Air Canada 2009 Annual Report Download - page 79

2009 Management’s Discussion and Analysis
79
Epidemic Diseases (Severe Acute Respiratory Syndrome (SARS), H1N1 Infl uenza or Other Epidemic Diseases)
The international outbreaks of Severe Acute Respiratory Syndrome (SARS) in 2003 and the resulting actions tabled by the World
Health Organization (the “WHO”), including a travel advisory against non-essential travel to Toronto, Canada, had a signifi cant
adverse effect on passenger demand for air travel in Air Canada’s markets and resulted in a major negative impact on traffi c
on the entire network. Air Canada is continuing to monitor the H1N1 infl uenza virus risk. While Air Canada has developed
contingency plans related to the H1N1 infl uenza virus risk, it is unable to predict the likelihood of this risk materializing or
the impact on its operations to the extent this risk does materialize. An outbreak of infl uenza, SARS, H1N1 infl uenza virus or
of another epidemic disease (whether domestic or international) or any WHO 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 traffi c in the markets served by Air Canada could have a material adverse effect on Air Canada, its
business, results from operations and fi nancial 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 suffi cient to cover one or more large claims and any shortfall may be material. Additionally, any
accident or disaster involving one of Air Canada’s aircraft or an aircraft of another carrier receiving line maintenance services
from Air Canada may signifi cantly harm Air Canada’s reputation for safety, which would have a material adverse effect on
Air Canada, its business, results from operations and fi nancial 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 signifi cantly lower demand in the fi rst 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 fi xed costs that do not meaningfully fl uctuate 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 a 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, 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 these 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 fi nancial
condition.
The European Union passed legislation for an Emissions Trading System which will include carbon emissions from aviation
commencing in January 2012, including for fl ights operated between Canada and countries within the European Union.
The legislation would require aircraft operators to monitor and report on fuel use and emissions data. While this legislation
would be expected to result in increased costs relating to the purchase of emissions allowances, the net fi nancial impact
would, in part, depend upon how much of such cost, if any, would be recoverable in the form of higher passenger and
cargo fares.
The availability of international routes to Canadian air carriers is regulated by agreements between Canada and foreign
governments. Changes in Canadian or foreign government aviation policy could result in the alteration or termination of
these agreements and could adversely affect Air Canada, its international operations.