Air Canada 2008 Annual Report Download - page 79

2008 Management’s Discussion and Analysis
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RisksRelatingtotheAirlineIndustry
Terrorist Attacks and Security Measures
The September 11, 2001 terrorist attacks and subsequent terrorist activity, notably in the Middle East, Southeast Asia and
Europe, caused uncertainty in the minds of the traveling public. The occurrence of a major terrorist attack (whether domestic
or international and whether involving the Corporation or another carrier or no carrier at all) and increasingly restrictive
security measures, such as the current restrictions on the content of carry-on baggage and current or proposed passenger
identification document requirements, could have a material adverse effect on passenger demand for air travel and on the
number of passengers traveling on the Corporation’s flights. It could also lead to a substantial increase in insurance, airport
security and other costs. Any resulting reduction in passenger revenues and/or increases in insurance, security or other costs
could have a material adverse effect on the Corporation’s business, results from operations and financial condition.
Epidemic Diseases (Severe Acute Respiratory Syndrome (SARS), Influenza or Other Epidemic Diseases)
As a result of the international outbreaks of Severe Acute Respiratory Syndrome (SARS) in 2003, the World Health Organization
(the “WHO”) issued on April 23, 2003 a travel advisory, which was subsequently lifted on April 30, 2003, against non-essential
travel to Toronto, Canada. The seven-day WHO travel advisory relating to Toronto, the location of the Corporation’s primary
hub, and the international SARS outbreak had a significant adverse effect on passenger demand for air travel in the Corporation’s
markets and resulted in a major negative impact on traffic on the entire network. The WHO warns that there is a serious risk of
an influenza pandemic. An outbreak of influenza, SARS or of another epidemic disease (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. Any resulting reduction in traffic in the markets served by the
Corporation 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 receiving line
maintenance services from 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 and cost of air travel is also affected by factors such as geopolitical and 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, environment (including noise levels and carbon emissions) 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. For example, new and proposed legislation have been considered
or adopted concerning carbon emissions emanating from the aviation industry; such legislative initiatives include, for example,
market-based mechanisms called emissions trading systems which are being proposed and implemented to reduce the amount
of pollutants in the atmosphere through the trading of emissions credits. The implementation of additional regulations or
decisions, including those relating to carbon emissions, and others, whether by Transport Canada, the Competition Bureau and/
or the Competition Tribunal, the Canadian Transportation Agency 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.