Air Canada 2008 Annual Report Download - page 77

2008 Management’s Discussion and Analysis
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For instance, a key component of the Corporation’s business plan is the restructuring of its aircraft fleet, including the elimination and
replacement of older, less efficient aircraft, and the modernization of its wide-body fleet through the acquisition of new and more
efficient aircraft. A delay or failure in the completion of the Corporation’s fleet restructuring, including delays by the manufacturers
in the delivery of the wide-body aircraft, or an inability to remove, as planned, certain aircraft from the fleet in coordination with the
planned entry into service of new aircraft, could adversely affect the implementation of the Corporation’s business plan which may, in
turn, have a material adverse effect on the Corporation’s business, results from operations and financial condition.
Dependence on Technology
The Corporation relies on technology, including computer and telecommunications equipment and software and Internet-based
systems, to operate its business, increase its revenues and reduce its costs. These systems include those relating to the Corporation’s
telecommunications, websites, computerized airline reservations and airport customer services and flight operations.
These technology systems may be vulnerable to a variety of sources of failure, interruption or misuse, including by reason of third
party suppliers’ acts or omissions, natural disasters, terrorist attacks, telecommunications failures, power failures, computer viruses,
unauthorized or fraudulent users, and other operational and security issues. While the Corporation continues to invest in initiatives,
including security initiatives and disaster recovery plans, these measures may not be adequate or implemented properly. Any such
technology systems failure, interruption or misuse could materially and adversely affect the Corporation’s operations and could have
a material adverse effect on the Corporation’s business, results from operations and financial condition.
Key Supplies and Suppliers
The Corporation is dependent upon its ability to source, on favourable terms and costs, sufficient quantities of goods and services in a
timely manner, including those available at airports or from airport authorities or otherwise required for the Corporation’s operations
such as fuel, aircraft and related parts and aircraft maintenance services (including maintenance services obtained from Aveos). In
certain cases, goods and services may only be available from a limited number of suppliers and transition to new suppliers may take
significant amounts of time and require significant resources. A failure, refusal or inability of a supplier may arise as a result of a wide
range of causes, many of which are beyond the Corporation’s control. Any failure or inability of the Corporation to successfully source
goods and services, including by reason of a failure, refusal or inability of a supplier, or to source goods and services on terms and pricing
and within the timeframes acceptable to the Corporation, could have a material adverse effect on the Corporation’s business, results
from operations and financial condition.
Aeroplan
Through its relationship with Aeroplan, the Corporation is able to offer its customers who are Aeroplan members the opportunity to
earn Aeroplan miles. Based on customer surveys, management believes that rewarding customers with Aeroplan miles is a significant
factor in customers’ decision to travel with Air Canada and Jazz and contributes to building customer loyalty. The failure by Aeroplan
to adequately fulfill its obligations towards the Corporation under the Aeroplan CPSA and in connection with the Aeroplan program, or
other unexpected interruptions of Aeroplan services which are beyond the Corporation’s control, could have a material adverse effect
on the Corporation’s business, results from operations and financial condition.
Jazz
Under the Jazz CPA, Jazz provides the Corporation’s customers service in lower density markets and higher density markets at off-peak
times throughout Canada and to and from certain destinations in the United States and also provides valuable traffic feed to the
Corporation’s mainline routes. Pursuant to the terms of the Jazz CPA, the Corporation pays Jazz a number of fees which are determined
based upon certain costs incurred by Jazz. The Corporation also reimburses Jazz, without mark-up, for certain pass-through costs
incurred directly by Jazz, such as fuel, navigation, landing and terminal fees and certain other costs. Significant increases in such pass-
through costs, the failure by Jazz to adequately fulfill its obligations towards the Corporation under the Jazz CPA, or other unexpected
interruptions of Jazz’s services which are beyond the Corporation’s control could have a material adverse effect on the Corporation’s
business, results from operations and financial condition. In addition, the Jazz CPA requires that Jazz maintain a minimum fleet size and
contains a minimum average daily utilization guarantee which requires that the Corporation make certain minimum payments to Jazz
regardless of the revenue generated by Jazz.
Star Alliance®
The strategic and commercial arrangements with Star Alliance® members provide the Corporation with important benefits, including
codesharing, efficient connections and transfers, reciprocal participation in frequent flyer programs and use of airport lounges from
the other members. Should a key member leave Star Alliance® or otherwise fail to meet its obligations thereunder, the Corporation’s
business, results from operations and financial condition could be materially adversely affected.