Air Canada 2007 Annual Report Download - page 21

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Management’s Discussion and Analysis of Results and Financial Condition
21
Fuel expense increased 5% from the fourth quarter of 2006
Fuel expense amounted to $615 million in the fourth quarter of 2007, an increase of $32 million or 5% from the fourth
quarter of 2006. Factors contributing to the year-over-year fourth quarter change in fuel expense included:
■ A higher base fuel price which accounted for an increase of $180 million.
■ The favourable impact of a stronger Canadian dollar versus the US dollar which accounted for a decrease
of $84 million.
■ Fuel hedging gains of $31 million in the fourth quarter of 2007 versus hedging losses of $33 million in
the fourth quarter of 2006, a favourable variance of $64 million.
■ The fuel volume consumed remained unchanged in the fourth quarter of 2007 from the same period in 2006.
The impact of the increase in ASM capacity was offset by the replacement of the Airbus A340 aircraft with more
fuel effi cient Boeing 777 aircraft and a reduction in fl ying from MD-11 freighter aircraft.
Ownership costs decreased 7% from the fourth quarter of 2006
Ownership costs, comprised of aircraft rent, depreciation, amortization and obsolescence expenses, of $202 million in the
fourth quarter of 2007 decreased $16 million from the fourth quarter of 2006. Factors contributing to the year-over-year
fourth quarter change in ownership costs included:
■ A favourable adjustment of $9 million in 2007 versus an unfavourable adjustment of $7 million
in 2006, both related to provisions on rotable spare parts, for a favourable variance of $16 million.
■ The impact of reduced MD-11 freighter fl ying versus 2006 which accounted for a decrease of $8 million
to aircraft rent.
■ The impact of a stronger Canadian dollar versus the US dollar which accounted for a decrease of $8 million.
■ The impact of aircraft lease returns and terminations which accounted for a decrease of $5 million.
■ Other factors accounting for a net decrease of $7 million.
The above-noted decreases were partially offset by the following:
■ The addition of aircraft to Air Canada’s operating fl eet which accounted for an increase of $18 million.
■ Depreciation expenses of $10 million in 2007 related to Air Canada’s aircraft interior refurbishment program.
No depreciation was recorded for this program in 2006.
Airport and navigation fees increased 3% from the fourth quarter of 2006
Airport and navigation fees of $238 million increased $6 million or 3% over the fourth quarter of 2006. Factors contributing
to the year-over-year fourth quarter change in these fees included:
■ A 3% increase in aircraft frequencies.
■ Higher rates for landing and general terminal fees.
■ A rate reduction of 4% for navigation fees in Canada, which became
effective in August 2007, partially offset the above-noted increases.
On October 16, 2007, the Greater Toronto Airports Authority (“GTAA”) announced a reduction in fees charged to airlines
for all services. Landing fees at Pearson Airport were reduced by 3.1% and terminal charges were reduced by 4.7% effective
January 1, 2008.