Air Canada 2010 Annual Report Download - page 79

2010 Management’s Discussion and Analysis
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Aeroplan
Through its commercial agreement with Aeroplan, Air Canada is able to offer its customers who are Aeroplan® members
the opportunity to earn Aeroplan® Miles. Based on customer surveys, management believes that rewarding customers with
Aeroplan® Miles is a significant factor in customers’ decision to travel with Air Canada and Jazz and contributes to building
customer loyalty. The failure by Aeroplan to adequately fulfill its obligations towards Air Canada under the Aeroplan Commercial
Participation and Services Agreement and in connection with the Aeroplan program®, or other unexpected interruptions of
Aeroplan services which are beyond Air Canada’s control, could have a material adverse effect on Air Canada, its business,
results from operations and financial condition.
Jazz
Under the Jazz CPA, Jazz provides Air Canada’s customers service in lower density markets and higher density markets at off-
peak times throughout Canada and to and from certain destinations in the United States and also provides valuable traffic
feed to Air Canada’s mainline routes. Pursuant to the terms of the Jazz CPA, Air Canada pays Jazz a number of fees which are
determined based upon certain costs incurred by Jazz. Air Canada also reimburses Jazz, without mark-up, for certain pass-
through costs incurred directly by Jazz, such as fuel, navigation, landing and terminal fees and certain other costs. Significant
increases in such pass-through costs, the failure by Jazz to adequately fulfill its obligations towards Air Canada under the Jazz
CPA, or other unexpected interruptions or cessation of Jazz’s services which are beyond Air Canada’s control could have a
material adverse effect on Air Canada, its business, results from operations and financial condition. In addition, the Jazz CPA
requires that Jazz maintain a minimum fleet size and contain a minimum average daily utilization guarantee which requires
that Air Canada make certain minimum payments to Jazz regardless of the amount of flying done on its behalf by Jazz.
Star Alliance®
The strategic and commercial arrangements with Star Alliance® members provide Air Canada with important benefits,
including codesharing, efficient connections and transfers, reciprocal participation in frequent flyer programs and use of
airport lounges from the other members. Should a key member leave Star Alliance® or otherwise fail to meet its obligations
thereunder, Air Canada, its business, results from operations and financial condition could be materially adversely affected.
Interruptions or Disruptions in Service
Air Canada’s business is significantly dependent upon its ability to operate without interruption at a number of hub airports,
including Toronto Pearson International Airport. Delays or disruptions in service, including those due to security or other
incidents, weather conditions, labour conflicts with airport workers, baggage handlers, air traffic controllers and other workers
not employed by Air Canada or other causes beyond the control of Air Canada could have a material adverse impact on Air
Canada, its business, results from operations and financial condition.
Interruptions and disruptions in service may be caused by, and the demand and cost of air travel may be adversely impacted
by, environmental conditions and factors in addition to those relating to the weather. Environmental conditions and factors,
such as those arising from volcanic eruptions or other natural phenomena, as well as those arising from man-made sources,
could cause interruptions and disruptions in service, increase Air Canada’s costs or adversely impact demand for air travel, any
of which could have a material adverse impact on Air Canada, its business, results from operations and financial condition.
Current Legal Proceedings
The European Commission, the United States Department of Justice and the Competition Bureau in Canada have investigated
or are investigating alleged anti-competitive cargo pricing activities, including the levying of certain fuel surcharges, of a
number of airlines and cargo operators, including Air Canada. Competition authorities have sought or requested information
from Air Canada as part of their investigations. Air Canada has been cooperating with these investigations, which are likely to
lead, or have led, to proceedings against Air Canada and a number of airlines and other cargo operators in certain jurisdictions.
Air Canada is named as a defendant in a number of class action lawsuits that have been filed before the United States District
Court and in Canada and in Europe in connection with these allegations. Air Canada has been or may be named as a defendant
or may otherwise be implicated in these or other lawsuits or proceedings in connection with these allegations.
During 2008, Air Canada recorded a provision of $125 million as a preliminary estimate. This was only an estimate based upon
the status of the investigations and proceedings at that time and Air Canada’s assessment as to the potential outcome for
certain of them. This provision did not address the proceedings and investigations in all jurisdictions, but only where there
was sufficient information to do so. On November 9, 2010, Air Canada announced that the European Commissions issued
a decision finding that 12 air cargo carriers (including groups of related carriers) had infringed European Union competition
law in the setting of certain cargo charges and rates for various periods between 1999 and 2006. Air Canada was among the