Southwest Airlines 1998 Annual Report Download - page 46

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46
SOUTHWEST AIRLINES CO. ¤ SIX STORIES OF FREEDOM
AIRCRAFT AND ENGINE MAINTENANCE The cost of engine overhauls and routine
maintenance costs for aircraft and engines are charged to maintenance expense as
incurred. Scheduled airframe overhaul costs are capitalized and amortized over the
estimated period benefited, presently the lesser of ten years or the remaining life of the
aircraft. Modifications that significantly enhance the operating performance or extend
the useful lives of aircraft or engines are capitalized and amortized over the remaining
life of the asset.
REVENUE RECOGNITION Passenger revenue is recognized when transportation is
provided. Tickets sold but not yet used are included in “Air traffic liability,” which
includes estimates that are evaluated and adjusted periodically. Any adjustments
resulting therefrom are included in results of operations for the periods in which the
evaluations are completed.
FREQUENT FLYER PROGRAM The Company accrues the estimated incremental
cost of providing free travel awards earned under its Rapid Rewards frequent flyer
program. The Company also sells flight segment credits to companies participating in
its Rapid Rewards frequent flyer program. The revenue from the sale of flight segment
credits is recognized when the credits are sold.
ADVERTISING The Company expenses the costs of advertising as incurred.
Advertising expense for the years ended December 31, 1998, 1997, and 1996 was
$119,739,000, $112,961,000, and $109,136,000, respectively.
STOCK-BASED EMPLOYEE COMPENSATION Pursuant to Statement of Financial
Accounting Standards No. 123 (SFAS 123), Accounting for Stock-Based
Compensation, the Company accounts for stock-based compensation plans utilizing
the provisions of Accounting Principles Board Opinion No. 25 (APB 25), Accounting for
Stock Issued to Employees and related Interpretations.