Delta Airlines 2015 Annual Report Download - page 69

TableofContents
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.
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discountedaccesstoDeltaSkyClub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.
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.
Werecognizerevenueaswedelivereachsaleselement.Wedeferthetraveldeliverable(mileagecredits)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.
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