Delta Airlines 2014 Annual Report Download - page 67

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.
In September 2013, we modified our marketing agreements with American Express that required us to change the accounting method for recording
SkyMiles sold. Under the previous method, the embedded premium or discount was allocated to the residual products or services in a combined
transaction. The new method allocates consideration received based on the relative selling price of each product or service. We determined our best
estimate of the selling prices by considering discounted cash flow analysis using multiple inputs and assumptions, including: (1) the expected number
of miles awarded and number of miles redeemed, (2) the rate at which we sell mileage credits to other airlines, (3) published rates on our website for
baggage fees, access to Delta Sky Club lounges and other benefits while traveling on Delta and (4) brand value. The impact of adopting the relative
selling price method re-allocated a portion of the embedded discount to the travel component, lowering the deferral rate we use to record miles sold
under the agreements and increasing revenue recognized on the remaining deliverables.
We recognize revenue as we deliver each sales element. We defer the travel deliverable (miles) as part of frequent flyer deferred revenue and
recognize passenger revenue as the mileage credits are used for travel. The revenue allocated to the remaining deliverables is recorded in other
revenue. We recognize the revenue for these services as they are performed.
Breakage. For mileage credits that 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. Management uses statistical models to estimate breakage 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.
Regional Carriers Revenue
We have contract carrier agreements with third-party regional carriers ("Contract Carriers"), in addition to our wholly-owned subsidiary, Endeavor.
In May 2013, Endeavor emerged from bankruptcy and we became its sole owner pursuant to a confirmed plan of reorganization. Our wholly-owned
subsidiary, Comair, Inc. ("Comair") ceased operations in September 2012 (see Note 17 ).
Our Contract Carrier agreements are structured as either (1) capacity purchase agreements where we purchase all or a portion of the Contract
Carrier's capacity and are responsible for selling the seat inventory we purchase or (2) revenue proration agreements, which are based on a fixed dollar
or percentage division of revenues for tickets sold to passengers traveling on connecting flight itineraries. We record revenue related to all of our
Contract Carrier agreements as regional carriers passenger revenue. We record expenses related to our Contract Carrier agreements, as regional carrier
expense.
Cargo Revenue
Cargo revenue is recognized when we provide the transportation.
Other Revenue
Other revenue is primarily comprised of (1) the non-travel components of the sale of mileage credits discussed above, (2) baggage fee revenue, (3)
other miscellaneous service revenue, including ticket change fees, (4) revenue from ancillary businesses, such as the aircraft maintenance and repair
and staffing services we provide to third parties and (5) the sale of certain non-jet fuel products by our refinery to third parties.
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