| (f) | Revenue recognition |
In
accordance with IAS 18, revenue is recognized to the extent that it is probable that economic benefits will flow to the Company
and revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable, taking
into account contractually defined terms of payment and excluding associated taxes. The following specific recognition criteria
must also be met before revenue is recognized:
| (i) | Passenger and cargo transportation |
The Company recognizes revenues from passenger transport and cargo transportation as profits once the service has been provided or on the basis of estimated ticket prices that are expected not to be used.
The Company is required, at the time of ticket sales, to collect including certain taxes, among which are transportation taxes and entry and exit taxes. These taxes are legal encumbrances that are imposed on the customer and are not included in the revenue for passenger transportation because the Company has a legal obligation to act as a collection agent on behalf of the local Tax Authorities. The Company records a liability when taxes are collected and it is written off when the government entity is paid.
A significant portion of the ticket sales are processed through major credit card companies, resulting in accounts receivable which are generally short–term in duration and typically collected prior to the recognition of revenue. Credit risk associated with these receivables is minimal.
Cargo
is carried out in a dedicated freighter fleet and, to the extent of excess capacity, in the bellies of passenger aircraft.
| (ii) | Aircraft operating leases |
Aircraft
operating lease income is recognized as other revenue in the Consolidated Statement of Comprehensive Income when it is earned,
according to the terms of each lease agreement.
| (iii) | Frequent flyer |
The Company operates a frequent flyer loyalty program known as “LifeMiles” which is designed to retain and increase travelers’ loyalty by offering incentives to travelers for their continued patronage. Under the LifeMiles program, miles are earned by flying on the Company’s airlines or its alliance partners and by using the services of program partners for such things as credit card use, hotel stays, car rentals, and other activities. Miles are also directly sold through different distribution channels. Miles earned can be exchanged for flights or other products or services from alliance partners.
The fair value of consideration in respect of initial sale is allocated between the miles and other components of the sale including breakage in accordance with IFRS Interpretations Committee 13 Customer loyalty programs. Revenue allocated to the reward credits is deferred within “Air traffic liability” (see Note 21) until redemption. Components other than the fair value of Gross Billings are immediately recognized within “Revenue”. These components correspond to an initial revenue recognition element, related to the marketing attributes of the miles sold. The amount of revenue deferred is measured by applying statistical techniques based on market approach using observable information in accordance with IFRS 13 “Fair Value Measurements”. Inputs to the models include assumptions based on management’s expected redemption rates and customer preferences. The amount of revenue recognized related to breakage is based on the number of miles redeemed in a period in relation to the total number expected to be redeemed. These revenues also include estimates and assumptions developed by the company described in note 2 (d).