Air Canada 2007 Annual Report Download - page 20

2007 Air Canada Annual Report
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Operating expenses increased 1% from the fourth quarter of 2006
Operating expenses were $2,441 million in the fourth quarter of 2007, an increase of $13 million or 1% over the fourth
quarter of 2006. CASM decreased 2% in the fourth quarter of 2007. Excluding fuel expense and the favourable adjustment
to the special charge for labour restructuring of $8 million in 2006, CASM was down 3.9%. In our Third Quarter 2007
MD&A dated November 8, 2007, we provided guidance that CASM, excluding fuel expense, for the fourth quarter of 2007
was expected to decrease at a slightly lower rate year-over-year than experienced in the third quarter of 2007. The decline
in fourth quarter CASM, excluding fuel expense, exceeded the guidance provided at that time as a result of greater than
expected unit cost reductions across a wide range of categories.
The following table compares Air Canada’s operating expenses per ASM for the fourth quarter of 2007 to Air Canada’s
operating expenses per ASM for the corresponding period in 2006. The stronger Canadian dollar versus the US dollar was a
factor in the overall unit cost decrease over the fourth quarter of 2006, particularly in aircraft fuel.
(cents per ASM)
Fourth Quarter Change
2007 2006 cents %
Wages and salaries 2.56 2.60 (0.04 ) (1.5 )
Benefi ts 0.62 0.49 0.13 26.5
Ownership (DAR) (1) 1.38 1.52 (0.14 ) (9.2 )
Airport and navigation fees 1.61 1.62 (0.01 ) (0.6 )
Aircraft maintenance, materials and supplies 1.20 1.43 (0.23 ) (16.1 )
Communications and information technology 0.46 0.47 (0.01 ) (2.1 )
Food, beverages and supplies 0.45 0.53 (0.08 ) (15.1 )
Commissions 0.25 0.34 (0.09 ) (26.5 )
Capacity purchase with Jazz 1.54 1.56 (0.02 ) (1.3 )
Other 2.34 2.35 (0.01 ) (0.4 )
Operating expense, excluding fuel expense
and the special charge for labour restructuring (2) 12.41 12.91 (0.50 ) (3.9 )
Aircraft fuel 4.18 4.06 0.12 3.0
Special charge for labour restructuring - (0.05 ) 0.05 -
Total operating expense 16.59 16.92 (0.33 ) (2.0 )
(1) DAR refers to the combination of Aircraft rent and Depreciation, amortization and obsolescence.
(2) Refer to section 19 “Non-GAAP Financial Measures” in this MD&A for additional information.
Wages, salaries and benefi ts amounted to $468 million in the fourth quarter of 2007,
an increase of $25 million or 6% from the fourth quarter of 2006.
Wages and salaries expense totaled $377 million in the fourth quarter of 2007, an increase of $4 million or 1% from the fourth
quarter of 2006. Factors contributing to the year-over-year fourth quarter change in wages and salaries expense included:
■ The addition of 583 full-time equivalent (“FTE”) employees or 2.5%, mainly refl ecting increases in ground handling
personnel, pilots and fl ight attendants. The increase was required to support the growth in ASM capacity.
■ Higher average wage rates established during the wage review process with the Corporation’s unionized employees,
partly offset by new personnel joining the Corporation at the lower end of the wage scale.
■ Reduced overtime expenses of $2 million in 2007.
Employee benefi ts expense amounted to $91 million in the fourth quarter of 2007, an increase of $21 million or 30% from
the fourth quarter of 2006. Factors contributing to the year-over-year fourth quarter change in benefi ts expense included:
■ A revised contractual agreement with respect to the allocation of benefi ts expense to ACTS LP which resulted in an
increase of $9 million over 2006.
■ A decrease of $8 million in the fourth quarter of 2006 related to an updated valuation of workers’ compensation
liabilities.
■ An increase of $4 million mainly related to health benefi ts for active employees.