United Airlines 2012 Annual Report Download - page 88

Table of Contents
(b) 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 or 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 incurred. 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 order are separately determined and represent distinct earnings processes. Refundable tickets expire after one year.
The Company records an estimate of breakage revenue on the flight date for tickets that will expire unused. These estimates are based on the
evaluation of actual historical results. During the year ended December 31, 2012, UAL revised its estimate of breakage resulting in a reduction of
passenger revenue of approximately $100 million (the majority of which relates to Continental). The Company recognizes cargo and other revenue
as service is provided.
Under our capacity purchase agreements with regional carriers, we purchase all of the capacity related to aircraft covered by the contracts and are
responsible for selling all of the related seat inventory. We record the passenger revenue and related expenses as separate operating revenue and
expense in the consolidated statement of operations.
In the separate financial statements of United and Continental, for tickets sold by one carrier but flown by the other, the carrier that operates the
aircraft recognizes the associated revenue. Starting in March 2012, all tickets were sold through United. See Note 20 for additional information
regarding related party transactions.
Accounts receivable primarily consist of amounts due from credit card companies and customers of our aircraft maintenance and cargo
transportation services. We provide an allowance for uncollectible accounts equal to the estimated losses expected to be incurred based on historical
write-offs and other specific analyses. Bad debt expense and write-offs were not material for the years ended December 31, 2012, 2011 and 2010.
(c) The Company has a frequent flyer program that is designed to increase customer loyalty. Program participants earn
mileage credits (“miles”) by flying on United, 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.
In the first quarter of 2012, the Company moved to a single loyalty program, MileagePlus. Continental’s loyalty program formally ended in the first
quarter of 2012, at which point United automatically enrolled OnePass members in MileagePlus and deposited into those MileagePlus accounts
award miles equal to OnePass members’ award miles balance.

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.
87