Aer Lingus 2013 Annual Report Download - page 99

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A provision for business repositioning costs is recognised when a constructive obligation exists. The amount of the provision is based on the
terms of business repositioning measures, including employee severance and early retirement measures which have been communicated to
employees. They represent the Directors’ best estimate of the cost of these measures. Provision for termination benefits that are not part of a
restructuring plan are recognised when the entity can no longer withdraw the offer of those benefits.
2.23 Frequent Flyer Programme
The Group maintains a loyalty points programme, the Gold Circle Club, which allows customers to accumulate points when they purchase
flights. The points can be redeemed for free flights, products and services with Aer Lingus and its partners, subject to a minimum number of
points being obtained. In accounting for this programme, consideration received is allocated between the flights sold and the points issued,
with the consideration allocated to the points equal to their fair value. Fair value of the points is determined by applying statistical analysis.
The fair value of the points issued is deferred and recognised as passenger revenue when the points are redeemed. Unclaimed loyalty points
are recognised in the Income Statement on their expiration.
2.24 Revenue recognition
The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that the future economic benefits will
flow to the entity and when specific criteria have been met for each of the Group’s activities as described below.
Revenue comprises the fair value of consideration received or receivable for the sale of the Group’s services in the ordinary course of the
Group’s activities, and can be divided into scheduled passenger, cargo, ancillary and other revenue. Scheduled passenger revenue is shown
inclusive of passenger charges and other fees to the extent that these are recovered directly from customers at the point of sale, but exclusive
of applicable government taxes including taxes levied by governments for travel to and from their respective countries and sales taxes such
as VAT. The point of recognition differs according to the various revenue streams as set out below:
(a) Revenues
Amounts in respect of transportation of passengers and cargo (and related recoverable charges and fees) are deferred and are not
recognised as revenue until the point at which the passenger or cargo has flown. The value of bookings made for which transportation
has not been provided at the reporting date is included in “trade and other payables” under the caption of “ticket sales in advance”.
Expired tickets are recognised as revenue using estimates based on historical trends.
Ancillary revenues are recognised in the income statement in the period in which the associated services are provided. Fees charged
for bags and seat selection are recognised when the passenger has flown. Fees charged for any changes to flight tickets are recognised
as revenue immediately.
Other revenues are recognised in the income statement in the period in which the associated services are provided. Revenues arising
from the Group’s franchise agreement with Aer Arann are recognised on a net (as agent) basis with the agreed franchise fee reported
within “Other revenue”. Revenues arising from the Groups frequent flyer programme are also reported within ‘‘Other revenue’’.
(b) Lessor accounting
Following the launch of the Group’s contract flying services during the year, the Group acts as an operating lessor of aircraft,
including crew and other services. Amounts in respect of these leases are billed in advance and recorded as deferred revenue.
Revenue and costs are recognised as the services are provided, with the costs associated with this revenue recognised within the
relevant income statement categories (staff costs, maintenance, depreciation, aircraft hire and overheads). Revenue is recorded within
other revenues.
(c) Interest income
Interest income is accrued by reference to the principal outstanding using the effective interest rate applicable.
(d) Dividend income
Dividend income is recognised when the right to receive payment is established.
2.25 Leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases.
Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line
basis over the period of the lease.
Leases of aircraft where the Group takes on substantially all the risks and rewards of ownership are classified as finance leases. Finance
leases are capitalised at the lease’s commencement at the lower of the fair value of the leased aircraft and the present value of the minimum
lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant interest rate on the
finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in “finance lease obligations”.
Certain lease contracts contain interest rate swaps that are closely related to the underlying financing and as such, are not split out and
accounted for as an embedded derivative.