Alaska Airlines and Horizon Air 2013 Annual Report Download - page 151

and accumulated. For miles earned based on
spend, the Company defers a portion of the
amount sold to our non-airline partners
representing deferred travel, and recognizes
revenue for the services provided to the non-
airline partners during the period.
Historically, the Company deferred the portion of
the sales proceeds that represented the
estimated selling price of the award transportation
by looking to the sales prices of comparable paid
travel and recognized that amount as Passenger
Revenue when the award transportation was
provided by Alaska or as Other—net revenue
when the awards were redeemed and flown on
other airlines. The residual portion of the sales
proceeds not deferred was recognized as revenue
in the period that the miles were sold and
included in Other—net revenue.
On July 2, 2013, the Company modified its
Affinity Card Agreement (Agreement) with Bank of
America Corporation (BAC), through which the
Company sells miles and other items to BAC and
the Company's loyalty program members accrue
frequent flyer miles based on purchases using
credit cards issued by BAC. The Agreement
materially modifies the previously existing
agreement between BAC and Alaska. As a result
of the execution of the Agreement, consideration
received as part of this agreement is subject to
Accounting Standards Update 2009-13,
"Multiple-Deliverable Revenue Arrangements - a
consensus of the FASB Emerging Issues Task
Force" (ASU 2009-13).
The modified Agreement has the same four
deliverables as the previous agreement which are:
award transportation; certificates for discounted
companion travel; use of the Alaska Airlines brand
and access to frequent flyer member lists; and
advertising. Under the previous residual method
of accounting, sales consideration was allocated
to: award transportation and all other
deliverables. Upon the adoption of ASU 2009-13,
consideration is being allocated to each of the
four deliverables based on the relative selling
price of each deliverable.
Significant management judgment was used to
estimate the selling price of each of the
deliverables. The objective was to determine the
price at which we would transact a sale if the
product or service was sold on a stand-alone
basis. We determined our best estimate of
selling price by considering multiple inputs and
methods including, but not limited to, the
estimated selling price of comparable travel,
discounted cash flows, brand value, published
selling prices, number of miles awarded and the
number of miles redeemed. The Company
estimated the selling prices and volumes over
the term of the Agreement in order to determine
the allocation of proceeds to each of the multiple
deliverables.
The Company records passenger revenue related
to air transportation and certificates for discounted
companion travel when the transportation is
delivered. The other elements are recognized as
Other - net revenue when earned.
Absent a new or material modification to an
existing agreement, other non-airline partners
who participate in the loyalty program to which
we sell miles remain subject to our historical
residual accounting method and are immaterial
to the overall program.
Special mileage plan revenue
The Company followed the rollforward transition
approach of ASU 2009-13, which required that
the Company's existing deferred revenue balance
be adjusted to reflect the value, on a relative
selling price basis, of any undelivered element
remaining at the date of contract modification as
if the Company had been applying ASU 2009-13
since inception of the Agreement. The relative
selling price of the undelivered element (air
transportation) is lower than the rate at which it
had been deferred under the previous contract
and the Company recorded a one-time, non-cash
adjustment to decrease frequent flyer deferred
revenue and increase Special mileage plan
revenue. The impact on earnings are as follows:
2013 2012 2011
Special mileage plan revenue
(in millions) ............. $192 $— $—
Per basic share ........... $1.72 $— $—
Per diluted share .......... $1.70 $— $—
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ŠForm 10-K