Air Canada 2009 Annual Report Download - page 93

Consolidated Financial Statements and Notes
93
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A) PRINCIPLES OF CONSOLIDATION
These consolidated fi nancial statements include the accounts of all entities controlled by Air Canada, with adjustments for
non-controlling interests. The consolidated fi nancial statements of the Corporation include the accounts of variable interest
entities for which the Corporation is the primary benefi ciary. All inter-company balances and transactions are eliminated.
B) USE OF ESTIMATES
The preparation of fi nancial statements in conformity with GAAP requires management to make estimates and assumptions that
affect the amounts reported in the consolidated fi nancial statements and accompanying notes. Actual results could differ from
those estimates.
Signifi cant estimates made in the preparation of the consolidated fi nancial statements include those used in accounting for employee
future benefi ts (Note 8), accounting for income taxes (Note 7), the determination of passenger revenues, the determination of
amortization period for long-lived assets, the impairment considerations on long-lived assets and the carrying value of fi nancial
instruments recorded at fair value.
C) PASSENGER AND CARGO REVENUES
Airline passenger and cargo advance sales are deferred and included in Current liabilities. Advance sales also include the
proceeds from the sale of fl ight tickets to Aeroplan, a corporation that provides loyalty program services to Air Canada
and purchases seats from Air Canada pursuant to the Commercial Participation and Services Agreement between Aeroplan
and Air Canada (the “CPSA”) (Note 14). Passenger and cargo revenues are recognized when the transportation is provided,
except for revenue on unlimited fl ight passes which is recognized on a straight-line basis over the period during which the
travel pass is valid. The Corporation has formed alliances with other airlines encompassing loyalty program participation,
code sharing and coordination of services including reservations, baggage handling and fl ight schedules. Revenues are
allocated based upon formulas specifi ed in the agreements and are recognized as transportation is provided.
The Corporation performs regular evaluations on the deferred revenue liability which may result in adjustments being
recognized as revenue. Due to the complex pricing structures; the complex nature of interline and other commercial
agreements used throughout the industry; historical experience over a period of many years; and other factors including
refunds, exchanges and unused tickets, certain relatively small amounts are recognized as revenue based on estimates.
Events and circumstances may result in actual results that are different from estimates.
D) CAPACITY PURCHASE AGREEMENTS – JAZZ & TIER III CARRIERS
Air Canada has capacity purchase agreements with Jazz and certain other regional carriers, which are referred to as Tier III
carriers, operating aircraft of 18 seats or less. Under these agreements, Air Canada markets, tickets and enters into other
commercial arrangements relating to these fl ights and records the revenue it earns under Passenger revenue. Operating
expenses under capacity purchase agreements include the capacity purchase fees, which, under the Jazz CPA, include a
variable component that is dependent on Jazz aircraft utilization, a fi xed component and pass-through costs. Pass-through
costs are non-marked-up costs charged to the Corporation and include fuel, airport and user fees and other costs. These
expenses are recorded in the applicable category within Operating expenses.
The following table outlines expenses and pass through costs under the Jazz CPA for the last two years:
2009 2008
Expenses from Jazz CPA $ 973 $ 948
Pass through fuel expense from Jazz CPA 253 427
Pass through airport expense from Jazz CPA 196 201
Pass through other expense from Jazz CPA 35 38
$ 1,457 $ 1,614