US Airways 2008 Annual Report Download - page 74

Table of Contents
impairment as temporary or other than temporary. A temporary impairment charge results in an unrealized loss being recorded in the
other comprehensive income component of stockholders' equity. Unrealized losses are recognized in our consolidated statement of
operations when a decline in fair value is determined to be other than temporary. We review our investments on an ongoing basis for
indications of possible impairment, and if impairment is identified, we determine whether the impairment is temporary or other than
temporary. Determination of whether the impairment is temporary or other than temporary requires significant judgment. The primary
factors that we consider in classifying the impairment include the extent and period of time the fair value of each investment has declined
below its cost basis, the expected holding or recovery period for each investment, and our intent and ability to hold each investment until
recovery.
Refer to the "Liquidity and Capital Resources" section for further discussion of our investments in marketable securities.
Frequent Traveler Program
The Dividend Miles frequent traveler program awards miles to passengers who fly on US Airways and 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 travel award and outstanding miles may not be redeemed. 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 fuel,
credit card fees, insurance, denied boarding compensation and food and beverages. 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, 2008, 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 a $5 million impact on the liability as of December 31, 2008.
As of December 31, 2008, Dividend Miles members had accumulated mileage credits for approximately 2.6 million awards. The
liability for the future travel awards accrued on our balance sheet within other accrued expenses was $151 million as of December 31,
2008. The number of awards redeemed for travel during the year ended December 31, 2008 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.
US Airways also sells frequent flyer program mileage credits to participating airline partners and non-airline business partners.
Revenue earned from selling these mileage credits to other companies is recognized in two components. A portion of the revenue from
these sales is deferred, representing the estimated fair value of the transportation component of the sold mileage credits. The deferred
revenue for the transportation component is amortized on a straight-line basis over the period in which the credits are expected to be
redeemed for travel as passenger revenue, which is currently estimated to be 28 months. The marketing component, which is earned at the
time the miles are sold, is recognized in other revenues at the time of the sale. As of December 31, 2008, we had $240 million in deferred
revenue from the sale of mileage credits included in other accrued expenses on our balance sheet. A change to either the period over
which the credits are used or the estimated fair value of credits sold could have a significant impact on revenue in the year of change as
well as future years.
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