Delta Airlines 2015 Annual Report Download - page 44

TableofContents
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SkyMilesProgramoffersincentivestotravelonDelta.ThisprogramallowscustomerstoearnmileagecreditsbyflyingonDelta,DeltaConnection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whenthecreditsareearned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$48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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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(discussedbelow).Theincreasedvaluereceivedundertheamendedagreementsincreasestheamountofdeferred
revenueforthetravelcomponentandincreases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,which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,discounted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.
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