United Airlines 2012 Annual Report Download - page 57

Table of Contents
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Critical accounting policies are defined as those that are affected by significant judgments and uncertainties which potentially could result in materially
different accounting under different assumptions and conditions. The Company has prepared the financial statements in conformity with U.S. generally
accepted accounting principles, which requires management to make estimates and assumptions that affect the reported amounts in the financial statements.
Actual results could differ from those estimates under different assumptions or conditions. The Company has identified the following critical accounting
policies that impact the preparation of the financial statements.
Passenger Revenue Recognition. The value of unused passenger tickets is included in current liabilities as advance ticket sales. The Company records
passenger ticket sales and tickets sold by other airlines for use on United and Continental as passenger revenue when the transportation is provided or upon
estimated breakage. Tickets sold by other airlines are recorded at the estimated values to be billed to the other airlines. Non-refundable tickets generally expire
on the date of the intended flight, unless the date is extended by notification from the customer on or before the intended flight date.
Fees charged in association with changes or extensions to non-refundable tickets are recorded as other revenue at the time the fee is collected. The fare on the
changed ticket, including any additional collection, is deferred and recognized in accordance with our transportation revenue recognition policy at the time the
transportation is provided. Change fees related to non-refundable tickets are considered a separate transaction from the air transportation because they represent
a charge for the Company’s additional service to modify a previous sale. Therefore, the pricing of the change fee and the initial customer reservation are
separately determined and represent distinct earnings processes. Refundable tickets expire after one year.
The Company records an estimate of breakage revenue for tickets that will expire in twelve months without usage. These estimates are based on the evaluation
of actual historical results. The Company recognizes cargo and other revenue as service is provided. See separate discussion in 
below.
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Frequent Flyer Accounting. The Company has a frequent flyer program that is designed to increase customer loyalty. Program participants earn mileage
credits (“miles”) by flying on United or Continental and certain other participating airlines. Program participants can also earn miles through purchases from
other non-airline partners that participate in the Company’s loyalty program. We sell miles to these partners, which include credit card issuers, retail
merchants, hotels, car rental companies and our participating airline partners. Miles can be redeemed for free, discounted or upgraded air travel and non-travel
awards. The Company records its obligation for future award redemptions using a deferred revenue model.
Miles Earned in Conjunction with Flights. In the case of the sale of air services, the Company recognizes a portion of the ticket sales as revenue when the
air transportation occurs and defers a portion of the ticket sale representing the value of the related miles.
In accordance with ASU 2009-13, the Company determines the estimated selling price of the air transportation and miles as if each element is sold on a
separate basis. The total consideration from each ticket sale is then allocated to each of these elements individually on a pro rata basis. The Company revised
the estimated selling price of miles as a prospective change in estimate, effective January 1, 2012, and it is based on the price we sell miles to Star Alliance
partners in our reciprocal frequent flyer agreements as the best estimate of selling price for these miles. Any changes to the composition of Star Alliance airline
partners may result in the existing estimated selling price of air transportation miles no longer being representative of the best estimate of selling price and could
result in a change to the amount and method we use to determine the estimated selling price. On February 14, 2013, US Airways announced an agreement to
merge with AMR Corporation and its intent to exit Star Alliance as a result of such merger. We are currently unable to estimate the timing or amount of any
changes to estimated selling price as a result of this merger.
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