Delta Airlines 2014 Annual Report Download - page 44

Other Obligations. Represents estimated purchase obligations under which we are required to make minimum payments for goods and services,
including, but not limited to, insurance, marketing, maintenance, technology, sponsorships and other third-party services and products.
Critical Accounting Policies and Estimates
Our critical accounting policies and estimates are those that require significant judgments and estimates. Accordingly, the actual results may differ
materially from these estimates. For a discussion of these and other accounting policies, see Note 1 of the Notes to the Consolidated Financial
Statements.
Frequent Flyer Program
Our frequent flyer program (the “SkyMiles Program”) offers incentives to 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 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 sell mileage credits to non-airline businesses,
customers and other airlines. Effective January 1, 2015, the SkyMiles program was modified from a model in which customers earn redeemable
mileage credits based on distance traveled to a model based on ticket price. This award change did not affect the way we account for the program.
The SkyMiles Program includes two types of transactions that are considered revenue arrangements with multiple deliverables. As discussed
below, these are (1) passenger ticket sales earning mileage credits and (2) the sale of mileage credits to participating companies with which we have
marketing agreements. Mileage credits are a separate unit of accounting as they can be redeemed by customers in future periods for air travel on Delta
and participating airlines, membership in our Sky Club and other program awards.
Passenger Ticket Sales Earning Mileage Credits. Passenger ticket sales earning mileage credits under our SkyMiles Program provide customers
with two deliverables: (1) mileage credits earned and (2) air transportation. We value each deliverable on a standalone basis. Our estimate of the
selling price of a mileage credit is based on an analysis of our sales of mileage credits to other airlines and customers, which is re-evaluated at least
annually. We use established ticket prices to determine the estimated selling price of air transportation. We allocate the total amount collected from
passenger ticket sales between the deliverables based on their relative selling prices.
We defer revenue for the mileage credits related to passenger ticket sales and recognize it as passenger revenue when miles are redeemed and
services are provided. We record the air transportation portion of the passenger ticket sales in air traffic liability and recognize these amounts in
passenger revenue when we provide transportation or when the ticket expires unused. A hypothetical 10% increase in our estimate of the standalone
selling price of a mileage credit would decrease passenger revenue by approximately $53 million, as a result of an increase in the amount of revenue
deferred from the mileage component of passenger ticket sales.
Sale of Mileage Credits. Customers may earn mileage credits through participating companies such as credit card companies, hotels and car rental
agencies with which we have marketing agreements to sell mileage credits. Our contracts to sell mileage credits under these marketing agreements
have multiple deliverables, as defined below.
Our most significant contract to sell mileage credits relates to our co-brand credit card relationship with American Express. In December 2014, we
amended our marketing agreements with American Express which increased the value we will receive under the agreements and extended the term to
2022. The amended agreements became effective January 1, 2015. The deliverables under the amended agreements are substantially similar to the
previous agreement. We will account for the amended agreements consistent with the accounting method adopted in September 2013 that allocates the
consideration received to the individual products and services delivered based on their relative selling prices. The increased value received under the
amended agreements will increase the amount of deferred revenue for the travel component and increase the value of the other deliverables, which are
recognized in other revenue as they are provided.
39