Air Canada 2006 Annual Report Download - page 26

The following table compares Air Canada Services’ operating expenses per ASM for 2006 to Air Canada
Services’ operating expenses per ASM in 2005.
($ cents per ASM)
2006 2005 $%
Salary and wages 2.35 2.45 (0.10) (4)
Benefits 0.62 0.70 (0.08) (11)
Ownership (DAR)
(1) 1.32 1.27 0.05 4
Airport and navigation fees 1.61 1.57 0.04 3
Aircraft maintenance, materials and supplies 1.26 1.18 0.08 7
Food, beverages and supplies 0.53 0.55 (0.02) (4)
Commissions 0.39 0.43 (0.04) (9)
Capacity purchase fees paid to Jazz 1.43 1.18 0.25 21
Other 2.70 2.78 (0.08) (3)
Operating expense, excluding fuel expense 12.21 12.11 0.10 1
and the special charge for labour restructuring
(2)
Aircraft fuel 4.17 3.73 0.44 12
Special charge for labour restructuring 0.03 - 0.03 n/a
Total operating expense 16.41 15.84 0.57 4
Change
(1) DAR refers to the combination of Aircraft rent and Depreciation, amortization and obsolescence.
(2) Refer to section 20 “Non-GAAP Financial Measures” in this MD&A for additional information.
Salaries and wages expense totaled $1,437 million in 2006, a decrease of $6 million from 2005, mainly
reflecting a reduction of 2 percent or an average of 413 FTE employees.
Employee benefits expense amounted to $379 million in 2006, a decrease of $35 million or 8 percent over
2005. This decrease was largely due to a decline in post-employment benefits partly offset by higher pension
expense which reflected a lower discount rate applied to pension obligations. Included in Quarter 4 2006 was a
favourable adjustment of $8 million related to an updated evaluation of workers’ compensation liability. Included
in Quarter 4 2005 was an unfavourable adjustment of $5 million relating to an updated actuarial evaluation of
workers’ compensation liability.
Fuel expense increased $347 million or 16 percent in 2006, driven by high fuel prices. In 2006, an average
base fuel price increase of $384 million, a volume-related increase of $100 million and an increased fuel
hedging loss of $40 million were partially offset by a reduction of $177 million due to the favourable impact of a
stronger Canadian dollar.
Ownership costs, comprised of aircraft rent, depreciation, amortization and obsolescence expenses, increased
$62 million in 2006. Increases in ownership costs included a change in assumptions relating to the residual
value of certain aircraft, the addition of 16 Embraer aircraft to Air Canada’s operating fleet and increased MD-11
freighter aircraft flying in the first half of 2006. Decreases in ownership costs included the transfer of 10 CRJ-
100 aircraft to Jazz, the impact of a stronger Canadian dollar on aircraft rent and the impact of aircraft returns
and terminations.
Airport and navigation fees increased $58 million or 6 percent in 2006, mainly due to a 6 percent increase in
aircraft departures and increased rates for landing and general terminal fees primarily at Toronto’s Pearson
International Airport. At Pearson, general terminal charges rose 9 percent per seat for domestic and
international arrivals. These increases were partly offset by a rate reduction for navigation fees in Canada and
Europe and favourable foreign exchange for international navigation fees.
Aircraft maintenance, materials and supplies increased $75 million or 11 percent in 2006 primarily due to growth
in Airbus A320 aircraft maintenance costs and, to a lesser extent, in Boeing 767 aircraft maintenance costs.
The Airbus A320 engines are in a work cycle that requires replacement of life limited parts as well as major
inspections. Other engine maintenance increases were due to an increase in maintenance activity for Airbus
A340 aircraft and overall engine price increases. These increases were partially offset by reduced Boeing 767
engine maintenance activity. An addition to maintenance reserves required to satisfy minimum return
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