REVENUE

3 Months Ended

Mar. 31, 2020

Revenue Recognition and Deferred Revenue [Abstract]

Passenger Revenues

Revenue is categorized by revenue source as the Company believes it best depicts the nature, amount, timing, and uncertainty of revenue and cash flow. The following table provides the components of Passenger revenue recognized for the three months ended March 31, 2020 and 2019:



	Three months ended March 31,
(in millions)	2020		2019
Passenger non-loyalty	$	3,220	$	4,043
Passenger loyalty - air transportation	461		535
Passenger ancillary sold separately	164		167
Total passenger revenues	$	3,845	$	4,745

As of March 31, 2020, and December 31, 2019, the components of Air traffic liability and Air traffic liability - noncurrent, including contract liabilities based on tickets sold, unused funds available to the Customer, and loyalty points available for redemption, net of expected spoilage, within the unaudited Condensed Consolidated Balance Sheet were as follows:



	Balance as of
(in millions)	March 31, 2020		December 31, 2019
Air traffic liability - passenger travel and ancillary passenger services	$	2,650	$	2,125
Air traffic liability - loyalty program	3,561		3,385
Total Air traffic liability	$	6,211	$	5,510

Rollforwards of the Company's Air traffic liability - loyalty program for the three months ended March 31, 2020 and 2019 were as follows (in millions):



	Three months ended March 31,
	2020			2019
Air traffic liability - loyalty program - beginning balance	$	3,385		$	3,011
Amounts deferred associated with points awarded	656			711
Revenue recognized from points redeemed - Passenger	(461		)	(535		)
Revenue recognized from points redeemed - Other	(19		)	(16		)
Air traffic liability - loyalty program - ending balance	$	3,561		$	3,171

Air traffic liability includes consideration received for ticket and loyalty related performance obligations which have not been satisfied as of a given date. Rollforwards of the amounts included in Air traffic liability as of March 31, 2020 and 2019 were as follows (in millions):



	Air traffic liability
Balance at December 31, 2019	$	5,510
Current period sales (passenger travel, ancillary services, flight loyalty, and partner loyalty)	4,565
Revenue from amounts included in contract liability opening balances	(1,949		)
Revenue from current period sales	(1,915		)
Balance at March 31, 2020	$	6,211



	Air traffic liability
Balance at December 31, 2018	$	5,070
Current period sales (passenger travel, ancillary services, flight loyalty, and partner loyalty)	5,704
Revenue from amounts included in contract liability opening balances	(2,008		)
Revenue from current period sales	(2,752		)
Balance at March 31, 2019	$	6,014

In first quarter 2020, the Company experienced a significantly higher number of Customer driven flight cancellations as a result of the COVID-19 pandemic. See Note 2 for further information. As a result, the amount of Customer travel funds held by the Company that can be redeemed for future travel as of March 31, 2020, far exceeds previous periods and represents approximately one third of the total Air traffic liability balance at March 31, 2020, as compared to approximately 13 percent of the total Air traffic liability balance at December 31, 2019. In order to provide additional flexibility to Customers who own these funds, the Company has significantly relaxed its previous policies with regards to the time period within which these funds can be redeemed, which is typically twelve months from the original date of purchase. For all Customer travel funds created or expired between March 1 and September 7, 2020 associated with flight cancellations, the Company has extended the expiration date to September 7, 2022. The more significant of these ticket policy changes occurred in April 2020, which may result in a portion of these funds shifting to non-current, based on changes in expectations of when they will be redeemed for travel.

Spoilage estimates are based on the Company's Customers' historical travel behavior as well as assumptions about the Customers' future travel behavior. Assumptions used to generate spoilage estimates can be impacted by several factors including, but not limited to: fare increases, fare sales, changes to the Company's ticketing policies, changes to the Company’s refund, exchange, and unused funds policies, seat availability, and economic factors. Given the unprecedented amount of first quarter 2020 Customer flight cancellations and the amount of travel funds provided, the Company expects additional variability in the amount of spoilage revenue recorded in future periods, as the estimates of the portion of those funds that will expire unused may differ from historical experience.

The Company has a co-branded credit card agreement (the “Agreement”) with Chase Bank USA, N.A. (“Chase”), through which the Company sells loyalty points and certain marketing components, which consist of the use of Southwest Airlines’ brand and access to Rapid Rewards Member lists, licensing and advertising elements, and the use of the Company’s resource team. The Company recognized revenue related to the marketing, advertising, and other travel-related benefits of the revenue associated with various loyalty partner agreements including, but not limited to, the Agreement with Chase, within Other operating revenues. For the three months ended March 31, 2020 and 2019, the Company recognized $321 million and $319 million, respectively.