Air Canada 2010 Annual Report Download - page 81

2010 Management’s Discussion and Analysis
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Future Legal Proceedings
Airlines are susceptible to various claims and litigation, including class action claims, in the course of operating their business
or with respect to the interpretation of existing agreements. Any future claims or litigation could also have a material
adverse effect on Air Canada, its business and results from operations.
Key Personnel
Air Canada is dependent on the experience and industry knowledge of its executive officers and other key employees to
execute its business plan. If Air Canada were to experience a substantial turnover in its leadership or other key employees,
Air Canada’s business, results from operations and financial condition could be materially adversely affected. Additionally,
Air Canada may be unable to attract and retain additional qualified key personnel as needed in the future.
Risks Relating to the Airline Industry
Terrorist Attacks and Security Measures
The September 11, 2001 terrorist attacks and subsequent terrorist activity, notably in the Middle East, Southeast Asia, Europe
and the U.S., causes uncertainty in the minds of the traveling public. The occurrence of a terrorist attack (or attempted attacks)
(whether domestic or international and whether involving Air Canada or another carrier or no carrier at all) and increasingly
restrictive security measures, such as those relating to the content of carry-on baggage, passenger identification document
requirements, and passenger screening procedures could have a material adverse effect on passenger demand for air travel and
on the number of passengers traveling on Air Canada’s flights. It could also lead to a substantial increase in insurance, airport
security and other costs. Any resulting reduction in passenger revenues and/or increases in costs, including insurance, security
or other costs could have a material adverse effect on Air Canada, its business, results from operations and financial condition.
Epidemic Diseases (Severe Acute Respiratory Syndrome (SARS), H1N1 Influenza 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
significant adverse effect on passenger demand for air travel in Air Canada’s markets and resulted in a major negative impact
on traffic on the entire network. An outbreak of influenza, SARS, H1N1 influenza virus or of another epidemic disease (whether
domestic or international) or any WHO or similar 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 traffic in the markets served by Air Canada could have a material adverse effect on Air Canada, its business, results from
operations and financial 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 sufficient 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 significantly harm Air Canada’s reputation for safety, which would have a material adverse effect on Air
Canada, its business, results from operations and financial 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 significantly lower demand in the first 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 fixed costs that do not meaningfully fluctuate 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 an historical period are not necessarily indicative of operating results for a future period.