What is the air traffic liability?
When a passenger buys a ticket, the airline receives cash for a service it has not yet provided, a contract liability under IFRS 15 that airlines call the air traffic liability or unearned transportation revenue. Revenue is recognised when the flight takes place, and each segment of a journey is recognised when it is flown. Taxes and airport charges collected with the ticket are owed to the authorities and airports, so they are separate liabilities, not part of revenue. The liability is usually one of an airline's largest, and its estimates are a common key audit matter.
Unused tickets: breakage on a month's flights
An airline has sold US$ 100 million of tickets for flights in July. Passengers holding 96 million of tickets fly. The other 4 million are not used on the day; under the fare rules, their value can be used as credit for a new booking within 12 months. Experience shows that 75% of such credits are never used.
| US$ million | Amount | Accounting in July |
|---|---|---|
| Tickets sold for July flights | 100 | Air traffic liability |
| Tickets flown | 96 | Passenger revenue |
| Expected to expire unused | 3 | Breakage revenue at the scheduled flight date |
| Expected to be used as credit | 1 | Stays in the liability |
IFRS 15 recognises expected breakage in proportion to the pattern of rights the customers exercise, and only to the extent a significant reversal is highly unlikely. Many airlines, including the large US carriers, recognise breakage at the scheduled flight date, when the original obligation lapses, using historical data by fare type and route. Others recognise it as the related credits are used, or when they expire. If the airline could not estimate breakage reliably, it would recognise the 4 million only when the credits are used or expire. The same principle applies to prepaid airtime and gift cards.
How are refundable tickets treated?
A refundable fare that the passenger does not use is not breakage if the passenger can claim the money back: the amount expected to be refunded is a refund liability, and only refundable tickets expected never to be claimed, after the claim period ends or based on experience, can be recognised as revenue. Under some fare rules, refunds are paid automatically for unused segments or taxes, which also reduces breakage. Estimates are made by fare family, because behaviour differs widely between business travellers on flexible fares and leisure travellers on the cheapest tickets.
How are travel credits and vouchers accounted for?
When an airline cancels a flight, the passenger may be entitled to a refund, or may accept a voucher or credit instead. Vouchers and credits are contract liabilities until used, refunded or expired, with breakage estimated in the same way as for tickets. In 2020, airlines issued vouchers on an unprecedented scale and many extended their validity, which reset breakage estimates because past behaviour was a poor guide. When an airline extends the validity of credits, it reassesses the expected breakage, and the change is a change in estimate.
How are change fees and other ticket fees recognised?
A fee a passenger pays to change a booking is not a distinct service: it relates to the flight the passenger will now take. So it is added to the transaction price for that flight and recognised when the new flight is flown, not when the change is made. Fees for seat selection, bags and other extras sold with the ticket follow the same logic and are usually recognised when the related flight takes place. See ancillary revenue. Cancellation fees retained on a refundable ticket are recognised when the refund obligation is settled.
What about tickets for flights on other airlines?
When one airline sells a ticket that includes a segment operated by another, the selling airline passes the value of that segment to the operating airline through interline settlement. The operating airline recognises revenue when it flies the segment, and the selling airline has a liability to pay the operating airline, not revenue for that segment. For codeshare flights, each airline assesses whether it is principal for the flight it markets but does not operate; the operating carrier is usually the principal. See principal versus agent.
How does US GAAP differ?
ASC 606 uses the same contract liability and breakage model, and US airlines disclose air traffic liability balances and breakage policies in detail. Unclaimed property laws in some jurisdictions can require unused amounts to be paid to the state, in which case they are not breakage. Miles earned on tickets are a separate deferred balance; see frequent flyer programmes and airline accounting.
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Questions people ask
When do airlines recognise ticket revenue?
When the passenger flies; until then, the ticket is part of the air traffic liability.
How is breakage on unused airline tickets recognised?
Expected breakage is recognised in line with the pattern of passengers' use, often at the scheduled flight date, if a significant reversal is highly unlikely.
Is an unused refundable ticket breakage?
Not while the passenger can claim a refund; the expected refund is a refund liability.
When are airline change fees recognised?
When the changed flight is flown, because the fee is part of the price of that flight, not a separate service.
Sources
Every fee, date and rule on this page was taken from these official and primary sources.
- IFRS Foundation: IFRS 15 Revenue from Contracts with Customers
- FASB Accounting Standards Codification: Topic 606, Revenue from Contracts with Customers
- Financial Accounting Standards Board: Revenue recognition
Rules and fees change. If you are reading this long after October 9, 2026, confirm the figures with the source before you rely on them.
Related guides
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This guide is general information. It is not tax or legal advice for your situation.