Alaska Airlines and Horizon Air 2014 Annual Report Download - page 157

Alaska’s Mileage Plan™ revenue included in the consolidated statements of operations (in millions):
2014 2013 2012
Passenger revenues $ 246 $ 208 $ 183
Other-net revenues 295 256 209
Special mileage plan revenue(a) –192 –
Total Mileage Plan revenues $ 541 $ 656 $ 392
(a) Refer to Note 11 for further information.
Other–net revenue includes commission revenues of $261 million, $213 million, and $143 million in
2014, 2013, and 2012, respectively.
Selling Expenses
Selling expenses include credit card fees, global distribution systems charges, the estimated cost of
Mileage Plan™ travel awards earned through air travel, advertising, promotional costs, commissions,
and incentives. Advertising production costs are expensed the first time the advertising takes place.
Advertising expense was $49 million, $28 million, and $26 million during the years ended
December 31, 2014, 2013, and 2012, respectively.
Derivative Financial Instruments
The Company’s operations are significantly impacted by changes in aircraft fuel prices and interest
rates. In an effort to manage our exposure to these risks, the Company periodically enters into fuel and
interest rate derivative instruments. These derivative instruments are recognized at fair value on the
balance sheet and changes in the fair value is recognized in AOCL or in the consolidated statements of
operations, depending on the nature of the instrument.
The Company does not hold or issue derivative fuel hedge contracts for trading purposes and does not
apply hedge accounting. For cash flow hedges related to our interest rate swaps, the effective portion of
the derivative represents the change in fair value of the hedge that offsets the change in fair value of
the hedged item. To the extent the change in the fair value of the hedge does not perfectly offset the
change in the fair value of the hedged item, the ineffective portion of the hedge is immediately
recognized in interest expense.
Fair Value Measurements
Accounting standards define fair value as the exchange price that would be received for an asset or
paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants on the measurement date. The standards
also establish a fair value hierarchy, which requires an entity to maximize the use of observable inputs
and minimize the use of unobservable inputs when measuring fair value. There are three levels of
inputs that may be used to measure fair value:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or
liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be
corroborated by observable market data for substantially the full term of the assets or liabilities.
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ŠForm 10-K