Revenue Recognition

3 Months Ended

Mar. 31, 2020

Revenue from Contract with Customer [Text Block]

Revenue Recognition

Passenger Revenue

Passenger revenue is the most significant category in our reported operating revenues. Passenger revenue is primarily composed of scheduled service revenue (including passenger ticket sales and credit voucher breakage), revenue from ancillary air-related charges (including seat fees, baggage fees, and other travel-related services performed in conjunction with a passenger’s flight), as well as co-brand credit card point redemptions, as outlined below:



	Three Months Ended March 31,
(in thousands)	2020		2019
Scheduled service	$	197,261	$	234,772
Ancillary air-related charges	176,964		181,700
Co-brand redemptions	4,686		3,505
Total passenger revenue	$	378,911	$	419,977

Sales of passenger tickets not yet flown are recorded in air traffic liability. Passenger revenue is recognized when transportation is provided or when ticket voucher breakage occurs, to the extent different from estimated breakage. As of March 31, 2020, approximately 45 percent of the air traffic liability balance was related to forward bookings, with the remaining 55 percent related to credit vouchers for future travel.

The contract term of passenger tickets is twelve months and revenue associated with future travel will principally be recognized within this time frame. During the three months ended March 31, 2020, $191.6 million was recognized into passenger revenue that was recorded in the air traffic liability balance of $250.0 million at December 31, 2019.

In April 2020, the Company announced that credits issued for canceled travel in April through the end of the COVID-19 pandemic will have an extended expiration date which is two years from the original booking date. This change will be considered in estimating the future breakage rate, which represents the value of credit vouchers that are not expected to be redeemed prior to their contractual expiration date.

Co-brand redemptions

In relation to the travel component of the co-branded credit card contract with Bank of America, the Company has a performance obligation to provide cardholders with points to be used for future travel award redemptions. Therefore, consideration received from Bank of America related to the travel component is deferred based on its relative selling price and is recognized into passenger revenue when the points are redeemed and the transportation is provided.

The following table presents the activity of the co-brand point liability as of the dates indicated:



	Three Months Ended March 31,
(in thousands)	2020			2019
Balance at January 1	$	15,613		$	10,708
Points awarded (deferral of revenue)	6,354			4,164
Points redeemed (recognition of revenue)	(4,686		)	(3,505		)
Balance at March 31	$	17,281		$	11,367

As of March 31, 2020 and 2019, $12.5 million and $8.9 million, respectively, of the current points liability is reflected in Accrued liabilities and represents the Company's current estimate of revenue to be recognized in the next twelve months based on historical trends, with the remaining balance reflected in other noncurrent liabilities expected to be recognized into revenue in periods thereafter. Given the inherent uncertainty of the current operating environment due to COVID-19, the Company will continue to monitor redemption patterns and may adjust its estimates in the future.