Alaska Airlines and Horizon Air 2009 Annual Report Download - page 165

Alaska also sells mileage credits to non-airline
partners such as hotels, car rental agencies, a
grocery store chain, and a major bank that offers
Alaska Airlines affinity credit cards. The Company
defers the portion of the sales proceeds that
represents the estimated fair value of the award
transportation and recognizes that amount as
revenue when the award transportation is
provided. The deferred proceeds are recognized
as passenger revenue for awards redeemed and
flown on Alaska or Horizon, and as other-net
revenue for awards redeemed and flown on other
airlines (less the cost paid to the other airline).
The portion of the sales proceeds not deferred is
recognized as commission income and included
in other revenue-net in the consolidated
statements of operations.
Alaska’s Mileage Plan deferred revenue and
liabilities are included under the following
consolidated balance sheet captions at
December 31 (in millions):
Balance Sheet Captions 2009 2008
Current Liabilities:
Other accrued liabilities . . . $267.9 $280.4
Other Liabilities and Credits:
Deferred revenue ........ 410.6 394.1
Other liabilities .......... 13.2 15.9
Total .................. $691.7 $690.4
The amounts recorded in other accrued liabilities
relate primarily to deferred revenue expected to
be realized within one year, including $41.6
million and $43.4 million at December 31, 2009
and 2008, respectively, associated with Mileage
Plan awards issued but not yet flown.
Alaska’s Mileage Plan revenue is included under
the following consolidated statements of
operations captions for the years ended
December 31 (in millions):
2009 2008 2007
Passenger
revenues ........ $182.1 $144.2 $115.6
Other-net
revenues ........ 151.5 101.5 112.0
Change in Mileage
Plan terms ...... —42.3 —
Total Mileage
Plan revenues $333.6 $288.0 $227.6
During 2008, the Company changed the terms of
its Mileage Plan program regarding the expiration
of award miles. Beginning in the third quarter,
Mileage Plan accounts with no activity for two
years are deleted. As a result of the deletion of a
number of accounts, the Company reduced its
liability for future travel awards by $42.3 million,
which has been recorded in the consolidated
statements of operations as “Change in Mileage
Plan terms.”
Aircraft Fuel
Aircraft fuel includes raw jet fuel and associated
“into-plane” costs, fuel taxes, oil, and all of the
gains and losses associated with fuel hedge
contracts.
Contracted Services
Contracted services includes expenses for
ground handling, security, navigation fees,
temporary employees, data processing fees, and
other similar services.
Selling Expenses
Selling expenses include credit card fees, global
distribution systems charges, the estimated cost
of Mileage Plan free travel awards, advertising,
promotional costs, commissions, and incentives.
Advertising production costs are expensed the
first time the advertising takes place. Advertising
expense was $16.8 million, $14.0 million, and
$13.7 million during the years ended
December 31, 2009, 2008, and 2007,
respectively.
Capitalized Interest
Interest is capitalized on flight equipment
purchase deposits as a cost of the related
asset, and is depreciated over the estimated
useful life of the asset. The capitalized interest
is based on the Company’s weighted-average
borrowing rate.
Derivative Financial Instruments
The Company accounts for financial derivative
instruments as prescribed under the accounting
standards for derivatives and hedging activity.
See Note 3 and Note 12 for further discussion.
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ŠForm 10-K