Delta Airlines 2013 Annual Report Download - page 80

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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 using co-branded cards, may check their first bag for free,
are granted access to Delta SkyClub lounges and receive other benefits while traveling on Delta. These benefits that we provide in the form of
separate products and services under the SkyMiles agreements are referred to as "deliverables." 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.
During 2013, we amended our agreements with American Express that modified the products and services provided under the agreements.
The amendments changed certain mileage award redemptions, access to SkyClubs, among other things. For a description of how these
amendments changed our accounting, please see Note 1 under Frequent Flyer 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) provided that Cardholders could
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 was drawing down on the prepayment instead of paying cash to Delta for SkyMiles
used. As SkyMiles are used by American Express, we recognized the two separate revenue components of these SkyMiles consistent with our
accounting policy discussed in Note 1
. In December 2013, we and American Express amended this agreement to allow American Express to use
these SkyMiles immediately and without restriction. As a result, in the December 2013 quarter, the remaining $285 million of the original $1.0
billion pre-payment was classified as frequent flyer deferred revenue with a portion related to the marketing component recorded within other
accrued liabilities.
Annual Sale of Unrestricted SkyMiles. In December 2011, we amended our American Express agreements to sell to American Express $675
million of unrestricted SkyMiles in each of the four years ending 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 are classified within frequent flyer deferred revenue
and the portion related to the marketing component are 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 four year period; it only impacts the timing of those
purchases.
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. At December 31, 2013 and
December 31, 2012 , we had $602 million and $455 million , respectively, outstanding on this purchasing card, which was classified as fuel card
obligation.
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