Air Canada 2006 Annual Report Download - page 62

the next few years. An outbreak of SARS or of another epidemic disease such as influenza (whether domestic
or international) or a further WHO travel advisory (whether relating to Canadian cities or regions or other cities,
regions or countries) could have a material adverse effect on passenger demand for air travel and on the
number of passengers traveling on the Corporation's and Jazz's flights. Any resulting reduction in traffic on the
Corporation's and Jazz's network could have a material adverse effect on the Corporation's business, results
from operations and financial condition.
Casualty Losses
Due to the nature of its core operating business, the Corporation may be subject to liability claims arising out of
accidents or disasters involving aircraft on which the Corporation's customers are traveling or involving aircraft
of other carriers maintained or repaired by the Corporation, including claims for serious personal injury or death.
There can be no assurance that the Corporation's insurance coverage will be sufficient to cover one or more
large claims and any shortfall may be material. Additionally, any accident or disaster involving one of the
Corporation's aircraft or an aircraft of another carrier maintained or repaired by the Corporation may significantly
harm the Corporation's reputation for safety, which would have a material adverse effect on the Corporation's
business, results from operations and financial condition.
Seasonal Nature of the Business, Other Factors and Prior Performance
The Corporation has historically experienced considerably greater demand for its services in the second and
third quarters of the calendar year and significantly lower demand in the first and fourth quarters of the calendar
year. This demand pattern is principally a result of the preference of a high number of leisure travelers to travel
during the spring and summer months. The Corporation has substantial fixed costs that do not meaningfully
fluctuate with passenger demand in the short term.
As described elsewhere, demand for air travel is also affected by factors such as economic conditions, war or
the threat of war or terrorist attacks, fare levels and weather conditions. Due to these and other factors,
operating results for an interim period are not necessarily indicative of operating results for an entire year, and
operating results for a historical period are not necessarily indicative of operating results for a future period.
Regulatory Matters
The airline industry is subject to extensive Canadian and foreign government regulations relating to, among
other things, security, safety, licensing, competition, noise levels and the environment and, in some measure,
pricing. Additional laws and regulations may be proposed, and decisions rendered, from time to time which
could impose additional requirements or restrictions on airline operations. The implementation of additional
regulations or decisions by Transport Canada, the Competition Bureau and/or the Competition Tribunal, the
Canadian Transportation Agency, the Treasury Board or other domestic or foreign governmental entities may
have a material adverse effect on the Corporation's business, results from operations and financial condition.
The Corporation cannot give any assurances that new regulations or revisions to the existing legislation, or
decisions, will not be adopted or rendered. The adoption of such new laws and regulations or revisions, or the
rendering of such decisions, could have a material adverse effect on the Corporation's business, results from
operations and financial condition.
The availability of international routes to Canadian air carriers is regulated by agreements between Canada and
foreign governments. Changes in Canadian or foreign government aviation policy could result in the alteration
or termination of these agreements and could adversely affect the Corporation's international operations.
In July 2000, the Government of Canada amended the CTA, the Competition Act and the Air Canada Public
Participation Act to address the competitive airline environment in Canada and ensure protection for
consumers. This legislation included airline-specific provisions concerning "abuse of dominance" under the
Competition Act, later supplemented by creating "administrative monetary penalties" for a breach of the abuse
of dominance provisions by a dominant domestic air carrier.
In July 2003, the Competition Tribunal released its reasons and findings in a proceeding between the
Commissioner of Canada and the Corporation which had considered the approach to be taken in determining
whether the Corporation was operating below "avoidable costs" in violation of one of the new airline-specific
abuse of dominance provisions. The Competition Tribunal applied a very broadly crafted cost test in its
decision. In September 2004, the Commissioner of Competition published a letter describing the enforcement
approach that would be taken in future cases involving the airline-specific abuse of dominance provisions,
which included a statement that the Tribunal's approach to avoidable costs remains relevant.
62