Delta Airlines 2014 Annual Report Download - page 66

Passenger Tickets
We record sales of passenger tickets in air traffic liability. 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.
Passenger 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 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 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.
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. 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.
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