Air Canada 2012 Annual Report Download - page 22

2012 Air Canada Annual Report
22
The table below provides Air Canada’s fuel cost per litre and economic fuel cost per litre for the periods indicated.
Full Year Change
(Canadian dollars in millions, except where indicated) 2012 2011 $ %
Aircraft fuel expense – GAAP(1) $ 3,527 $3,349 $ 178 5
Add: Net cash payments on fuel derivatives(2) 40
4
4 36
Economic cost of fuel – Non-GAAP(3) $ 3,567 $3,353 $ 214 6
Fuel consumption (thousands of litres)(1) 3,976,152 3,937,102 39,050 1
Fuel cost per litre (cents) – GAAP 88.7 85.1 3.6 4
Economic fuel cost per litre (cents) – Non-GAAP(3) 89.7 85.2 4.5 5
(1) Excludes fuel expense and fuel litres related to third party carriers, other than Jazz, operating under capacity purchase agreements.
(2) Includes net cash settlements on maturing fuel derivatives and premium costs associated with those derivatives.
(3) The economic cost of fuel is not a recognized measure for financial statement presentation under GAAP, does not have a standardized meaning, and may not be
comparable to similar measures presented by other public companies. Air Canada uses this measure to calculate its cash cost of fuel. It includes the actual net cash
settlements from maturing fuel derivative contracts during the period and premium costs associated with those derivatives.
Wages, salaries and benefits expense amounted to $2,109 million in 2012, an increase of $118 million or 6% from
2011
In 2012, wages and salaries expense of $1,624 million increased $91 million or 6% from 2011. The increase in wages and
salaries included the impact of higher average salaries year-over-year, an increase of 1.4% in the average number of full-time
equivalent (“FTE”) employees, and an increase in expenses relating to employee profit sharing programs. In addition, in 2012,
Air Canada recorded a liability of $18 million related to prior years’ employee profit sharing payments. The liability is an
estimate based on a number of assumptions and may be subject to further adjustment in the future.
In 2012, employee benefits expense of $485 million increased $27 million or 6% from 2011, largely due to the impact of
lower discount rates which increase the service cost of pension and other employee future benefits expense, and the impact of
higher health care rates year-over-year.
Capacity purchase costs increased 7% from 2011
In 2012, capacity purchase costs of $1,072 million increased $69 million or 7% from 2011, mainly due to higher Jazz CPA
rates, a 2.5% increase in block hours flown by Jazz and other regional carriers operating aircraft on behalf of Air Canada, and
an unfavourable impact of foreign exchange on U.S. currency denominated Jazz CPA expenses paid by Air Canada. Sky
Regional’s commencement, on May 1, 2011, of services on behalf of Air Canada between Billy Bishop Toronto City Airport and
Montreal Trudeau Airport was also a contributing factor to the increase in capacity purchase costs year-over-year.
Ownership costs decreased 5% from 2011
In 2012, ownership costs (which are comprised of depreciation, amortization and impairment, and aircraft rent expenses) of
$1,014 million decreased $49 million or 5% from 2011, mainly due to certain engine and airframe maintenance events
becoming fully amortized and a decrease in depreciation expense related to the airline’s interior refurbishment programs.
Partly offsetting these decreases was the unfavourable impact of a weaker Canadian dollar versus the U.S. dollar, when
compared to 2011, on U.S. currency denominated aircraft leases.
Aircraft maintenance expense decreased 1% from 2011
In 2012, aircraft maintenance expense of $672 million decreased $9 million or 1% from 2011.
In 2012, Air Canada recorded a favourable adjustment of $32 million related to its end of lease maintenance return
provision as a result of revised cost estimates stemming from new maintenance contracts entered into during 2012. In 2011,
Air Canada recorded an unfavourable provision adjustment of $20 million as a result of changes in cost and discount rate
assumptions.