Airtran 2006 Annual Report Download - page 41

INTANGIBLES :
Excess of cost over fair value of net assets acquired (goodwill) and indefinite-lived intangibles, such as trade names, are not amortized but are subject to periodic
impairment tests in accordance with Statement of Financial Accounting Standards No. 142 (SFAS 142), Goodwill and Other Intangible Assets . We perform annual
impairment tests in the fourth quarter of each year. Our tests indicated that we did not have any impairment of our trade name or of our goodwill. Accumulated
amortization was $6.5 million at December 31, 2006 and 2005.
CAPITALIZED INTEREST :
Interest attributable to funds used to finance the acquisition of new aircraft is capitalized as an additional cost of the related asset. Interest is capitalized at our
weighted average interest rate on long term debt or, where applicable, the interest rate related to specific borrowings. Capitalization of interest ceases when the
asset is ready for service.
AIRCRAFT MAINTENANCE :
Aircraft maintenance costs are expensed as incurred. The personnel costs of AirTran employees performing aircraft maintenance activities are classified as salaries,
wages and benefits expense. The costs of replacement parts and services performed by third parties are classified as maintenance, materials and repairs expense.
Maintenance expense is recognized when the work is performed if the work is performed by AirTran employees or by third-party FAA-approved contractors pursuant
to arrangements whereby AirTran’s contractual liability to a contractor is incurred at the time the work is performed. The costs of line maintenance activities,
overhauls of airframes, overhauls of engines for B737 aircraft and repairs of certain component parts are recognized as expense when the repair is performed.
Maintenance expense is recognized based on flight hours or landings if AirTran incurs a contractual liability to a third-party FAA-approved contractor to repair or
overhaul major component parts based on a contractually specified rate per flight hour or landing, as applicable. Maintenance repair costs for certain major
components, including engines for B717 aircraft, are expensed monthly based on flight hours flown or landings, as applicable.
ADVERTISING AND PROMOTION COSTS :
Advertising costs are charged to expense in the period the costs are incurred. Advertising expense was approximately $34.3 million, $35.0 million and $27.0 million
for the years ended December 31, 2006, 2005 and 2004, respectively.
From time to time we enter into barter transactions whereby we acquire goods or services in exchange for future air travel to be provided by us. We recognize
operating expense based on the estimated fair value of travel to be provided by us. During 2005, we entered into a barter transaction in which we exchanged flight
credits in our frequent flyer program for promotional consideration. The transaction was recorded at the estimated fair value of the credits exchanged resulting in
approximately $4.6 million of advertising expense in 2005. During 2006, we recorded additional expense of $4.1 million related to this promotion due to changes
in the estimated volume of travel exchanged. The revenue relating to the flight credits are recognized as passenger revenue as the credits are utilized or expire.
During 2006 and 2005, $5.0 million and $0.4 million, respectively, related to this program was recognized as passenger revenues.
REVENUE RECOGNITION :
Passenger revenue is recognized when transportation is provided. Ticket sales for transportation which has not yet been provided are recorded as air traffic liability.
Air traffic liability represents tickets sold for future travel dates. The balance of the air traffic liability fluctuates throughout the year based on seasonal travel
patterns and fare sale activity. Passenger revenue accounting is inherently complex and the measurement of the air traffic liability is subject to some uncertainty.
A nonrefundable ticket expires at the date of scheduled travel unless the customer exchanges the ticket in advance of such date for a credit to be used by the customer
as a form of payment for another ticket. We recognize as revenue the value of a nonrefundable ticket at the date of scheduled travel unless the customer exchanges
his or her ticket for a credit. A percent of credits expire unused. We recognize as revenue over time the value of credits that we expect to go unused. We estimate the
amount of credits that we expect to go unused based on historical experience. Estimating the amount of credits that will go unused involves some level of subjectivity
and judgment. Changes in our estimate of the amount of unused credits could have an effect on our revenues. 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.
We are required to collect certain taxes and fees on our passenger tickets. These taxes and fees include U.S. federal transportation taxes, federal security charges,
airport passenger facility charges and foreign arrival and departure taxes. These taxes and fees are legal assessments on the customer. We have a legal obligation
to act as a collection agent. As we are not entitled to retain these taxes and fees, we do not include such amounts in passenger revenue. We record a liability when
the amounts are collected and relieve the liability when payments are made to the applicable government agency or operating carrier.
FREQUENT FLYER PROGRAM :
We accrue a liability for the estimated incremental cost of providing free travel for awards earned under our A+ Rewards Program based on awards we expect to
be redeemed. We adjust this liability based on points earned and redeemed as well as for changes in the estimated incremental costs.
We also sell points in our A+ Rewards Program to third parties, such as credit card companies, internet service providers and car rental agencies. A portion of these
point sales is deferred and recognized as passenger revenue when transportation is provided, based on estimates of fair value. The remaining portion, which is the
excess of the total sales proceeds over the estimated fair value of the transportation, is recognized as other revenue at the time of sale.
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