IFRS 15 For Airlines

IFRS 15
for airlines
Are you good to go?
Application guidance
June 2017
Contents
Contents
Purpose of this document 1
What may change? 2
1 Air tickets – breakage 4
2 Air tickets – air travel and loyalty points 7
3 Arrangements with non-airline partners 13
4 Loyalty points – other areas to focus on 19
5 Ancillary services and change fees 20
6 Presentation of revenue – gross vs net 23
7 Air tickets – travel vouchers 26
8 Holiday packages 28
9 Transition approach 32
10 Disclosures 35
Further resources 37
More information about airline accounting 37
Purpose of this document
What is Good to go? IFRS 15 Revenue from Contracts with Customers may change the way airlines
account for air tickets, cargo airway bills, loyalty points and other contracts. In the
past, when major IFRS change has led to large-scale implementation projects,
management at companies – usually group financial controllers – have asked us
‘How will I know when we’re done?’
To help answer that question, we’ve created a SlideShare accompanied by this
guide that list the key considerations that all airlines need to focus on to get to the
finish line.
Each section within this guide deals with a different issue and considers:
– the new requirements; and
– how they differ from existing requirements.
More information Please refer to the back of this publication for further resources to help you apply
the new standard’s requirements.
© 2017 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.
2 | IFRS 15 for airlines
What may change?

This document focuses on the following areas that may result in a change in
practice for airlines on adoption of IFRS 15.
Ticket breakage
The new standard’s guidance on accounting for breakage may result in earlier
revenue recognition by airlines in some circumstances compared with current
practice. Although many airlines may be able to recognise breakage before ticket
expiry, no breakage can be recognised before the scheduled flight date. See
Section 1.
Loyalty programmes
For loyalty points that are granted for travel with the airline or for qualifying
purchases with airline partners, allocation of revenue to loyalty points may change
because the residual method may no longer be available. See Section 2.
The more extensive guidance in the new standard on identification of performance
obligations means that there may be other promises in a contract that are
accounted for as separate performance obligations – e.g. loyalty points that are
sold to non-airline partners. The measurement of the loyalty points may also
change because under the new standard, it is based on the stand-alone selling
price rather than the relative fair value of the loyalty points, as is the case under
IFRIC 13 Customer Loyalty Programmes. See Section 3.
Other aspects of loyalty programmes for airlines to consider are covered in
Section 4.
Ancillary revenue and change fees

The timing of revenue recognition of ancillary revenue and change fees may
alter. Many change fees may not be a separate performance obligation under
the new standard so may no longer be recognised as revenue when the change
is requested and the fee is charged. Under the new standard, change fees are
accounted for together with those for travel services. See Section 5.
Interline cargo revenue

An airline that engages in interline cargo transportation needs to assess whether
it is acting as principal or agent. This assessment may change under the new
standard as a customer’s credit risk for the amount receivable is no longer an
indicator when determining whether an airline is a principal or an agent. Depending
on the facts and circumstances, this may change the presentation of interline
cargo revenue. See Section 6.
What may change? | 3
Travel vouchers
Airlines need to consider whether travel vouchers are accounted for as
variable consideration or as a customer option, based on the specific facts and
circumstances. In many cases, travel vouchers reduce the amount of revenue for
the original travel and may not be expensed when granted. See Section 7.
Holiday packages
The new standard contains more extensive guidance on identification of
performance obligations. An airline offering holiday packages considers the number
and nature of performance obligations that are accounted for separately. For
each performance obligation, an airline considers whether it is acting as principal
or agent, as well as the timing of revenue recognition for each performance
obligation. The amount and/or timing of revenue recognition for holiday packages
may change for some airlines. See Section 8.
1 Air tickets – breakage

Overview
Airlines usually sell tickets in advance for full consideration. Some tickets are not
used for travel and cannot be exchanged or refunded. Certain flexible air tickets
include a right to re-schedule if the customer does not fly on the scheduled flight
date, but the customer may decide not to travel. Those partially or wholly unused
tickets are often referred to as ‘ticket breakage’. Judgement is required when
determining whether it is appropriate to recognise ticket breakage.
Requirements of the new standard

An entity recognises a prepayment received from a customer as a contract liability
and recognises revenue when the promised goods or services are transferred
in the future. However, a portion of the contract liability recognised may relate
to contractual rights that the entity does not expect to be exercised – i.e. a
breakage amount.
The timing of revenue recognition for breakage depends on whether the entity
expects to be entitled to a breakage amount – i.e. if it is highly probable that
recognising breakage will not result in a significant reversal of the cumulative
revenue recognised.
An entity considers the variable consideration guidance to determine whether –
and to what extent – it recognises breakage. It determines the amount of breakage
to which it is entitled as the amount for which it is considered highly probable
that a significant reversal will not occur in the future. This amount is recognised
as revenue in proportion to the pattern of rights exercised by the customer when
the entity expects to be entitled to breakage. Otherwise, the entity recognises
breakage when the likelihood of the customer exercising its remaining rights
becomes remote.
These requirements are discussed further in Chapter 10.5 of our Revenue Issues
In-Depth publication.
How does this approach differ from existing requirements?
Current IFRS does not contain specific guidance on the accounting for breakage.
In our view, an unredeemed amount should be recognised as revenue if:
–– the amount is non-refundable; and
–– an entity concludes, based on available evidence, that the likelihood of
the customer requiring it to fulfil its performance obligation is remote
(see 4.2.440.20 of Insights into IFRS, 13th Edition).
Under the new standard, revenue for ticket breakage may sometimes be
recognised earlier by airlines compared with current practice. Although many
airlines will be able to recognise breakage before ticket expiry, no breakage can
be recognised before the scheduled flight date.
1 Air tickets – breakage | 5
Application of the new requirements
Systems’ ability to provide reliable data for estimates
The key test for recognising ticket breakage revenue is whether it is highly
probable that doing so will not result in a significant revenue reversal in the
future. Therefore, an airline needs to be able to make sufficiently reliable
estimates. To achieve this, an airline’s systems must be able to track, analyse and
provide reliable data based on historical information.
If an airline’s systems do not provide sufficiently reliable data for estimating
ticket breakage, then it cannot recognise ticket breakage revenue until the
ticket expires.
Estimates need to consider ticket sale terms
An airline may offer a range of fares for the same flight depending on various
factors, including but not limited to:
–– the class of travel – e.g. first, business or economy;
–– services offered on the flight – e.g. check-in luggage, reserved seat, food and
drink; and
–– the customer’s ability to change the travel dates or cancel the flight.
In developing estimates about ticket breakage, an airline needs to consider the
ticket sale terms and treat similar tickets in the same way.
Breakage does not constitute variable consideration
Although an entity considers the variable consideration guidance to determine

the amount of breakage, breakage itself is not a form of variable consideration,
because it does not affect the transaction price. It is a recognition, rather than a
measurement, concept under the new standard.
An entity can use a portfolio of similar transactions as a source of data to
estimate expected breakage for an individual contract if it has a sufficiently large
number of similar transactions or other history. This is not the same as using the
portfolio approach.
Example – Airline expects ticket breakage and can estimate it

reliably
Airline B sells 100 non-refundable, flexible tickets for a flight from London to
Melbourne. The price of each ticket is 1,000. If a customer does not fly on the
scheduled flight date, then it can reschedule the flight within 12 months at no
additional charge. B’s historical data indicates that:
–– 5% of customers purchasing tickets with similar terms do not fly on the
scheduled flight date;
–– 20% of these customers – i.e. 1% of total sales – book an alternative flight
within the 12-month period; and
–– 80% of these customers – i.e. 4% of total sales – never exercise their rights
before expiry.
Based on the historical data, B estimates that for these 100 tickets, 95 customers
will fly on the scheduled date, one customer will reschedule the flight and four
customers will not take their flight – i.e. the estimated breakage is 4,000 (4% x
(100 x 1,000)).
B can reasonably estimate the amount of breakage expected and it is highly
probable that including the amount in the transaction price will not result in
a significant revenue reversal. Therefore, B recognises the estimated ticket
breakage of 4,000 in proportion to the pattern of exercise of the rights by the
customers as follows.
–– On the date of the flight – 3,958 (95,000/96,000 x 4,000).
–– When one customer takes the rescheduled flight – 42 (4,000 - 3,958).
Example – Airline cannot reliably estimate breakage
Airline D launches a new budget carrier, DJet, which offers flights from London to
a small regional airport in Germany. D sells 100 non-refundable, non-changeable
tickets priced at 150 each. Unused tickets expire 12 months after the scheduled
travel date. D has no historical data for tickets sold on similar terms.
D concludes that it is unable to estimate the amount of breakage that, if included
in the transaction price, would be highly probable of not resulting in a significant
revenue reversal.
Therefore, D recognises ticket breakage for the 100 tickets sold only when
the likelihood becomes remote that those customers not taking the flight on
the scheduled date will exercise their rights. This may occur either on expiry
of the ticket or earlier if there is evidence to indicate that the probability has
become remote.
2 Air tickets – air travel and loyalty points | 7
2 Air tickets – air travel and

loyalty points
Overview
Many airlines operate customer loyalty programmes in which customers can earn
loyalty points, either by travelling with the airline or making qualifying purchases
with an airline partner. Customers can use the points to buy future travel, upgrade
to a higher travel class or purchase goods from the issuing airline and/or its
redemption partners. A customer loyalty programme that provides a customer
with a material right is accounted for as a separate performance obligation. The key
considerations in accounting for airline loyalty programmes are:
– estimating the stand-alone selling price of loyalty points; and
– allocating the transaction price to performance obligations for providing travel
services and loyalty points.

Estimating stand-alone selling prices
The stand-alone selling price is the price at which an entity would sell a
promised good or service separately to a customer. The best evidence of this is
an observable price from stand-alone sales of the good or service to similarly-
situated customers.
A contractually-stated price or list price may be the stand-alone selling price of that
good or service, but this is not presumed to be the case.
If the stand-alone selling price is not directly observable, then the entity estimates
the amount using a suitable method.
An entity considers all information that is reasonably available when estimating
a stand-alone selling price – e.g. market conditions, entity-specific factors and
information about the customer or class of customer. It also maximises the use
of observable inputs and applies consistent methods to estimate the stand-alone
selling price of other goods or services with similar characteristics.
The new standard does not preclude or prescribe any particular method for
estimating the stand-alone selling price for a good or service when observable
prices are not available, but describes the following estimation methods as
possible approaches.
Adjusted market Evaluate the market in which goods or services are sold
assessment and estimate the price that customers in the market
approach would be willing to pay
Expected cost Forecast the expected costs of satisfying a performance

plus a margin obligation and then add an appropriate margin for that
approach good or service
Residual Subtract the sum of the observable stand-alone selling

approach (limited prices of other goods or services promised in the
circumstances) contract from the total transaction price
An entity may estimate the stand-alone selling price with reference to the total
transaction price less the sum of the observable stand-alone selling prices of other
goods or services promised in the contract. This is often referred to as the ‘residual
approach’. The residual approach is appropriate only if the stand-alone selling price
of one or more of the goods or services is highly variable or uncertain.
Selling price Criterion
Highly variable The entity sells the same good or service to different
customers at or near the same time for a broad range
of prices
Uncertain The entity has not yet established the price for a good or
service and the good or service has not previously been
sold on a stand-alone basis
Under the residual approach, an entity estimates the stand-alone selling price of
a good or service on the basis of the difference between the total transaction
price and the observable stand-alone selling prices of other goods or services in
the contract.
If two or more goods or services in a contract have highly variable or uncertain
stand-alone selling prices, then an entity may need to use a combination of
methods to estimate the stand-alone selling prices of the performance obligations
in the contract. For example, an entity may use:
– the residual approach to estimate the aggregate stand-alone selling prices for all
of the promised goods or services with highly variable or uncertain stand-alone
selling prices; and then
– another technique to estimate the stand-alone selling prices of the individual
goods or services relative to the estimated aggregate stand-alone selling price
determined by the residual approach.
Allocating the transaction price

At contract inception, the transaction price is generally allocated to each
performance obligation on the basis of relative stand-alone selling prices. However,
when specified criteria are met, a discount or variable consideration is allocated to
one or more, but not all, of the performance obligations in the contract.
After initial allocation, changes in the transaction price are allocated to satisfied and
unsatisfied performance obligations on the same basis as at contract inception,
subject to certain limited exceptions (see Chapter 5.4.3 of our Revenue Issues In-
Depth publication).
These requirements are discussed further in Chapters 5.4.1 and 10.4.2 of our
Revenue Issues In-Depth publication.
Similar emphasis on use of observable inputs
Under current IFRS, our view is that a cost plus a margin approach should
generally be applied only when it is difficult to measure the fair value of a
component using market inputs when there are few market inputs available
(see 4.2.60.110 of Insights into IFRS, 13th Edition). This emphasis on the use of
available market inputs – e.g. sales prices for homogeneous or similar products
– is consistent with the new standard’s requirement to maximise the use of
observable inputs.
Residual approach not restricted to delivered items

Unlike current guidance, the new standard requires specific conditions to be met
for an entity to use the residual approach. In addition, the residual approach is
used under the new standard as a technique to estimate the stand-alone selling
price of a good or service, rather than as an allocation method. An airline that
uses the residual approach may conclude that these conditions are not met and,
therefore, needs to estimate the stand-alone selling prices of goods or services
using alternative methods.
If it is appropriate to apply the residual approach under the new standard, then
an airline is permitted to use it to estimate the stand-alone selling price of any
promised goods or services in the contract, including undelivered items.
This is a change from our current view that the reverse residual method is not
an appropriate basis for allocating revenue (see 4.2.60.50 of Insights into IFRS,
13th Edition).
Treatment of customer loyalty programmes may change

The current IFRS guidance on customer loyalty programmes is broadly similar to
the guidance in the new standard.
Under current IFRS, an airline can choose which method it wants to use to
allocate the consideration between the travel service and the loyalty points,
and many use the residual method to estimate the stand-alone selling price of
the travel service. In contrast, the residual approach may no longer be available
under the new standard because it can only be applied if certain criteria are met.
Further, the measurement of the loyalty points may change because, under the
new standard, it is based on the stand-alone selling price rather than the relative
fair value, as under IFRIC 13.
Potential changes in the method to estimate stand-alone selling prices of loyalty
points and/or allocate the consideration may result in a change in the allocation of
revenue between the air ticket and the loyalty points.
Systems’ ability to provide reliable data for estimates
Similar to ticket breakage, an airline needs to be able to make sufficiently reliable

estimates to determine a stand-alone selling price for loyalty points. To achieve
this, the airline’s systems and/or processes must be able to track, analyse and
provide reliable data based on historical information.
An airline needs to review the redemption rates of loyalty points on a regular
basis and adjust the estimate of its stand-alone selling price as necessary.
Residual approach may no longer be available
The residual approach is appropriate only if the stand-alone selling price of one or
more goods or services is highly variable or uncertain. Although airfares usually
fluctuate considerably over short periods of time, the residual approach is unlikely
to be appropriate.
Determining
whether the
stand-alone
selling price
of airfare is… … if… Explanation
Prices are observable for the following

reasons.
–– Airfares are sold on their own or bundled
with loyalty points or other ancillary
services. Observable price is available for
all elements.
Observable
prices are not –– Airfares are available on websites or via
available. travel agents for all flights, regardless of
the variability in the individual fares.
–– Tickets within a class, with or without
loyalty points, are generally sold at the
same price to a customer. Points are
Highly allocated based on membership of a
variable particular loyalty scheme.
(Criterion 1)
Data on direct flight costs, historical yields
of flights to similar routes and airfares are
available. Other estimation techniques can
be used.
Other Expected cost plus a margin approach –
estimation Forecast the expected costs of satisfying
techniques a performance obligation and then add an
cannot be appropriate margin for that good or service.
used.
Adjusted market assessment approach
– Evaluate the market in which goods or
services are sold and estimate the price that
customers in the market would be willing
to pay.
The product is
relatively new.
Uncertain
The product There is an established market for air tickets.
(Criterion 2)
is an existing
product in a
new market.
Example – Loyalty points granted to programme members
Airline B offers the following customer loyalty programme.

–– Programme members earn one point for every 10 that they spend with B.
–– Each point is redeemable for future goods and services with value of 1 – e.g.
flights or consumer goods.
–– Loyalty points expire after 24 months if a programme member is inactive – i.e.
there is no increase or decrease in the member’s loyalty point balance.
–– B estimates the redemption rate of loyalty points at each reporting date based
on its historical experience, which is assessed as being predictive of the
amount of consideration to which B will be entitled. B’s current estimate is that
90% of loyalty points will be redeemed.
B sells Customer C an air ticket to fly from Singapore to Hong Kong for 1,000. C is
a member of B’s customer loyalty programme.
The customer loyalty programme provides C with a material right because C

would not receive the discount on future purchases by redeeming the points
without buying the original air travel. Additionally, the price that C will pay on
exercise of the points on its future purchases is not the stand-alone selling price
of those items.
Because the points provide a material right to C, B concludes that the points are a
performance obligation – i.e. C paid for the points when purchasing the air ticket.
In determining the stand-alone selling price of the loyalty points, B considers the
likelihood of redemption.
B allocates the transaction price between the air ticket and the points on a
relative stand-alone selling price basis as follows.
Stand-
alone
Performance selling Selling Price
obligation prices price ratio allocation Calculation
Air ticket 1,000a 91.7% 917 (1,000 x 91.7%)
Points 90b 8.3% 83 (1,000 x 8.3%)
Total 1,090 100% 1,000
Notes
a. Stand-alone selling price for the air ticket.

b. Stand-alone selling price for the points (1,000/10 x 90%).
B recognises revenue for the air ticket of 917 on the flight date and revenue of 83
for the points in proportion to the pattern of rights exercised by C.
B expects 90 points to be redeemed and recognises 0.92 (83/90 points) on each
point when it is redeemed.
3 Arrangements with non-airline partners | 13
3 Arrangements with non-

airline partners
Overview
An airline may enter into various arrangements with non-airline partners – e.g.
sale of loyalty points, provision of rights to access or rights to use its brand and/or
its customer loyalty programme member list, advertising or other arrangements.
Most arrangements allow airline customers to earn loyalty points by making
qualifying purchases with the airline partner. As a result, the airline partner needs
to purchase loyalty points from the airline and these arrangements normally
include other performance obligations. The key considerations in accounting for
arrangements with non-airline partners are:
– identifying performance obligations and their nature – e.g. whether the
arrangement contains a sale or licensing of intellectual property (IP);
– allocating the transaction price; and
– the timing of revenue recognition.

Identifying performance obligations
A ‘performance obligation’ is the unit of account for revenue recognition. An
entity assesses the goods or services promised in a contract with a customer and
identifies as a performance obligation either:
– a good or service (or a bundle of goods or services) that is distinct; or
– a series of distinct goods or services that are substantially the same and
have the same pattern of transfer to the customer – i.e. each distinct good or
service in the series is satisfied over time and the same method is used to
measure progress.
At contract inception, an entity evaluates the promised goods or services to
determine which goods or services (or bundle of goods or services) are distinct
and therefore constitute a performance obligation.
Criterion 1: Criterion 2:
Capable of being distinct Distinct within the context
of the contract
Can the customer benefit
from the good or service on and Is the entity’s promise to
its own or together with transfer the good or
other readily service separately identifiable
available resources? from other promises
in the contract?
Yes No
Not distinct – combine with

Distinct – performance obligation
other goods and services
Promises to transfer a good or a service can be stated explicitly in a contract or

implicitly, based on established business practices that create a valid expectation
that the entity will transfer the good or service. Conversely, tasks that do
not transfer a good or service to the customer are not separate performance
obligations and are not included in the analysis – e.g. administrative set-up tasks.
In‑Depth publication.
If an airline determines that the sale of loyalty points is not the only performance
obligation in a contract with a non-airline partner, then it:
– determines the number and the nature of other performance obligation(s) – e.g.
sale or license of IP, advertising services;
– considers the allocation of the transaction price to all performance obligations in
the contract (see Section 2); and
– considers the timing of revenue recognition for each performance obligation in
the contract (see Section 8).
More guidance on separating goods and services in the contract

The new standard introduces comprehensive guidance on identifying separate
components, which applies to all types of revenue-generating transactions. This
could result in goods or services being unbundled or bundled more frequently
than under current practice.
However, contracts relating to a single asset or a combination of assets that are
closely inter-related or interdependent will meet the conditions to be a single
performance obligation – and so treating the whole contract as the unit of
account is likely to continue in many cases.
The pattern of revenue recognition for licences may change

Under current IFRS, licence fees and royalties are recognised based on the
substance of the agreement.
In some cases, licence fees and royalties are recognised over the life of the
agreement, similar to over-time recognition under the new standard. For
example, fees charged for the continuing use of franchise rights may be
recognised as the rights are used. IAS 18 Revenue gives the right to use
technology for a specified period of time as an example of when, as a practical
matter, licence fees and royalties may be recognised on a straight-line basis over
the life of the agreement.
In other cases, if the transfer of rights to use IP is, in substance, a sale, an entity
recognises revenue when the conditions for a sale of goods are met, similar to
point-in-time recognition under the new standard. This is the case when an entity
assigns rights for fixed consideration, has no remaining obligations to perform
and the licensee is able to exploit the rights freely. IAS 18 includes two examples:
–– a licensing agreement for the use of software when the entity has no
obligations after delivery; and
–– the granting of rights to distribute a motion picture in markets where the
entity has no control over the distributor and does not share in future box
office receipts.
Although these outcomes are similar to over-time and point-in-time recognition
under the new standard, an entity is required to review each distinct licence to
assess its nature under the new standard. It is possible that revenue recognition
will be accelerated or deferred compared with current practice, depending on the
outcome of this assessment.
Contract for sale of loyalty points with more than one performance
obligation
It is common for airlines to sell loyalty points to non-airline partners, which then
grant the loyalty points to the end-customer when the end-customer makes
qualifying purchases – e.g. using a credit card issued by the non-airline partner.
Although the airline may only contract explicitly for the sale of the loyalty points,
these arrangements may contain other implicit performance obligations that
need to be separately accounted for – e.g. a right to use the airline’s brand and/or
a right to access the airline’s customer database. An airline needs to evaluate all
promises made in an arrangement with the non-airline partner and their nature.
It then needs to determine whether those promises are capable of being distinct
and are distinct in the context of the contract.
Criterion 1
Good or service is capable of being distinct
A customer can benefit from a good or service if it can be used, consumed, sold
for an amount that is greater than scrap value, or otherwise held in a way that
generates economic benefits.
A customer can benefit from a good or service on its own or in conjunction with:
–– other readily available resources that are sold separately by the entity, or by
another entity; or
–– resources that the customer has already obtained from the airline – e.g. a
good or service delivered up-front – or from other transactions or events.
The fact that a good or service is regularly sold separately by the airline is an
indicator that the customer can benefit from a good or service on its own, or with
other readily available resources.
Criterion 2
Distinct within the context of the contract
When assessing whether promises to transfer goods or services are distinct
within the context of the contract, an airline determines whether the nature
of the promise is to transfer each of those goods or services individually or to
transfer a combined item or items for which the promised goods or services
are inputs.
The new standard provides the following indicators to assist in evaluating
when two or more promises to transfer goods or services to a customer are
separately identifiable.
–– An entity provides a significant service of integrating the goods or services
with other goods or services promised in the contract into a bundle of goods
or services representing the combined output or outputs for which the
customer has contracted. This occurs when the entity is using the goods or
services as inputs to produce or deliver the output or outputs specified by the
customer. A combined output (or outputs) might include more than one phase,
element or unit.
–– One or more of the goods or services significantly modifies or customises, or
is significantly modified or customised by, one or more of the other goods or
services promised in the contract.
–– The goods or services are highly interdependent or highly inter-related, such
that each of the goods or services is significantly affected by one or more of
the other goods or services.
The new standard does not include a hierarchy or weighting of the indicators of
whether a good or service is separately identifiable from other promised goods
or services within the context of the contract. An airline evaluates the specific
facts and circumstances of the contract to determine how much emphasis to
place on each indicator.
For different scenarios or types of contracts, certain indicators may provide

more compelling evidence than others in the separability analysis. For example,
factors such as the degree of customisation, complexity, customer’s motivation
for purchasing goods/services, contractual restrictions and the functionality of
individual goods/services may have differing effects on the distinct analysis for
different types of contracts.
In addition, the relative strength of an indicator, in light of the specific facts
and circumstances of a contract, may lead an airline to conclude that two or
more promised goods or services are not separable from each other within the
context of the contract. This may occur even if the other two indicators might
suggest separation.
Analysing arrangements with more than one performance obligation

If an airline determines that the sale of the loyalty points and other promises in
a contract are to be accounted for as separate performance obligations, then it
considers the following.
–– Number and nature of other performance obligations: Other performance
obligations may include a right to use or right to access the airline’s customer
list, its brand or advertising services – e.g. the airline recommends that its
customers apply for the partner’s credit card when they pay for tickets. In
some cases, contractual terms may not be sufficiently specific and it may be
difficult to determine the number and nature of other performance obligations.
In these cases, an airline exercises judgement based on all facts and
circumstances of the arrangement.
–– Allocation of the transaction price: To allocate the transaction price, an airline
determines the stand-alone selling price of each performance obligation.
For some performance obligations, the stand-alone selling price may not
be observable and the airline needs to estimate it. In addition, the residual
approach may no longer be available.
–– Timing of revenue recognition for each performance obligation: Although
loyalty points are usually transferred to a non-airline partner at a point in time,
the airline fulfils its obligation only when the end-customers redeem these
points. Therefore, revenue for the loyalty points is recognised when they are
redeemed. For performance obligations satisfied over time – e.g. a right to
access the customer list or a right to use the brand – an airline determines the
appropriate measure of progress that depicts its performance in transferring
control over these goods or services to the non-airline partner.
Stand-alone selling price of loyalty points may be similar
In principle, loyalty points granted to travel customers and loyalty points sold to a
non-airline partner – e.g. a bank – are different because:
–– the customer’s and the bank’s redemption rates are different;
–– the travel points are granted under different terms and conditions to those sold
to a bank; and
–– a bank purchases points as part of a negotiated deal whereas travel points are
earned by customers – i.e. no negotiation.
However, in some circumstances, an airline may conclude that points granted

to travel customers and points sold to a non-airline partner have similar
characteristics – e.g.:
–– the redemption rate by the end-customer may be similar;
–– the terms and conditions may be similar; and
–– the airline may be able to demonstrate that points are issued at a similar price.
In these circumstances, an airline may determine that the stand-alone selling
price of loyalty points sold to a non-airline partner is similar to that for loyalty
points earned by customers for their travel. When making this judgement, an
airline considers all facts and circumstances carefully.
4 Loyalty points – other areas to focus on | 19
4 Loyalty points – other areas

to focus on
Tier-status programmes
Airlines may offer customers certain levels of tier status based on how often
they have flown during the previous year. These tier-status programmes provide
benefits such as free upgrades, early boarding, free lounge membership and free
bag checking.
The contract to purchase a good or service (such as an air ticket) could contain
a material right if the purchase provides the customer with incremental benefits
on future purchases – e.g. the right to free or discounted services in the future –
through a tier-status programme.
Airlines that operate tier-status programmes need to consider whether ticket sales
contain a material right that is accounted for separately.
Changes in estimated redemption of loyalty points

When accounting for loyalty points earned by customers for travel or for loyalty
points sold to non-airline partners, airlines make estimates about the future
redemption rates. These estimates are taken into account in determining the
stand-alone selling price of loyalty points and are reviewed on a regular basis.
If estimates change – e.g. the number of points expected to be redeemed
increases – then the contract liability for the loyalty points is remeasured with a
corresponding adjustment to revenue.
If the likelihood of redemption of outstanding points becomes remote, then an
airline derecognises the corresponding contract liability and recognises revenue,
but only if this would not result in a future revenue reversal.
An airline considers the terms of its loyalty programme, including the terms
around the expiry of points, when setting its accounting policy for loyalty points. In
particular, it considers how to determine when the likelihood that a customer will
redeem the points becomes remote.
5 Ancil ary services and

change fees
Overview
Ancillary service fees – e.g. fast check-in, seat selection, additional luggage, food
and drink on board and airport shuttles – are sometimes charged by airlines. These
services can be implicitly included in the airfare or offered in addition to passenger
transportation services. Customers can purchase these services either when they
book their flight, or later.
Change fees are often charged by airlines for making changes to the original
booking – e.g. changes in travel date or destination.
For the ancillary services that are purchased at the time of the flight booking,
there may be more focus on identifying performance obligations (see Section 3) to
assess whether they are capable of being distinct and are distinct in the context
of the contract. However, if the ancillary services are purchased after the original
flight booking or changes are made to the original booking, then it is also important
to consider the contract modification guidance. The accounting for the contract
modification could significantly impact the timing of revenue recognition (see
Section 8). The key considerations in accounting for ancillary services and change
fees are:
– identifying performance obligations;
– identifying contract modifications; and
– the timing of revenue recognition.
5 Ancillary services and change fees | 21

A contract modification is a change in the scope or price of a contract, or both. It
may be described as a change order, a variation or an amendment. The flow chart
below provides an overview of the requirements.
Is the contract modification No Do not account for contract

approved? modification until approved
Yes
Does it add distinct goods

No Are the remaining goods
or services that are priced
or services distinct from
commensurate with their
those already transferred?
stand-alone selling prices?
Yes No
Yes
Account for as
Account for as Account for as part
termination of existing
separate contract of the original
contract and creation
of new contract contract
A contract modification is approved when it creates or changes the enforceable

rights and obligations of the parties to the contract. The approval may be written,
oral or implied by customary business practices but it must be legally enforceable.
These requirements are discussed further in Chapter 7 of our Revenue Issues
In‑Depth publication.
Change fees no longer recognised when received
Under existing IFRS, airlines generally recognise change fees as revenue when
a passenger requests a change and pays the fee. These transactions, which
change existing bookings, are considered as separate services.
Under the new standard, the change service is typically not considered distinct
because the customer cannot benefit from it without taking the flight. Although
the change service is provided in advance of the flight, the benefit from it is
not provided until the customer takes the flight. As a result, the change fee is
recognised as revenue together with the original ticket sale – i.e. on the date
of travel.
If an airline enters into a new agreement with an existing customer, with which
it has a pre-existing contract with an unfulfilled performance obligation, then
the new agreement may need to be evaluated to determine whether it is a
modification of the pre-existing contract.
Some ancillary services – e.g. fast check-in and seat selection – are unlikely to be
a separate performance obligation because they are not distinct – i.e. customers
are not able to benefit from the services independently from the travel service
(see Section 5).
Change fees are charged by airlines for making changes to the original contract,
such as changes in travel date or destination. When the scope or price of a
contract is changed, the change is accounted for as a modification, regardless of
its form. Similarly, the ancillary service is not a separate performance obligation
because the customer cannot benefit from the change independently from the
travel service (see Section 3).
The following table provides examples of contract modifications, as well as how
to account for these modifications.
Contract modification Example How accounted for
Addition of a distinct A customer adds airport As a separate contract.

good or service at an shuttle transportation
undiscounted price service from city centre
to the airport and pays
the standard price; this
service is offered to
any customers going to
the airport, regardless
of whether they travel
onwards or go to the
airport to meet someone.
Addition of a distinct A customer adds lounge Termination of an

good or service access at a discounted existing contract and
at a price that is price; all remaining creation of a new
discounted from its services provided under contract.
stand-alone selling the original contract
price are distinct.
Addition of a good or A customer adds seat As part of the original

service to a contract selection service or extra contract.
that consists of a luggage.
single, integrated
performance
obligation where
that additional good
or service is highly
inter-related with the
single performance
obligation
6 Presentation of revenue – gross vs net | 23
6 Presentation of revenue –
gross vs net
Overview
Airlines often sell tickets to customers that include flight segments to be flown by
another airline, or enter into contracts for transporting cargo with another airline.
In these cases, an airline determines whether it acts as principal or agent in the
transaction and accounts for revenue accordingly – i.e. on a gross or a net basis.
Airlines usually charge government- and airport-based passenger taxes and fees at
the time of the ticket sale. Often, these are subsequently remitted to the relevant
authorities. Airlines may also make discretionary fuel surcharges, which are not
remitted to any authorities, and may or may not be explicitly stated in the airfare.
Therefore, it is important to analyse all relevant facts and circumstances to
evaluate whether an airline is acting as principal or agent in each case.

Determining the transaction price
The transaction price is the amount of consideration to which an entity expects to
be entitled in exchange for transferring goods or services to a customer, excluding
amounts collected on behalf of third parties – e.g. some sales taxes. To determine
this amount, an entity considers multiple factors.
Principal vs agent consideration

When other parties are involved in providing goods or services to an entity’s
customer, the entity determines whether the nature of its promise is a
performance obligation to provide the specified goods or services itself, or to
arrange for them to be provided by another party – i.e. whether it is a principal
or an agent. This determination is made by identifying each specified good or
service promised to the customer in the contract and evaluating whether the
entity obtains control of the specified good or service before it is transferred to
the customer.
When another party is involved, an entity that is a principal obtains control of any
one of the following:
– a good from another party that it then transfers to the customer;
– a right to a service that will be performed by another party, which gives the
entity the ability to direct that party to provide the service on the entity’s behalf;
or
– a good or a service from another party that it combines with other goods or
services to produce the specified good or service promised to the customer.
The new standard includes the following indicators to assist an entity in

evaluating whether it controls a specified good or service before it is transferred
to the customer:
– inventory risk;
– discretion to establish prices for specified goods or services; and
– primary responsibility to provide specified goods or services.
These requirements are discussed further in Chapters 5.3 and 10.3 of our Revenue
Issues In-Depth publication.
From risk and reward to transfer of control
There is a similar principle in current IFRS that amounts collected on behalf of

a third party are not accounted for as revenue. However, determining whether
an airline is acting as an agent or a principal under the new standard differs from
current IFRS, as a result of the shift from the risk-and-reward approach to the
transfer-of-control approach. Under current IFRS, an airline is a principal in a
transaction when it has exposure to the significant risks and rewards associated
with the sale of goods or the rendering of services. The IASB noted that the
indicators serve a different purpose from those in current IFRS, reflecting the
overall change in approach.
Credit risk no longer an indicator
Credit risk for the amount receivable in a transaction is no longer an indicator

when determining whether an airline is acting as principal or agent. Airlines
that considered customers’ credit risk in their analysis will need to reconsider
their conclusions. The presentation of revenue for interline cargo transportation
may change.
The specified good or service may be a right
The specified good or service to be transferred to the customer may, in some

cases, be a right to an underlying good or service that will be provided by another
party. For example, a travel website may sell an airline ticket that gives the
customer the right to fly on a particular airline, or an entity may provide a voucher
that gives the holder the right to a meal at a specified restaurant.
In these cases, the principal vs agent assessment is analysed by focusing on
who controls the right to the underlying good or service. For example, an entity
may be a principal in a transaction relating to a right, such as the sale of a voucher
giving the customer the right to a meal, even if another party controls and
transfers the underlying good or service (the meal) to the end-customer.
6 Presentation of revenue – gross vs net | 25
An entity may be a principal in a transaction relating to a right if it has the ability

to direct the use of the right to the underlying service because it has committed
itself to purchase the right and has inventory risk. The entity’s ability to establish
the price that the customer would pay for the right may also be a relevant
indicator to consider.
No specified hierarchy for the indicators
There is no specific hierarchy for the indicators and all of them are considered in
making the assessment. However, depending on the facts and circumstances,
one or more indicators may be more relevant to the specific contract. Assessing
the relevance of the indicators may be challenging when it is unclear whether
the entity or another party bears the responsibility, or when there are shared
responsibilities between the entity and another party.
For example, an entity that does not have primary responsibility for providing the
specified good or service, or bears the inventory risk, may have discretion to set
prices. In this case, the entity makes an overall assessment of all of the facts and
circumstances. This may include assessing whether the discretion to set prices
is merely a way for the entity to generate additional revenue while arranging for
another entity to provide the specified goods or services, or evidence that the
entity is acting as principal.
Airport charges and taxes
An airline applies judgement when assessing whether it is acting as agent or principal

for airport charges and taxes in each jurisdiction, including the fuel surcharge.
7 Air tickets – travel vouchers

Overview
Travel vouchers are often issued to passengers as a means of compensating
passengers for inconvenience caused by lost baggage, cancelled or delayed
flights. The compensation could be in the form of meal or hotel vouchers, free
loyalty points, free air tickets or a cash allowance. Depending on the facts and
circumstances, a travel voucher may represent:
– variable consideration; or
– a customer option for additional goods and services.

Variable consideration
Items such as refunds, penalties, credits, vouchers or similar items may result in
variable consideration. Promised consideration can also vary if it is contingent on
the occurrence or non-occurrence of a future event. Variability may be explicit or
implicit, arising from customary business practices, published policies or specific
statements, or any other facts and circumstances that would create a valid
expectation by the customer.
An entity assesses whether, and to what extent, it can include an amount of
variable consideration in the transaction price at contract inception.
An entity recognises a refund liability for consideration received or receivable if it
expects to refund some, or all, of the consideration to the customer.
Customer options
When an entity grants the customer an option to acquire additional goods or
services, that option may be a performance obligation under the contract if:
– it provides a right that the customer would not receive without entering into that
contract; and
– it gives the customer the right to acquire additional goods or services at a price
that does not reflect the stand-alone selling price for those goods or services.
These requirements are discussed further in Chapters 5.3.1 and 10.4.1 of our
Revenue Issues In-Depth publication.
7 Air tickets – travel vouchers | 27
Under current IFRS, when vouchers are distributed to customers on a

discretionary basis rather than as part of a sales transaction, no liability is
recognised for the vouchers because there is no performance obligation.
This is because the discretionary vouchers were not granted as part of a sales
transaction. These vouchers are treated as discounts against revenue when the
vouchers are redeemed by customers (see 4.2.440.50 of Insights into IFRS,
13th Edition).
Under the new standard, an airline needs to determine whether the travel
vouchers are penalties for non-performance and accounted for as variable
consideration, or customer options for additional goods and services and
accounted for as a separate performance obligation.
Variable consideration or optional purchases
Different outcomes and disclosure requirements can arise depending on

whether an airline concludes that travel vouchers are customer options for
additional goods or services or variable consideration. Travel vouchers that are
options are evaluated to determine whether they include a material right. Travel
vouchers that are variable consideration are factored into the initial determination
of the transaction price and may lead to additional estimation and disclosure
requirements. Travel vouchers cannot be expensed.
If an airline determines that travel vouchers represent variable consideration,
then it reduces revenue of the corresponding tickets accordingly. If an airline
determines that travel vouchers represent customer options for additional goods
and services, then it defers the related amount of revenue until the goods or
services are redeemed. Both approaches result in the reduction of revenue
for the travel service. However, revenue for a customer option is deferred
and recognised in the future, whilst no future revenue is associated with
variable consideration.
An airline considers the types of vouchers that it gives to passengers and
determines for each type whether it represents variable consideration or a
customer option and documents its accounting policy accordingly.
8 Holiday packages
Overview
Airlines may sell holiday packages, including flights, hotel accommodation, car
hire or restaurant or other admission tickets. These holiday packages may contain
multiple separate performance obligations. For each performance obligation, an
airline considers whether it is acting as principal or agent (see Section 6) and the
corresponding timing of revenue recognition.

Timing of revenue recognition
An entity evaluates whether it transfers control of the good or service over time – if
not, then it transfers control at a point in time.
Is the performance obligation satisfied over time

– i.e. is one of the criteria met?
Yes No
Recognise revenue at the point in

Identify an appropriate method to
time at which control of the good
measure progress
or service is transferred
Apply that method to recognise

revenue over time
A good or service is transferred to a customer when the customer obtains control

of it. ‘Control’ refers to the customer’s ability to direct the use of, and obtain
substantially all of the remaining benefits from, an asset. It also includes the ability
to prevent other entities from directing the use of, and obtaining the benefits
from, an asset. Potential cash flows that are obtained either directly or indirectly
– e.g. from the use, consumption, sale, or exchange of an asset – are benefits of
an asset.
8 Holiday packages | 29
The new standard requires an entity to recognise revenue progressively over time
when any one of the following criterion is met.
Criterion
The customer simultaneously receives and consumes the benefits

1
provided by the entity’s performance as the entity performs
The entity’s performance creates or enhances an asset that the

2
customer controls as the asset is created or enhanced
The entity’s performance does not create an asset with an alternative

3 use to the entity and the entity has an enforceable right to payment for
performance completed to date
In some cases, more than one of the criteria may be met. However, if none of the
criteria are met then control of the good or service transfers at a point in time.
For each performance obligation that is satisfied over time, an entity applies
a single method of measuring progress towards complete satisfaction of the
obligation. The objective is to depict the transfer of control of the goods or services
to the customer. To do this, an entity selects an appropriate output method (e.g.
surveys) or input method (cost incurred). It then applies that method consistently
to similar performance obligations and in similar circumstances.
The new standard includes indicators that control has transferred at a point in time.
Indicators that control has passed include a customer having...
... a present ... risks and

... physical ... accepted
obligation ... legal title rewards of
possession the asset
to pay ownership
The new standard also provides specific application guidance for principal vs agent
(see Section 6).
In-Depth publication.
New approach for identifying when to recognise revenue over time
Construction contracts and contracts for rendering services are currently

accounted for under the stage-of-completion method in accordance with IAS 11
Construction Contracts.
In contrast, the new standard uses new wording and new concepts that airlines
need to apply to the specific facts and circumstances of individual performance
obligations. Subtle differences in contract terms could result in different
assessment outcomes – and significant differences in the timing of revenue
recognition – compared with current practice.
Although many transportation services are unlikely to be affected, when
analysing hotel and car hire services, airlines may reach conclusions that differ
from current practice – e.g. if they act as principals for these services and
account for them at a point in time – i.e. when the customer takes the outward
flight – rather than over the period of the holiday.
Move away from a risk-and-reward approach

Currently, revenue from the sale of goods that are in the scope of IAS 18 is
recognised based on when, amongst other criteria, the entity has transferred to
the buyer the significant risks and rewards of ownership. Under this approach,
which is unlike the new standard, revenue is typically recognised at the point in
time at which risks and rewards pass, rather than when control transfers.
IFRIC 15 Agreements for the Construction of Real Estate introduced the notion
that the criteria for recognising a sale of goods could also be met progressively
over time, resulting in the recognition of revenue over time. However, this
approach is not generally applied, except in the specific circumstances envisaged
in IFRIC 15.
For construction contracts that are in the scope of IAS 11, and for contracts for
the rendering of services that meet the over-time criteria in the new standard,
revenue is recognised with reference to the stage of completion of the
transaction at the reporting date – i.e. measuring the entity’s performance in
satisfying its performance obligation.
The new standard applies a control-based approach (control can be transferred
either over time or at a point in time) to all arrangements, regardless of
transaction type or industry.
8 Holiday packages | 31
Use of control concept to recognise revenue aligns with the accounting for
assets
The new standard is a control-based model. First, an airline determines whether

control of the good or service transfers to the customer over time based on the
criteria in the new standard and, if it does, the pattern of that transfer. If control
of the good or service transfers to the customer at a point in time, the notion of
risks and rewards is retained only as an indicator of the transfer of control.
Assessing the transfer of goods or services by considering when the customer
obtains control may result in different outcomes – and therefore significant
differences in the timing of revenue recognition. The IASB believes that it can
be difficult to judge whether the risks and rewards of ownership have been
transferred to a customer, so applying a control-based model may result in more
consistent decisions about the timing of revenue recognition.
The new standard extends a control-based approach to all arrangements,
including service contracts. The IASB believes that goods and services are
assets – even if only momentarily – when they are received and used by the
customer. The new standard’s use of control to determine when a good or
service is transferred to a customer is consistent with the current definitions of
an asset under IFRS, which principally use control to determine when an asset is
recognised or derecognised.
New conceptual basis for revenue recognition
The new standard takes a conceptually different approach to revenue recognition

from current IFRS. Although the basic accounting outcomes – recognition of
revenue at a point in time or over time – are similar, they may apply in different
circumstances for many entities.
Example – Holiday packages
Airline B enters into a contract with Customer C for a 3-week holiday package,
which includes return flights and hotel accommodation.
B concludes that the flights and the hotel accommodation are two separate
performance obligations and that it acts as principal for both.
Hotel accommodation: B determines that the hotel service meets Criterion 1 –
i.e. C simultaneously receives and consumes the benefits of the hotel service
provided by B’s performance. Because one of the three over-time criteria is met,
B recognises revenue relating to the hotel services on a straight-line basis over
the 3-week holiday period.
Flight service: B determines that the flight service does not meet any of the three
over-time criteria. B recognises revenue relating to the flight services at a point in
time when C takes its outbound and inbound flights respectively.
9 Transition approach
The new standard offers the following transition options.
Retrospective Entities recognise the cumulative effect of applying the

method (with new standard at the start of the earliest comparative
optional period presented.
practical
expedients) They can also elect to use any or all of four practical
expedients. Two of these provide relief from applying
the new standard to certain types of contracts that are
completed under current GAAP. One provides relief with
respect to contract modifications and another provides
exemption from disclosing the amount of the transaction
price allocated to the remaining performance obligations for
the comparative periods presented.
Cumulative Entities recognise the cumulative effect of applying the
effect method new standard at the date of initial application, with no
restatement of the comparative periods presented – i.e.
the comparative periods are presented in accordance with
current GAAP.
An entity may choose to apply the new standard to all its
contracts or only to those contracts that are open under
current GAAP at the date of initial application.
Entities may also elect to use the practical expedient
available with respect to contract modifications.
For the current period, entities are required to disclose the
quantitative effect and an explanation of the significant
changes between the reported results under the new
standard and those that would have been reported under
current GAAP.
For detailed discussion on the transition requirements, refer to our publication

Revenue Transition Options.
9 Transition approach | 33
Retrospective or cumulative effect approach
An airline can choose to apply the new standard either from the start of the
earliest comparative period presented (retrospective approach) or from the start
of the current period (cumulative effect approach).
If an airline applies the new standard from 1 January 2018 and presents one year
of comparative information, under the retrospective approach it would present
revenue for both 2017 and 2018 in accordance with the new standard and adjust
retained earnings at 1 January 2017. Under the cumulative effect approach, the
airline would present only the current year, 2018, in accordance with the new
standard and adjust retained earnings at 1 January 2018.
It is also important to note that the transition approach and practical expedients
are applied at the entity level – i.e. they cannot be used on a contract-by-
contract basis.
Completed contracts practical expedient

Under either approach, an airline can choose to apply the standard only to those
contracts that are not complete at the date of transition. The new standard
defines a completed contract as a contract for which the entity has transferred to
the customer all the goods or services identified under IAS 11, IAS 18 and related
interpretations.
If an airline has a small population of multi-year projects, then the choice of
transition approach and use of the completed contracts practical expedient may
result in little difference on transition, because there may be limited differences in
the contracts considered in the scope of the new standard.
Contract modification practical expedient
Under the contract modifications practical expedient, an airline need not evaluate
the effects of contract modifications separately before the beginning of the
earliest reporting period presented.
Instead, an airline may reflect the aggregate effect of all of the modifications that
occur before the beginning of the earliest period presented in:
–– identifying the satisfied and unsatisfied performance obligations;
–– determining the transaction price; and
–– allocating the transaction price to the satisfied and unsatisfied performance
obligations.
If an airline follows the cumulative effect approach, it can choose to apply
this practical expedient to modifications that occur up to the start of the
current period.
This practical expedient essentially allows an airline to use hindsight when
assessing the effect of a modification on a contract. However, it does not exempt
an airline from applying other aspects of the requirements to a contract – e.g.
identifying the performance obligations in the contract and measuring the
progress towards complete satisfaction of those performance obligations.
Variable consideration practical expedient
When applying the retrospective method, an airline may choose to use the
transaction price at the date on which the contract was completed, rather than
estimating the variable consideration amounts.
The main advantage in applying this practical expedient is that, for completed
contracts, an airline need not apply the variable consideration guidance to variable
amounts in the transaction price. This may result in revenue being recognised
earlier than it would have been if a fully retrospective approach had been
followed. For example, if a contract included a completion bonus, the airline could
use the known outcome for that bonus when calculating the transaction price,
rather than estimating the amount using the variable consideration guidance.
Disclosure practical expedient
Under this practical expedient, for reporting periods presented before the date of
initial application, an airline need not disclose:
–– the amount of the transaction price allocated to the remaining performance
obligations; or
–– an explanation of when the airline expects to recognise that amount as
revenue.
10 Disclosures | 35
10 Disclosures
The objective of the disclosure requirements is for an entity to disclose sufficient
information to enable users of financial statements to understand the nature,
amount, timing and uncertainty of revenue and cash flows arising from contracts
with customers.
Entities disclose, separately from other sources of revenue, revenue recognised
from contracts with customers and any impairment losses recognised on
receivables or contract assets arising from contracts with customers. If an entity
elects either the practical expedient not to adjust the transaction price for a
significant financing component, or the practical expedient not to capitalise costs
incurred to obtain a contract, then it discloses this fact.
To meet the disclosure objective, the new standard has specific disclosure
requirements in the following areas.
Performance
obligations
Contract Significant
balances judgements
Understand
nature, amount,
Disaggregation timing and Costs to obtain or
of revenue uncertainty of fulfill a contract
revenue and
cash flows
For further information on the disclosure requirements, refer to our Guide to

annual financial statements – IFRS 15 supplement.
Disclosures are significantly expanded under the new standard

Existing IFRSs include minimal specific disclosure requirements with respect to
revenue. In comparison, the new standard has extensive disclosure requirements
that are intended to help users better understand the nature, amount, timing and
uncertainty of revenue and cash flows arising from contracts with customers.
The new standard introduces disclosures that require information not previously
needed for financial reporting. The disclosures may require information that is
incremental to the data and information needed for recording revenue in the
financial statements.
All entities are affected by the new disclosure requirements to some extent.
However, the additional information needed will vary depending on the relevance
of the different requirements to the entity. It is important to assess the additional
disclosure requirements fully.
Entities should assess whether their current systems and processes are capable
of capturing, tracking, aggregating and reporting information to meet the new
disclosure requirements. For many entities, this may require significant changes
to existing data-gathering processes, IT systems and internal controls.
A helpful table of what’s new with respect to disclosures is included in KPMG’s
Guide to annual financial statements – IFRS 15 supplement.
Further resources | 37
More information about airline accounting |
Further resources
High level briefing
IFRS Blog | IFRS 15 Revenue – The reality may surprise you First Impressions | IFRS 15 Revenue
Web article | New revenue standard – Introducing IFRS 15 Briefing | Accounting for revenue is changing
In-depth analysis
Issues In-Depth | Revenue: IFRS & US GAAP Guide to annual financial statements | IFRS 15 supplement
Transition Options | Revenue
More information about airline accounting

IAWG Accounting Guides:
As of 15 June 2017, the IATA Industry Accounting Working Group (IAWG) in association with advisors from international
accounting firms, including KPMG, has compiled a list of non-prescriptive accounting guides on the following topics.
Revenue recognition for interline transactions Passenger tickets – breakage and vouchers
Estimating stand-alone selling price of loyalty credits Co-brand deliverables
Accounting for commissions and selling costs Determination of whether loyalty status constitutes a
separate deliverable
Accounting for passenger taxes and related fees Co-brand arrangement adjustments for volume and overall
transaction allocation
Interline loyalty transactions
More updated information
kpmg.com/ifrs
Publication name: Are you good to go? – IFRS 15 for airlines
Publication number: 134751
Publication date: June 2017
The KPMG name and logo are registered trademarks or trademarks of KPMG International.
KPMG International Standards Group is part of KPMG IFRG Limited.
KPMG International Cooperative (‘KPMG International’) is a Swiss entity that serves as a coordinating entity for a network of
independent firms operating under the KPMG name. KPMG International provides no audit or other client services. Such services
are provided solely by member firms of KPMG International (including sublicensees and subsidiaries) in their respective geographic
areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein
shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member
firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any other member firm, nor
does KPMG International have any such authority to obligate or bind KPMG International or any other member firm, nor does KPMG
International have any such authority to obligate or bind any member firm, in any manner whatsoever.
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual
or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is
accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information
without appropriate professional advice after a thorough examination of the particular situation.

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IFRS 15

What may change?

Ancillary revenue and change fees

Interline cargo revenue

1 Air tickets – breakage

Requirements of the new standard

How does this approach differ from existing requirements?

Application of the new requirements

Systems’ ability to provide reliable data for estimates

Although an entity considers the variable consideration guidance to determine

Example – Airline expects ticket breakage and can estimate it

Example – Airline cannot reliably estimate breakage

2 Air tickets – air travel and

Requirements of the new standard

Expected cost Forecast the expected costs of satisfying a performance

Residual Subtract the sum of the observable stand-alone selling

Selling price Criterion

Allocating the transaction price

How does this approach differ from existing requirements?

Similar emphasis on use of observable inputs

Residual approach not restricted to delivered items

Treatment of customer loyalty programmes may change

Application of the new requirements

Systems’ ability to provide reliable data for estimates

Similar to ticket breakage, an airline needs to be able to make sufficiently reliable

Prices are observable for the following

Example – Loyalty points granted to programme members

Airline B offers the following customer loyalty programme.

The customer loyalty programme provides C with a material right because C

Air ticket 1,000a 91.7% 917 (1,000 x 91.7%)

Points 90b 8.3% 83 (1,000 x 8.3%)

Total 1,090 100% 1,000

a. Stand-alone selling price for the air ticket.

3 Arrangements with non-

Requirements of the new standard

Not distinct – combine with

Promises to transfer a good or a service can be stated explicitly in a contract or

How does this approach differ from existing requirements?

More guidance on separating goods and services in the contract

The pattern of revenue recognition for licences may change

Application of the new requirements

For different scenarios or types of contracts, certain indicators may provide

Analysing arrangements with more than one performance obligation

However, in some circumstances, an airline may conclude that points granted

4 Loyalty points – other areas

Changes in estimated redemption of loyalty points

5 Ancil ary services and

Requirements of the new standard

Is the contract modification No Do not account for contract

Does it add distinct goods

A contract modification is approved when it creates or changes the enforceable

How does this approach differ from existing requirements?

Change fees no longer recognised when received

Application of the new requirements

Contract modification Example How accounted for

Addition of a distinct A customer adds airport As a separate contract.

Addition of a distinct A customer adds lounge Termination of an

Addition of a good or A customer adds seat As part of the original

Requirements of the new standard