Air Canada 2009 Annual Report Download - page 29

2009 Management’s Discussion and Analysis
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CASM in 2009 decreased 5.4% over 2008. Excluding fuel expense, CASM increased 3.3% year-over-year. The 3.3% increase
in CASM (excluding fuel expense) for 2009 was in line with 3.0% to 3.5% CASM (excluding fuel expense) increase projected
in Air Canada’s news release dated November 6, 2009.
The unfavourable impact of a weaker average Canadian dollar versus the U.S. dollar accounted for approximately 44% of
the CASM growth (excluding fuel expense) in 2009. In addition to the impact of foreign exchange, other factors accounting
for the CASM growth included: growth in aircraft maintenance expenses, increased Jazz CPA expenses, higher unit costs
of ownership, and the impact of the capacity reduction. The capacity reduction impacts CASM (excluding fuel expense)
disproportionately as Air Canada’s cost structure is such that its fi xed costs do not fl uctuate proportionately with changes in
capacity in the short term. Partly offsetting these increases to CASM (excluding fuel expense) was a reduction in employee
benefi ts expense, the result of revised actuarial assumptions.
The following table compares Air Canada’s operating expenses per ASM for 2009 to Air Canada’s operating expenses per
ASM for 2008.
Full Year Change
(cents per ASM) 2009 2008 cents %
Wages and salaries 2.51 2.46 0.05 2.0
Benefi ts 0.44 0.56 (0.12) (21.4)
Ownership (DAR) (1) 1.68 1.57 0.11 7.0
Airport user fees 1.64 1.61 0.03 1.9
Capacity purchase with Jazz 1.64 1.53 0.11 7.2
Aircraft maintenance 1.28 1.06 0.22 20.8
Food, beverages and supplies 0.49 0.51 (0.02) (3.9)
Communications and information technology 0.49 0.46 0.03 6.5
Commissions 0.31 0.31 - -
Other 2.34 2.34 - -
Operating expense, excluding fuel expense (2) 12.82 12.41 0.41 3.3
Aircraft fuel 4.13 5.51 (1.38) (25.0)
Total operating expense 16.95 17.92 (0.97) (5.4)
(1) DAR refers to the combination of Depreciation and amortization, and Aircraft rent.
(2) Refer to section 21 “Non-GAAP Financial Measures” in this MD&A for additional information.
The following summarizes the main factors in the year-over-year change in operating expenses:
Fuel expense decreased 28% from 2008
Fuel expense amounted to $2,448 million in 2009, a decrease of $971 million or 28% from 2008. Factors contributing to
the year-over-year change in fuel expense included:
• A lower base fuel price, which accounted for a decrease of $1,362 million.
• A volume-related decrease of $235 million, which included the impact of the termination of freighter fl ying in
June 2008.
The above-noted decreases were partially offset by the following:
• Fuel hedging losses of $419 million in 2009 versus fuel hedging gains of $79 million in 2008, an unfavourable
variance of $498 million compared to 2008.
• The unfavourable impact of a weaker average Canadian dollar versus the U.S. dollar, which accounted for an increase
of $128 million to fuel expense in 2009.