Sunday, December 1, 2013

[IFRS] IAS 18 - Revenue - Part 11: Revenue Recognition - Airline Industry

Airline Industry

The revenue recognition policies varies based on nature of services provided by airline companies. Overall, the treatment of passenger and freight revenue is similar. To attract customer, the airline companies issues airline passenger tickets or freight airway bill in advance of the service or transportation date. 

Further, the amount paid as air fare on booking air tickets has two components – refundable fare and non-refundable fare, the proportion of two varies with passage of time. All amount received in advance from prospective customer is accounted as unearned revenue.
  • Passenger and freight revenue: On date of travel of the passenger or when freight is uplifted 
  • Non-refundable tickets: On the same date the ticket booking for flight is closed 
  • Limited refundable or exchangeable unredeemed tickets: significant time (determined based on historic trend) after the booked date of travel has lapsed or terms of the tickets
  • Commission and discounts: Commission is recognized as expenses and discount is recognized as reduction in revenue, when the sale is recognized.

Accounting Policies (Extract)
Qantas Airways Limited, (ASX:QAN), Consolidated Financial Statement June 30, 2012
Revenue (Extract)

Passenger, Freight and Tours and Travel Revenue: 
Passenger and freight revenue is measured at the fair value of the consideration received, net of sales discount, passenger and freight interline/IATA commission and Goods and Services Tax. Other sales commissions paid by the Qantas Group are included in expenditure. Tours and travel revenue is measured at the net amount of commission retained by the Qantas Group. 

Passenger, freight and tours and travel revenue is recognised when passengers or freight are uplifted or when tours and travel air tickets and land content are utilised. Unused tickets are recognized as revenue using estimates based on the terms and conditions of the ticket.

Passenger recoveries (including fuel surcharge on passenger tickets) are included in net passenger revenue. Freight fuel surcharge is included in net freight revenue.

Frequent Flyer Revenue (Redemption Revenue):
Revenue received for the issuance of points is deferred as a liability (revenue received in advance) until the points are redeemed or the passenger is uplifted, in the case of Qantas Group flight redemptions.

Redemption revenue is measured based on management’s estimate of the fair value of the expected awards for which the points will be redeemed. The fair value of the awards is reduced to take into account the proportion of points that are expected to expire (breakage).

Marketing Revenue:
Marketing revenue associated with the issuance of points is recognized when the service is performed (typically on the issuance of the point) Marketing revenue is measured as the difference between the cash received on issuance of a point and the redemption revenue.

Membership Fee Revenue:
Membership fee revenue results from the initial joining fee charged to members. Revenue is recognized on expiry of any refund period