1. In reality, the total ticket prices is a function of airfare to United and taxes and fees paid to the government. Do those taxes and fees United collects for the government show up on the income statement? Why or why not?

2. Briefly comment on the likely cause of revenue variation across fiscal quarters. What characteristic of the firms cost structure is likely to contribute to consistent first-quarter operating losses?

SELECTED QUARTERLY FINANICAL DATA
UAL			Quarter	Ended
(In millions, except for share amounts)		31-Mar	30-Jun	30-Sep	31-Dec
2014
Operating revenue	$	8696	10329	10563	9313
Income (loss) from operations		-349	906	1191	625
Net Income (loss)		-609	789	924	28
Basic Earnings (loss) per share		-1.66	2.11	2.49	0.08
Diluted earnings (loss) per share		-1.66	2.01	2.37	0.07
2013
Operating revenue	$	8721	10001	10228	9329
Income (loss) from operations		-264	770	508	235
Net Income (loss)		-417	469	379	140
Basic Earnings (loss) per share		-1.26	1.37	1.06	0.39
Diluted earnings (loss) per share		-1.26	1.21	0.98	0.37

Below are some things to keep in mind for the two questions.

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition

The value of unused passenger tickets is included in current liabilities as advance ticket sales.

The Company records passenger ticket sales and tickets sold by other airlines for use on United as passenger revenue when the transportation is provided or upon estimated breakageNon-refundable tickets generally expire on the date of the intended flight, unless the date is extended by notification from the customer on or before the intended flight date.

Fees charged in association with changes or extensions to non-refundable tickets are recorded as other revenue at the time the fee is incurredChange fees related to non-refundable tickets are considered a separate transaction from the air transportation because they represent a charge for the Companys additional service to modify a previous sale.Therefore, the pricing of the change fee and the initial customer order are separately determined and represent distinct earnings processes.

Refundable tickets expire after one year from the date of issuance.

The Company recognizes cargo and other revenue as service is provided.

Under our capacity purchase agreements (CPAs) with regional carriers, we purchase all of the capacity related to aircraft covered by the contracts and are responsible for selling all of the related seat inventory. We record the passenger revenue (Passenger-regional) and related expenses (Regional capacity purchase) as separate operating revenue and expense in the consolidated statement of operations.

Ticket Taxes

Certain governmental taxes are imposed on the Companys ticket sales through a fee included in ticket prices. The Company collects these fees and remits them to the appropriate government agency. These fees are recorded on a net basis (excluded from operating revenue).

Frequent Flyer Accounting

Uniteds MileagePlus program is designed to increase customer loyalty. Program participants earn miles by flying on United and certain other participating airlines. Program participants can also earn miles through purchases from other non-airline partners that participate in Uniteds loyalty programThe Company records its obligation for future award redemptions using a deferred revenue model.

Miles Earned in Conjunction with Flights

In the case of the sale of air services, the Company recognizes a portion of the ticket sales as revenue when the air transportation occurs and defers a portion of the ticket sale representing the value of the related miles as a multiple-deliverable revenue arrangement. The miles are recorded in frequent flyer deferred revenue on the Companys balance sheet and recognized into revenue when the transportation is provided.

The Company determines the estimated selling price of air transportation and miles as if each element is sold on a separate basis. The total consideration from each ticket sale is then allocated to each of these elements individually on a pro rata basis. The Companys estimated selling price of miles prior to April 1, 2014 was based on the price we sell miles to Star Alliance partners in our reciprocal frequent flyer agreements as the best estimate of selling price for these miles.

Co-branded Credit Card Partner Mileage Sales

United has a significant contract, the Consolidated Amended and Restated Co-Branded Card Marketing Services Agreement (the Co-Brand Agreement), to sell MileagePlus miles to its co-branded credit card partner, Chase Bank USA, N.A. (Chase). United identified five revenue elements in the Co-Brand Agreement:

The air transportation element represented by the value of the mile

Use of the United brand and access to MileagePlus member lists

Advertising

Baggage services

Airport lounge usage

The fair value of the elements is determined using managements estimated selling price of each element. The objective of using the estimated selling price based methodology is to determine the price at which we would transact a sale if the product or service were sold on a stand-alone basis.

The Company records passenger revenue related to the air transportation element when the transportation is delivered. The other elements are generally recognized as Other operating revenue when earned.

Expiration of Miles

The Company accounts for miles sold and awarded that will never be redeemed by program members, which we refer to as breakage. The Company reviews its breakage estimates annually based upon the latest available information regarding redemption and expiration patterns. Miles expire after 18 months of member account inactivity.