US Airways 2007 Annual Report Download - page 64

Table of Contents
Impairment of Long-lived Assets and Intangible Assets
We assess the impairment of long-lived assets and intangible assets whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. In addition, our international route authorities and trademark intangible assets are classified as
indefinite lived assets and are reviewed for impairment annually. Factors which could trigger an impairment review include the
following: significant changes in the manner of use of the assets; significant underperformance relative to historical or projected future
operating results; or significant negative industry or economic trends. An impairment has occurred when the future undiscounted cash
flows estimated to be generated by those assets are less than the carrying amount of those items. Cash flow estimates are based on
historical results adjusted to reflect management's best estimate of future market and operating conditions. The net carrying value of
assets not recoverable is reduced to fair value. Estimates of fair value represent management's best estimate based on appraisals, industry
trends and reference to market rates and transactions. Changes in industry capacity and demand for air transportation can significantly
impact the fair value of aircraft and related assets. International route authorities and trademarks were tested for impairment during the
fourth quarter of 2007, at which time we concluded that no impairment exists. We will perform our next annual impairment test on
October 1, 2008.
Frequent Traveler Programs
The Dividend Miles frequent traveler program awards miles to passengers who fly on US Airways, US Airways Shuttle, US
Airways Express, Star Alliance carriers and certain other airlines that participate in the program. We use the incremental cost method to
account for the portion of our frequent flyer liability incurred when Dividend Miles members earn mileage credits. We have an obligation
to provide this future travel and have therefore recognized an expense and recorded a liability for mileage awards. Outstanding miles may
be redeemed for travel on any airline that participates in the program, in which case we pay a designated amount to the transporting
carrier.
Members may not reach the threshold necessary for a free ticket and outstanding miles may not be redeemed for free travel.
Therefore, in calculating the liability we estimate how many miles will never be used for an award and exclude those miles from the
estimate of the liability. Estimates are also made for the number of miles that will be used per award and the number of awards that will
be redeemed on partner airlines. These estimates are based on past customer behavior. Estimated future travel awards for travel on US
Airways are valued at the combined estimated average incremental cost of carrying one additional passenger. Incremental costs include
unit costs for passenger food, beverages and supplies, credit card fees, fuel, insurance and denied boarding compensation. No profit or
overhead margin is included in the accrual for incremental costs. For travel awards on partner airlines, the liability is based upon the gross
payment to be paid to the other airline for redemption on the other airline. A change to these cost estimates, actual redemption activity or
award redemption level could have a material impact on the liability in the year of change as well as future years. Incremental changes in
the liability resulting from participants earning or redeeming mileage credits or changes in assumptions used for the related calculations
are recorded in the statement of operations as part of the regular review process. At December 31, 2007, we have assumed 10% of our
future travel awards accrued will be redeemed on partner airlines. A 1% increase or decrease in the percentage of awards redeemed on
partner airlines would have an $8 million impact on the liability as of December 31, 2007.
As of December 31, 2007, Dividend Miles members had accumulated mileage credits for approximately 3.1 million awards. The
liability for the future travel awards accrued on our balance sheet within other accrued liabilities was $161 million as of December 31,
2007. The number of awards redeemed for free travel during the year ended December 31, 2007 was approximately 0.9 million,
representing approximately 4% of US Airways' RPMs during that period. The use of certain inventory management techniques minimizes
the displacement of revenue passengers by passengers traveling on award tickets.
On January 31, 2007, we changed our program regarding active membership status to require members to have either earned or
redeemed miles within a consecutive 18 month period to maintain active membership status. Prior to the change in the program, members
were granted a 36 month period to maintain active status.
US Airways also sells mileage credits to participating airline partners and non-airline business partners. Revenue earned from
selling mileage credits to other companies is recognized in two components. A portion of the
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