US Airways 2010 Annual Report Download - page 66

Table of Contents
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires
management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses,
and the disclosure of contingent assets and liabilities at the date of the financial statements. We believe our estimates and assumptions are
reasonable; however, actual results 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 consolidated financial statements under Items 8A and 8B of
this Annual Report on Form 10-K for additional discussion of the application of these estimates and other accounting policies.
Passenger Revenue Recognition
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 consolidated balance sheets. 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 $861 million and
$778 million as of December 31, 2010 and 2009, respectively.
The majority of tickets sold are nonrefundable. 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 and members of the airline industry have consistently
applied this accounting method to estimate revenue from forfeited tickets at the date travel was to be provided. Estimated future refunds
and exchanges included in the air traffic liability are routinely evaluated based on subsequent activity to validate the accuracy of our
estimates. Any adjustments resulting from periodic evaluations of the estimated air traffic liability are included in results of operations
during the period in which the evaluations are completed. Holding other factors constant, a 10% change in our estimate of the amount
refunded, exchanged or forfeited for 2010 would result in a $35 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 Long-Lived 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. With respect to long-lived assets, 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.
We performed the annual impairment test on our international route authorities and trademarks during the fourth quarter of 2010. The
fair values of international route authorities were assessed using the market approach. The market approach took into consideration
relevant supply and demand factors at the related airport locations as well as available market sale and lease data. For trademarks, we
utilized a form of the income approach known as the
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