United Airlines 2013 Annual Report Download - page 71

Table of Contents
The Company records an estimate of breakage revenue on the flight date for tickets that will expire unused. These estimates are based on the
evaluation of actual historical results and forecasted trends.
The Company recognizes cargo and other revenue as service is provided.
Under our capacity purchase agreements (“CPAs”) with regional carriers, we purchase all of the capacity related to aircraft covered by the contracts
and are responsible for selling all of the related seat inventory. We record the passenger revenue and related expenses as separate operating revenue
and expense in the consolidated statement of operations.
Accounts receivable primarily consist of amounts due from credit card companies and customers of our aircraft maintenance and cargo
transportation services. We provide an allowance for uncollectible accounts equal to the estimated losses expected to be incurred based on historical
write-offs and other specific analyses. Bad debt expense and write-offs were not material for the years ended December 31, 2013, 2012 and 2011.
(c) United has a frequent flyer program that is designed to increase customer loyalty. Program participants earn mileage
credits (“miles”) by flying on United and certain other participating airlines. Program participants can also earn miles through purchases from
other non-airline partners that participate in United’s loyalty program. We sell miles to these partners, which include credit card issuers, retail
merchants, hotels, car rental companies and our participating airline partners. Miles can be redeemed for free (other than taxes and government
imposed fees), discounted or upgraded air travel and non-travel awards. The Company records its obligation for future award redemptions using a
deferred revenue model.
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In the case of the sale of air services, the Company recognizes a portion of the ticket sales as revenue when the air transportation occurs and defers a
portion of the ticket sale representing the value of the related miles as a multiple-deliverable revenue arrangement.
The Company determines the estimated selling price of the air transportation and miles as if each element is sold on a separate basis. The total
consideration from each ticket sale is then allocated to each of these elements individually on a pro rata basis. The Company’s estimated selling
price of miles is based on the price we sell miles to Star Alliance partners in our reciprocal frequent flyer agreements as the best estimate of selling
price for these miles.
On December 9, 2013, US Airways and American Airlines closed their merger transaction and, as a result of the merger transaction, we anticipate
US Airways will exit Star Alliance on March 30, 2014. Effective with the exit date of US Airways from Star Alliance, the Company will update its
estimated selling price for miles to using the equivalent ticket value less fulfillment discount, as the estimated selling price for miles. The equivalent
ticket value used as the basis for the estimated selling price of miles is based on the prior 12 months’ weighted average equivalent ticket value of
similar fares as those used to settle award redemptions while taking into consideration such factors as redemption pattern, cabin class and
geographic region. Management believes this change is a change in estimate, and as such, the change will be applied on a prospective basis. The
estimated impact of this change on consolidated revenue is not expected to be material in 2014.
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United also has a significant contract to sell frequent flyer miles to its co-branded credit card partner, Chase Bank USA, N.A. (“Chase”). On
June 9, 2011, this contract was modified and United entered into The Consolidated Amended and Restated Co-Branded Card Marketing Services
Agreement (the “Co-Brand Agreement”) with Chase.
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