Delta Airlines 2012 Annual Report Download - page 78

NOTE 7 . AMERICAN EXPRESS RELATIONSHIP
General. Our agreements with American Express provide for joint marketing, grant certain benefits to Delta-American Express co-branded credit
card holders ("Cardholders") and American Express Membership Rewards Program participants and allow American Express to market using our
customer database. Cardholders earn mileage credits for making purchases on their co-branded cards, may check their first bag for free on every
Delta flight and enjoy other benefits while traveling with Delta. Additionally, participants in the American Express Membership Rewards program
may exchange their points for mileage credits under the SkyMiles Program. As a result, we sell mileage credits at agreed upon rates to American
Express for provision to their customers under the co-brand credit card program and the Membership Rewards program.
Advance Purchase of Restricted SkyMiles. In 2008, we entered into a multi-year extension of our American Express agreements and received
$1.0
billion from American Express for an advance purchase of Restricted SkyMiles (the "prepayment"). The 2008 agreement provided that our
obligations with respect to the advance purchase would be satisfied as American Express uses the purchased miles over a specified future period
(“SkyMiles Usage Period”), rather than by cash payments from us to American Express. Due to the SkyMiles Usage Period and other restrictions
placed upon American Express regarding the timing and use of the SkyMiles, we classified the $1.0 billion prepayment we received as long-term
debt.
In 2010, we amended our 2008 American Express agreement. The amendments, among other things, (1) provide that Cardholders may check their
first bag for free on every Delta flight through June 2013 ("Baggage Fee Waiver Period"), (2) changed the SkyMiles Usage Period to a three-year
period beginning in the December 2011 quarter from a two-year period beginning in December 2010 quarter and (3) gave American Express the
option to extend our agreements with them for one year.
During the SkyMiles Usage Period, American Express draws down on the prepayment instead of paying cash to Delta for SkyMiles used. As of
December 31, 2012 , $619 million of the original $1.0 billion debt (or prepayment) remained, including $333 million which is classified in current
maturities of long-term debt and capital leases. As SkyMiles are used by American Express, we recognize the two separate revenue components of
these SkyMiles consistent with our accounting policy discussed in Note 1 . We defer revenue related to the portion of the mileage credits redeemable
for future travel and recognize it as passenger revenue when miles are redeemed and services are provided. The value of the marketing component is
determined under the residual method and recognized as other revenue as related marketing services are provided.
Annual Sale of Unrestricted SkyMiles. In December 2011, we amended our American Express agreements and sold American Express $675
million of unrestricted SkyMiles in both 2011 and 2012. Under the December 2011 amendment, we anticipate American Express will make
additional purchases of $675 million of unrestricted SkyMiles in both 2013 and 2014. The December 2011 amendment also extends the Baggage Fee
Waiver Period. The SkyMiles purchased pursuant to the December 2011 amendment may be used immediately by American Express. The usage of
these SkyMiles is not restricted in any way. These annual purchases of SkyMiles are recorded as deferred revenue within current liabilities. The
portion of each purchase of SkyMiles related to mileage credits redeemable for future travel will be classified within frequent flyer deferred revenue
and the portion related to the marketing component will be classified within other accrued liabilities.
The December 2011 amendment does not change the number of miles that we expect American Express to purchase from us over the next four
years. It only impacts the timing of those purchases. The December 2011 amendment did not make any significant changes to the deliverables (the
mileage credits sold and the marketing component). Therefore, it is not a material modification of the American Express agreements under the
accounting guidance. A future material modification of the American Express agreements could impact our deferral rate or cause an adjustment to
our deferred revenue balance, which could materially impact our future financial results. For additional information, see "Frequent Flyer Program" in
Note 1
.
Fuel Card Obligation . In December 2011, we obtained a purchasing card with American Express for the purpose of buying jet fuel and crude oil.
The card currently carries a maximum credit limit of $612 million and must be paid monthly. As of December 31, 2012 , we had $455 million
outstanding on this purchasing card, which was classified as fuel card obligation.
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