Air Canada 2006 Annual Report Download - page 57

for connecting traffic with the Corporation and, ultimately, could have a material adverse effect on the
Corporation's business, results from operations and financial condition.
Airport User Fees and Air Navigation Fees
With the privatization of airports and air navigation authorities over the last decade in Canada, new airport and
air navigation authorities have imposed significant increases in their fees. If such authorities continue to
increase their fees at the rate at which they have increased them in the recent past, the Corporation's business,
results from operations and financial condition could be materially adversely affected.
Competition
The Corporation operates within a highly competitive industry. Over the past few years, several carriers have
entered or announced their intention to enter into the domestic, the U.S. transborder and international markets
in which the Corporation operates.
Canadian low-cost carriers have entered or announced their intention to compete in many of the Corporation's
key domestic markets and have also entered the U.S. transborder market. U.S. carriers currently operate routes
in the Corporation's transborder market. The Corporation is also facing increasing competition in international
markets as carriers increase their international capacity, both by expansion and by shifting existing domestic
capacity to international operations to avoid low-cost domestic competition.
If Canadian low-cost carriers are successful in entering or expanding into the Corporation’s domestic and the
U.S. transborder markets, if additional U.S. carriers are successful in entering the Corporation's transborder
market or if carriers are successful in their expansion in international markets of the Corporation, the
Corporation's business results from operations and financial condition could be materially adversely affected
The Corporation also encounters substantial price competition. The expansion of low-cost carriers in recent
years has resulted in a substantial increase in discounted and promotional fares initiated by the Corporation’s
competitors. The decision to match competitors' fares, to maintain passenger traffic, results in reduced yields
which, in turn, could have a material adverse effect on the Corporation's business, results from operations and
financial condition. Furthermore, the Corporation's ability to reduce its fares in order to effectively compete with
other carriers may be limited by government policies to encourage competition.
Internet travel websites have enabled consumers to more efficiently find lower fare alternatives by providing
them with access to more pricing information. The increased price awareness of both business and leisure
travelers as well as the growth in new distribution channels have further motivated airlines to price aggressively
to gain fare and market share advantages.
In addition, consolidation in the airline industry could result in increased competition as some airlines emerging
from such consolidations may be able to compete more effectively against the Corporation which could have a
material adverse effect on the Corporation's business, results from operations and financial condition.
Strategic, Business, Technology and Other Important Initiatives
In order to operate its business, achieve its goals and remain competitive, the Corporation continuously seeks
to identify and devise, invest in and implement strategic, business, technology and other important initiatives,
such as those relating to the aircraft fleet restructuring program, the aircraft refurbishment program, the new
revenue model, the reservation and airport customer service initiative (which will also support the revenue
model), the business process initiatives as well as other initiatives. These initiatives, including activities relating
to their development and implementation, may be adversely impacted by a wide range of factors, many of which
are beyond the Corporation’s control. Such factors include the performance of third parties, including suppliers,
the implementation and integration of such initiatives into the Corporation’s other activities and processes as
well as the adoption and acceptance of initiatives by the Corporation’s customers, suppliers and personnel. A
delay or failure to sufficiently and successfully identify and devise, invest in or implement these initiatives could
adversely affect the Corporation’s ability to operate its business, achieve its goals and remain competitive and
could have a material adverse effect on the Corporation's business, results from operations and financial
condition.
For instance, a key component of the Corporation's business plan is the restructuring of its aircraft fleet,
including the elimination and replacement of older, less efficient aircraft, the introduction of new regional jet
aircraft, and the modernization of its international wide-body fleet through the acquisition of new and more
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Management's Discussion and Analysis of Results and Financial Condition