US Airways 2011 Annual Report Download - page 73

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 $910 million and $861 million as of December 31, 2011 and 2010, 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.
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 2011. 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 relief-
from-royalty method. As a result of our annual impairment test on international route authorities and trademarks, no impairment was indicated. We will
perform our next annual impairment test on October 1, 2012.
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