US Airways 2007 Annual Report Download - page 63

Table of Contents
could differ from those estimates. Critical accounting policies are defined as those that are reflective of significant judgments and
uncertainties and potentially result in materially different results under different assumptions and conditions. We have identified the
following critical accounting policies that impact the preparation of our consolidated financial statements. See also the summary of
significant accounting policies included in the notes to the financial statements under Items 8A and 8B of this Form 10-K for additional
discussion of the application of these estimates and other accounting policies.
Passenger Revenue
Passenger revenue is recognized when transportation is provided. Ticket sales for transportation that has not yet been provided are
initially deferred and recorded as air traffic liability on the balance sheet. The air traffic liability represents tickets sold for future travel
dates and estimated future refunds and exchanges of tickets sold for past travel dates. The balance in the air traffic liability fluctuates
throughout the year based on seasonal travel patterns and fare sale activity. Our air traffic liability was $832 million and $847 million as
of December 31, 2007 and 2006, respectively.
The majority of our tickets sold are nonrefundable. Tickets that are sold but not flown on the travel date may be reused for another
flight, up to a year from the date of sale, or refunded, if the ticket is refundable, after taking into account any cancellation penalties or
change fees. A small percentage of tickets, some of which are partially used tickets, expire unused. Due to complex pricing structures,
refund and exchange policies, and interline agreements with other airlines, certain amounts are recognized in revenue using estimates
regarding both the timing of the revenue recognition and the amount of revenue to be recognized. These estimates are generally based on
the analysis of our historical data. We routinely evaluate estimated future refunds and exchanges included in the air traffic liability based
on subsequent activity to validate the accuracy of our estimates. Holding other factors constant, a 10% change in our estimate of the
amount refunded, exchanged or forfeited for 2007 would result in a $38 million change in our passenger revenue, which represents less
than 1% of our passenger revenue.
Passenger traffic commissions and related fees are expensed when the related revenue is recognized. Passenger traffic commissions
and related fees not yet recognized are included as a prepaid expense.
Impairment of Goodwill
SFAS No. 142, "Goodwill and Other Intangible Assets," requires that goodwill be tested for impairment at the reporting unit level
on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair
value of the reporting unit below its carrying value. We believe that this accounting estimate is a critical accounting estimate because:
(1) goodwill is a significant asset and (2) the impact that recognizing an impairment would have on the asset reported on the consolidated
balance sheets, as well as the consolidated statement of operations, could be material.
We assess the fair value of the reporting unit considering both the income approach and market approach. Under the market
approach, the fair value of the reporting unit is based on quoted market prices and the number of shares outstanding for US Airways
Group common stock. Under the income approach, the fair value of the reporting unit is based on the present value of estimated future
cash flows. The income approach is dependent on a number of factors including estimates of future market growth trends, forecasted
revenues and expenses, expected periods the assets will be utilized, appropriate discount rates and other variables. We base our estimates
on assumptions that we believe to be reasonable, but which are unpredictable and inherently uncertain. Changes in these estimates and
assumptions could materially affect the determination of fair value and/or goodwill impairment. Actual future results may differ from
those estimates.
At December 31, 2007, goodwill represents the purchase price in excess of the net amount assigned to assets acquired and liabilities
assumed by America West Holdings on September 27, 2005. We tested goodwill for impairment during the fourth quarter of 2007. At
that time, we concluded that the fair value of the reporting unit was in excess of the carrying value. We will perform our next annual
impairment test on October 1, 2008.
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