Air Canada 2007 Annual Report Download - page 29

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Management’s Discussion and Analysis of Results and Financial Condition
29
The above-noted increases were largely offset by the following:
■ A decline of $22 million in pension expense as a result of revised actuarial valuations.
■ A decline of $6 million in post-employment benefi t expenses as a result of revised actuarial valuations.
Fuel expense increased $8 million from 2006
Fuel expense amounted to $2,552 million in 2007, an increase of $8 million over 2006. Factors contributing to the
year-over-year change in fuel expense included:
■ A higher base fuel price, particularly in the fourth quarter, which accounted for an increase of $177 million.
■ The fuel volume consumed in 2007 increased by 2% or $40 million from 2006. The impact of the increase
in ASM capacity was partly offset by the replacement of the Airbus A340 aircraft with more fuel effi cient
Boeing 777 aircraft and a reduction in fl ying from MD-11 freighter aircraft.
The above-noted increases were largely offset by the following:
■ The favourable impact of a stronger Canadian dollar versus the US dollar, particularly in
the second half of the year, which accounted for a decrease of $135 million.
■ Fuel hedging gains of $31 million in 2007 versus hedging losses of $43 million in 2006,
resulting in a favourable variance of $74 million.
The following table provides Air Canada’s quarterly fuel price per litre and fuel consumption information for the year 2007.
2007 First Quarter Second Quarter Third Quarter Fourth Quarter Year
Fuel volume (millions of litres) 925 941 1,102 905 3,873
Fuel price per litre ($ cents) 62.9 67.2 64.7 67.5 65.6
Ownership costs decreased $4 million from 2006
Ownership costs, comprised of aircraft rent, depreciation, amortization and obsolescence expenses, of $830 million in 2007
decreased $4 million over 2006. Factors contributing to the year-over-year change in ownership costs included:
■ The impact of reduced MD-11 freighter fl ying versus 2006 which accounted for a decrease of $27 million to aircraft rent.
■ A $20 million decrease in amortization expenses relating to intangible assets as a result of future income tax
adjustments.
■ The impact of aircraft lease returns and terminations which accounted for a decrease of $18 million.
■ The impact of stronger Canadian dollar versus the US dollar, particularly in the second half of the year,
which accounted for a decrease of $11 million.
The above-noted decreases were largely offset by the following:
■ The addition of aircraft to Air Canada’s operating fl eet which accounted for an increase of $46 million.
■ Depreciation expense of $21 million in 2007 related to Air Canada’s aircraft interior refurbishment program.
No depreciation for this program was recorded in 2006.
■ Other factors accounting for an increase of $5 million.