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Option #2: Southwest Airlines Case Analysis
Prepare your case analysis in a PowerPoint presentation. Please make sure your responses are well-written and have proper citations, if applicable.
The new revenue recognition standard issue by the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) will call for major changes in the way companies in the airline industry recognize revenue. Airlines may have to change how they account for loyalty status benefits, mileage credits, change fees, and breakage for tickets that expire unused. The American Institute of Certified Public Accountants (AICPA) has formed an airlines task force to address implementation issues of the new standard for the airline industry. Assume that you have been called upon to present an analysis of the impact of the new standard on Southwest Airlines.
Refer to Southwest’s (ticker symbol: LUV) current/most recent financial statements (10-K) and the accompanying notes to answer the following questions. The current/most recent financial statement can be found on the SEC’s Edgar Company Filings page (Links to an external site.). Search for the company in the ‘Fast Search’ box by using the ticker symbol provided above. In the list of results, find the latest filing labeled 10-K and select the ‘Documents’ link. On the next page, select the document of type ’10-K’ to open it.
- Provide an overview of Southwest’s current fare structures and revenue sources.
- For each of the following revenue categories, describe the current accounting, the likely changes (if any) that the new revenue recognition standard will require, and the potential impact of those changes on patterns of revenue recognition.
- Flight Transportation (for tickets used and for ticket breakage)
- Loyalty Program
- Ancillary Services and Other Revenue
- Identify any areas that will require more discretion and judgment and specify why.