Delta Airlines 2010 Annual Report Download - page 57

Table of Contents
The hedge margin we receive from counterparties is recorded in cash and cash equivalents or restricted cash, cash equivalents and short-term investments,
with the offsetting obligation in accounts payable on our Consolidated Balance Sheets. The hedge margin we provide to counterparties is recorded in accounts
receivable or restricted cash, cash equivalents and short-term investments on our Consolidated Balance Sheets. All cash flows associated with purchasing and
settling fuel hedge contracts are classified as operating cash flows on our Consolidated Statements of Cash Flow.
Revenue Recognition
Passenger Revenue
Passenger Tickets. We record sales of passenger tickets in air traffic liability on our Consolidated Balance Sheets. Passenger revenue is recognized when
we provide transportation or when the ticket expires unused, reducing the related air traffic liability. We periodically evaluate the estimated air traffic liability
and record any adjustments in our Consolidated Statements of Operations. These adjustments relate primarily to refunds, exchanges, transactions with other
airlines and other items for which final settlement occurs in periods subsequent to the sale of the related tickets at amounts other than the original sales price.
Taxes and Fees. We are required to charge certain taxes and fees on our passenger tickets, including U.S. federal transportation taxes, federal security
charges, airport passenger facility charges and foreign arrival and departure taxes. These taxes and fees are legal assessments on the customer for which we
act as a collection agent. Because we are not entitled to retain these taxes and fees, we do not include such amounts in passenger revenue. We record a liability
when the amounts are collected and reduce the liability when payments are made to the applicable government agency or operating carrier.
Frequent Flyer Programs. The SkyMiles Program offers incentives to increase travel on Delta. This program allows customers to earn mileage credits by
flying on Delta, regional air carriers with which we have contract carrier agreements ("Contract Carriers") and airlines that participate in the SkyMiles
Program, as well as through participating companies such as credit card companies, hotels and car rental agencies. We also sell mileage credits to non-airline
businesses, customers and other airlines. Mileage credits can be redeemed for air travel on Delta and participating airlines, membership in our Sky Club and
other program awards.
In the Merger, we assumed Northwest's frequent flyer program (the "WorldPerks Program"). In October 2009, we completed the consolidation of the
SkyMiles and WorldPerks Programs, which combined miles from each program at a one-to-one ratio.
We use the residual method for revenue recognition of mileage credits. The fair value of the mileage credit component is determined based on prices at
which we sell mileage credits to other airlines, $0.0054 per mile at December 31, 2010, and is re-evaluated at least annually. Under the residual method, the
portion of the revenue from the sale of mileage credits and the mileage component of passenger ticket sales that approximates fair value is deferred and
recognized as passenger revenue when miles are redeemed and services are provided. The portion of the revenue received in excess of the fair value of
mileage credits sold (the "Marketing Premium") is recognized in income when the related marketing services are provided and classified as other revenue. For
additional information, see "Recent Accounting Standards".
For mileage credits which we estimate are not likely to be redeemed ("Breakage"), we recognize the associated value proportionally during the period in
which the remaining mileage credits are expected to be redeemed. The estimate of Breakage is based on historical redemption patterns. A change in
assumptions as to the period over which mileage credits are expected to be redeemed, the actual redemption activity for mileage credits or the estimated fair
value of mileage credits expected to be redeemed could have a material impact on our revenue in the year in which the change occurs and in future years.
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