U.S. airlines employ one of two methods to account for frequent flyer program liabilities for mileage earned by paying passengers: either the Deferred Revenue Method or the Incremental Cost Method. Deferred Revenue Method recognizes a liability for the fair value of the outstanding mileage. The Incremental Cost Method recognizes a liability for the marginal cost of providing air transportation to eligible award passengers. [I believe AS still uses ICM.]

U.S. GAAP requires use of the Deferred Revenue Method for FFP liabilities arising from the sale of mileage credits to third parties (e.g., banks who issue mileage credits to their credit card customers). Under these third party sale arrangements, airlines divide the sale of mileage credits into two components: the value of future travel to be provided and the value of marketing services provided (e.g., allowing the third-party customer to use the issuing airline’s logo and branding, access its customer mailing list, etc.).