Air Canada 2008 Annual Report Download - page 27

2008 Management’s Discussion and Analysis
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Domestic passenger revenues increased 3.5% from 2007
Domestic passenger revenues of $4,108 million in 2008 increased $138 million or 3.5% from 2007 due to yield growth.
The positive impact of the higher yield was offset by a slight decrease in traffic. Factors contributing to the year-over-year
change in domestic passenger revenues included:
• In2008,yieldincreased3.8%from2007mainlyduetofareincreasesandfuelsurchargestopartiallyoffsethigher
fuel prices.
• AstrongerCanadiandollar in 2008, whichlowers theCanadian dollar value ofsales in foreigncountries,hada
negative impact on foreign currency denominated revenues, accounting for a decrease of $22 million in 2008
domestic passenger revenues compared to 2007.
• In2008,trafcdeclined0.4%onacapacityreductionof0.2%resultinginapassengerloadfactordecreaseof0.2
percentage points from 2007.
• In the premium cabin, premium trafc declined slightly, but under the capacity reductions, which resulted in a
passenger load improvement of 2.4 percentage points. Premium cabin yield also increased mostly due to fare
increases.
UStransborderpassengerrevenuesdecreased0.5%from2007
US transborder passenger revenues of $1,876 million in 2008 decreased $8 million or 0.5% from 2007. The impact of a
7.5% traffic decline was largely offset by an increase in yield of 7.5%. Factors contributing to the year-over-year change in
US transborder passenger revenues included:
• In2008,capacitywasreducedby7.4%from2007.Capacitydecreaseswereachievedmainlythroughthereduction
of frequencies on existing routes as well as the increased use of smaller aircraft in the fleet. In anticipation of the
leisure discretionary traffic being impacted by the softening economy and increased fares and fuel surcharges, Air
Canada reduced capacity on routes to California, Nevada and Florida. In addition, there was a capacity reduction on
the Hawaiian service as a result of the introduction of a Vancouver – Sydney non-stop route which was previously
operated as a one-stop via Hawaii. The Vancouver – Sydney route is recorded in other passenger revenues.
• In2008,trafcdeclined7.5%onacapacityreductionof7.4%resultinginadecreaseof0.1percentagepointsin
passenger load factor from 2007. Passenger demand on Air Canada’s short-haul routes was particularly impacted by
the softening economy.
• In2008,yieldimproved7.5%from2007largelyduetoincreasedfaresandfuelsurchargestopartiallyoffsethigher
fuel prices. In addition, the capacity reductions, mostly impacting longer-haul and more leisure-oriented lower-
yielding routes, resulted in a higher overall average yield in the US market compared to 2007.
• Inthepremiumcabin,premiumtrafcdeclinedinlinewiththecapacityreduction.Premiumcabinyieldimproved
7.2% in line with the economy yield increases due to fare increases.
• The stronger Canadian dollar had a negative impact on foreign currency denominated revenues.  The impact
accounted for a decrease of $38 million to 2008 US transborder passenger revenues compared to 2007.
• In2008,RASMincreased7.4%from2007duetotheyieldimprovement.
Atlantic passenger revenues increased 4.3% from 2007
Atlantic passenger revenues of $1,883 million in 2008 increased $77 million or 4.3% from 2007 due to yield growth. The
positive impact of the higher yield was offset by a slight decrease in traffic. Factors contributing to the year-over-year
change in Atlantic passenger revenues included:
• In2008,capacitywasreducedby2.5%from2007.CapacityreductionswerelargelyreectedonUnitedKingdom
routes and were mainly achieved through the reduction of frequencies on existing routes.
• In2008,trafcdecreased0.4%onthecapacityreductionof2.5%resultinginapassengerloadfactorimprovement
of 1.8 percentage points from 2007. Traffic on the United Kingdom service decreased 4.4% on a capacity reduction
of 8.0%, resulting in a passenger load factor improvement of 3.2 percentage points.
• In2008,yieldimproved4.6%from2007,reectingyieldimprovementsonallAtlanticservices.TheoverallAtlantic
yield improvement was largely due to increased fares and fuel surcharges to partially offset higher fuel prices. In
addition, the tight capacity environment led to a more favourable fare mix in the economy cabin and therefore to
a higher yield. Air Canada was able to maintain traffic in its premium cabin however, due to pricing pressures to
maintain this premium traffic, the premium cabin yield was negatively impacted.
• ThestrongerCanadiandollarhadanegativeimpactonforeigncurrencydenominatedrevenues.Theimpactaccounted
for a decrease of $28 million to 2008 Atlantic passenger revenues compared to 2007.