportation and certificates for discounted
companion travel until the transportation is
delivered. 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 (less
the cost paid to the other airlines based on
contractual agreements). For the portion of the sold
miles that represent use of the Alaska Airlines
brand and access to frequent flyer member lists
and advertising, it is recognized as commission
income in the period that the mileage credits are
sold and included in Other—net revenue in the
consolidated statements of operations.
Alaska’s Mileage Plan deferred revenue and
liabilities on the consolidated balance sheets as
of December 31 (in millions):
2013 2012
Current Liabilities:
Other accrued liabilities .... $314 $285
Other Liabilities and Credits:
Deferred revenue ......... 323 428
Other liabilities ........... 19 17
Total ................... $656 $730
The amounts recorded in other accrued liabilities
relate primarily to deferred revenue expected to
be realized within one year, which includes
Mileage Plan awards that have been issued but
not yet flown for $31 million and $39 million at
December 31, 2013 and 2012, respectively.
Alaska’s Mileage Plan revenue included in the
consolidated statements of operations for the
years ended December 31 (in millions):
2013 2012 2011
Passenger revenues ..... $208 $183 $201
Other-net revenues ...... 256 209 195
Special mileage plan
revenue (a) ........... $192 $— $—
Total Mileage
Plan revenues ..... $656 $392 $396
(a) Refer to Note 2 for further information.
Other—net revenues includes commission
revenue of $213 million, $143 million, and $138
million in 2013, 2012, and 2011, respectively.
Selling Expenses
Selling expenses include credit card fees, global
distribution systems charges, the estimated cost
of Mileage Plan travel awards earned through air
travel, advertising, promotional costs,
commissions, and incentives. Advertising
production costs are expensed the first time the
advertising takes place. Advertising expense was
$28 million, $26 million, and $24 million during
the years ended December 31, 2013, 2012, and
2011, respectively.
Derivative Financial Instruments
The Company's operations are significantly
impacted by changes in aircraft fuel prices and
interest rates. In an effort to manage our
exposure to these risks, the Company
periodically enters into fuel and interest rate
derivative instruments. These derivative
instruments are recognized at fair value on the
balance sheet and changes in the fair value is
recognized in AOCL or in the consolidated
statements of operations, depending on the
nature of the instrument.
The Company does not hold or issue derivative
fuel hedge contracts for trading purposes and
does not apply hedge accounting. For cash flow
hedges related to our interest rate swaps, the
effective portion of the derivative represents the
change in fair value of the hedge that offsets the
change in fair value of the hedged item. To the
extent the change in the fair value of the hedge
does not perfectly offset the change in the fair
value of the hedged item, the ineffective portion
of the hedge is immediately recognized in
interest expense.
Fair Value Measurements
Accounting standards define fair value as the
exchange price that would be received for an
asset or paid to transfer a liability (an exit price)
in the principal or most advantageous market for
the asset or liability in an orderly transaction
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ŠForm 10-K