Air Canada 2012 Annual Report Download - page 33

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2012 Management’s Discussion and Analysis
33
The table below provides Air Canada’s fuel cost per litre and economic fuel cost per litre for the periods indicated.
Fourth Quarter Change
(Canadian dollars in millions, except where indicated) 2012 2011 $ %
Aircraft fuel expense – GAAP(1) $ 811 $801 $10 1
Add: Net cash payments on fuel derivatives(2) 9 8 1 –
Economic cost of fuel – Non-GAAP(3) $ 820 $809 $11 1
Fuel consumption (thousands of litres)(1) 923,605 912,423 11,182 1
Fuel cost per litre (cents) – GAAP 87.9 87.7 0.2 –
Economic fuel cost per litre (cents) – Non-GAAP(3) 88.8 88.6 0.2 –
(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 $529 million in the fourth quarter of 2012, an increase of
$28 million or 6% from the fourth quarter of 2011
In the fourth quarter of 2012, wages and salaries expense of $419 million increased $27 million or 7% from the fourth quarter
of 2011. The increase in wages and salaries included the impact of higher average salaries year-over-year, an increase of 2.1%
in the average number of FTE employees, and an increase in expenses relating to employee profit sharing programs.
In the fourth quarter of 2012, employee benefits expense of $110 million increased $1 million or 1% from the fourth quarter
of 2011.
Capacity purchase costs increased 5% from the fourth quarter of 2011
In the fourth quarter of 2012, capacity purchase costs of $263 million increased $12 million or 5% from the fourth quarter of
2011, mainly due to higher Jazz CPA rates and a 3.5% increase in block hours flown by Jazz and other regional carriers
operating aircraft on behalf of Air Canada.
Ownership costs decreased 8% from the fourth quarter of 2011
In the fourth quarter of 2012, ownership costs (which are comprised of depreciation, amortization and impairment, and
aircraft rent expenses) of $238 million decreased $22 million or 8% from the fourth quarter of 2011, mainly due to certain
engine and airframe maintenance events becoming fully amortized, a decrease in depreciation expense related to the airline’s
interior refurbishment programs, and a reduction in aircraft rent expense as a result of lease terminations.
Aircraft maintenance expense decreased 24% from the fourth quarter of 2011
In the fourth quarter of 2012, aircraft maintenance expense of $161 million decreased $51 million or 24% from the fourth
quarter of 2011.
In the fourth quarter of 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.
In the fourth quarter of 2012, the impact of lower rates for airframe and engine maintenance year-over-year resulting from
the conclusion of various new cost competitive maintenance agreements following Aveos’ CCAA filing, and the favourable
impact of a stronger Canadian dollar on U.S. currency denominated aircraft maintenance expenses were largely offset by the
impact of Air Canada having to replace a leased engine which was beyond economical repair, and by scheduled maintenance
rate increases related to Air Canada’s Boeing 777 aircraft.