Air Canada 2006 Annual Report Download - page 25

to year-round service in the latter part of 2005. In addition, in September 2006, Air Canada modified its Halifax-
St. John’s-London route to operate non-stop between Halifax and London. In November 2006, Air Canada
introduced new non-stop service between Edmonton and London. Air Canada’s Atlantic service was impacted
by the August 10, 2006 terrorist threat in the United Kingdom and the new security measures introduced
subsequently across the entire network.
Pacific passenger revenues increased $22 million or 2 percent in 2006 compared to 2005 due to traffic growth
and increased fuel surcharges to offset higher fuel costs. Yield improved 1 percent over 2005. The impact of
increased fuel surcharges was largely offset by the negative effect of a stronger Canadian dollar on foreign
currency denominated revenues. A higher average business class fare was also a factor in the yield increase.
The traffic growth in 2006 was largely offset by the change in the India service in November 2005 from Toronto-
Delhi to Toronto-Zurich-Delhi. In 2005, all revenues from the India services were reflected in the Pacific route
grouping whereas in 2006 only Zurich-Delhi revenue was reflected in the Pacific route grouping. Excluding the
change in the India services, traffic increased approximately 6 percent while all countries in the Pacific route
grouping, with the exception of Japan, were strong. For 2006, Pacific RASM increased 3 percent over 2005
due to both the 1.4 percentage point improvement in passenger load factor and the growth in yield.
Other passenger revenues (comprised of South Pacific, Caribbean, Mexico and South America) increased $55
million or 9 percent in 2006 compared to 2005 due to a yield improvement of 6 percent, as a result of increased
fuel surcharges to offset higher fuel costs, and to an increase in traffic. Traffic grew 3 percent on a capacity
increase of 1 percent resulting in a passenger load factor improvement of 1.8 percentage points over 2005.
Traffic growth was primarily reflected in the Mexico and South America markets due to increased capacity and
stronger market demand. For 2006, RASM increased 8 percent due to both the improvement in passenger load
factor and the yield increase.
Cargo Revenues
For the year 2006, cargo revenues increased $4 million or 1 percent due to a growth in cargo traffic of 4 percent
partly offset by a 3 percent decline in yield per revenue ton mile. Freighter revenues increased $28 million over
2005 mostly in the Pacific market during the first six months of 2006 where additional MD-11 freighter capacity
was deployed. Effective November 2006, Air Canada reduced its freighter aircraft from three to two chartered
MD-11 freighter aircraft. Shanghai operations have been reduced from five times a week to three times a week
and freighter operations to Europe remain essentially unchanged.
Cargo revenues from non-freighter operations declined $24 million or 5 percent from 2005 mainly as a result of
a 3 percent reduction in traffic and a 2 percent decline in yield per revenue ton mile. Of this, revenues from
North American non-freighter services were down $10 million or 6 percent on reduced traffic partly offset by
higher yield per revenue ton mile. International non-freighter revenues were down $14 million or 4 percent
mainly as a result of lower yields. Adverse currency movements were an important factor in the yield decline.
Other Revenues
For 2006, other revenues increased $36 million or 5 percent over 2005. Increases included flight cancellation
and change fees, buy-on-board revenues and other miscellaneous revenues.
Operating Expenses
Operating expenses increased $705 million or 8 percent in 2006 largely reflecting a 4 percent growth in capacity
in addition to a $347 million or 16 percent increase in fuel expense.
For 2006, unit cost increased 4 percent over 2005. Excluding fuel expense and the special charge for labour
restructuring, unit cost increased 1 percent over 2005.
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Management's Discussion and Analysis of Results and Financial Condition