Alaska Airlines and Horizon Air 2014 Annual Report Download - page 155

recoverable. The Company groups assets for purposes of such reviews at the lowest level for which
identifiable cash flows of the asset group are largely independent of the cash flows of other groups of
assets and liabilities. An impairment loss is considered when estimated future undiscounted cash flows
expected to result from the use of the asset or asset group and its eventual disposition are less than
its carrying amount. If the asset or asset group is not considered recoverable, a write-down equal to the
excess of the carrying amount over the fair value will be recorded.
Internally Used Software Costs
The Company capitalizes costs to develop internal-use software that are incurred in the application
development stage. Amortization commences when the software is ready for its intended use and the
amortization period is the 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 $1 million and $15 million as of December 31,
2014 and December 31, 2013, 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
$33 million and $26 million related to travel credits for future travel, as of December 31, 2014 and
December 31, 2013, 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,
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ŠForm 10-K