Cathay Pacific 1998 Annual Report Download - page 38

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Principal Accounting Policies
36 CATHAY PACIFIC AIRWAYS LIMITED ANNUAL REPORT 1998
12. Currency and interest rate swaps and fuel price derivatives
(continued)
The Group uses fuel price caps, collars and swap agreements to reduce its exposure to fluctuating
fuel costs. Gains and losses on these instruments are recognised as a component of fuel expense
during the period the related fuel is used. Premiums paid on the fuel cap agreements are deferred
and amortised to the profit and loss account over the term of the related agreement.
13. Deferred taxation
Provision is made for deferred taxation using the liability method for all material timing
differences except where it is considered probable that no liability will arise in the foreseeable future.
In addition, where initial cash benefits have been received in respect of certain lease
arrangements, provision is made for the future obligation to make taxation payments on behalf of
the lessors.
14. Maintenance and overhaul costs
Replacement spares and labour costs for maintenance and overhaul of aircraft are charged to
operating profit on consumption and as incurred respectively.
15. Revenue recognition
Passenger and cargo ticket sales are recognised as revenue when the transportation service is
provided. The value of unflown passenger and cargo sales is recorded as unearned transportation
revenue.
16. Retirement benefits
Arrangements for staff retirement benefits vary from country to country and are made in
accordance with local regulations and customs. The significant plans are defined retirement benefit
plans and are valued every year. Profits are charged with actuarially determined contributions using
the accrued benefit valuation method.
17. Frequent flyer programme
During the year, the Company participated in certain frequent flyer programmes, the most
significant of which was
Passages
, a frequent flyer programme administered by Asian Frequent Flyer
Pte Limited (“AFFP”) in which the Company holds 33% of the equity share capital. This programme
has stopped mileage accrual in February 1999.
Under this frequent flyer programme, as points are earned by passengers, payments are made to
AFFP which records the liabilities for future transportation services. AFFP in turn makes payments to
the Company when
Passages
members redeem their accumulated points for passenger tickets.
Payments made to and received from AFFP are recorded as expenses and revenue respectively in
the Company’s profit and loss account.
18. Related parties
For the purposes of these accounts, parties are considered to be related to the Group if the Group
has the ability, directly or indirectly, to control the party or exercise significant influence over the
party in making financial and operating decisions, or vice versa, or where the Group and the party
are subject to common control or common significant influence. Related parties may be individuals
or entities.