Air Canada 2012 Annual Report Download - page 75

2012 Management’s Discussion and Analysis
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Risks Relating to the Airline Industry
Terrorist Attacks and Security Measures
The potential for terrorist attacks and terrorist activity causes uncertainty in the minds of the traveling public. The occurrence
of a terrorist attack (or attempted attacks) (whether domestic or international and whether involving Air Canada or another
carrier or no carrier at all) and increasingly restrictive security measures, such as those relating to the content of carry-on
baggage, passenger identification document requirements, and passenger screening procedures could have a material adverse
effect on passenger demand for air travel and on the number of passengers traveling on Air Canada’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 costs, including insurance, security or other costs could have a material adverse effect on Air Canada, its business,
results from operations and financial condition.
Epidemic Diseases (Severe Acute Respiratory Syndrome (SARS), H1N1 Influenza or Other Epidemic Diseases)
The international outbreaks of Severe Acute Respiratory Syndrome (SARS) in 2003, and the resulting actions of the World
Health Organization (the “WHO”), including a travel advisory against non-essential travel to Toronto, Canada, had a
significant adverse effect on passenger demand for air travel in Air Canada’s markets and resulted in a major negative impact
on traffic on the entire network. An outbreak of influenza, SARS, H1N1 influenza virus or of another epidemic disease
(whether domestic or international) or any WHO or similar travel advisories (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 Air Canada could have a material adverse effect on Air Canada, its business,
results from operations and financial condition.
Casualty Losses
Due to the nature of its core operating business, Air Canada may be subject to liability claims arising out of accidents or
disasters involving aircraft on which Air Canada’s customers are traveling or involving aircraft of other carriers maintained or
repaired by Air Canada, including claims for serious personal injury or death. There can be no assurance that Air Canada’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 an aircraft operated by or on behalf of Air Canada or an aircraft of another carrier receiving line
maintenance services from Air Canada may significantly harm Air Canada’s reputation for safety, which would have a material
adverse effect on Air Canada, its business, results from operations and financial condition.
Seasonal Nature of the Business, Other Factors and Prior Performance
Air Canada 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. Air
Canada 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 an 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, consumer rights, privacy, licensing, competition, environment (including noise levels and carbon emissions)
and, in some measure, pricing. 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 carbon emissions
through the setting of emissions allowances and charging aircraft operators for a certain percentage of theses allowances. 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 Air Canada, its business, results from
operations and financial condition.