Air Canada 2011 Annual Report Download - page 31

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2011 Management’s Discussion and Analysis
31
Fuel expense increased 26% from the fourth quarter of 2010
Fuel expense of $808 million in the fourth quarter of 2011, increased $168 million or 26% from the fourth quarter of 2010,
mainly due to higher base fuel prices which accounted for an increase of $200 million year-over year. Fuel hedging losses of
$31 million were reclassified from Accumulated Other Comprehensive Loss (“AOCL”) to fuel expense in the fourth quarter of
2010 while no fuel hedging losses were recorded in fuel expense in the fourth quarter of 2011, resulting in a favourable
variance of $31 million year-over-year.
The table below provides Air Canada’s fuel cost per litre, excluding and including discontinued hedge accounting
reclassifications, for the periods indicated.
Fourth Quarter Change
(Canadian dollars in millions, except where indicated) 2011 2010 $ %
Aircraft fuel expense – GAAP(1) $ 801 $636 $165 26
Remove: Fuel hedging losses reclassified from AOCL into fuel expense – (31) 31 100
Add: Net cash payments on fuel derivatives(2) 8 7 1 14
Economic cost of fuel – Non-GAAP(3) $ 809 $612 $197 32
Fuel consumption (thousands of litres) 912,423 905,519 6,904 1
Fuel costs per litre (cents) – GAAP 87.7 70.2 17.5 25
Fuel costs per litre (cents) – excluding fuel hedging losses 87.7 66.8 20.9 31
Economic fuel costs per litre (cents) – Non-GAAP 88.6 67.5 21.1 31
(1) Excludes fuel expense related to third party carriers, other than Jazz, operating under capacity purchase agreements.
(2) Includes net cash settlements on maturing fuel derivatives and premium costs associated with those derivatives.
(3) The economic cost of fuel is a non-GAAP measure used by Air Canada and may not be comparable to measures presented by other public companies. Air Canada uses this
measure to calculate its cash cost of fuel. It includes the actual net cash settlements from maturing fuel derivative contracts during the period and premium costs
associated with those derivatives. It excludes non-cash accounting gains and losses from fuel derivative instruments.
Wages, salaries and benefits expense amounted to $501 million in the fourth quarter of 2011, an increase of
$14 million or 3% from the fourth quarter of 2010
Wages and salaries expense amounted to $392 million in the fourth quarter of 2011, a decline of $9 million or 2% from the
fourth quarter of 2010. A decrease in expenses related to incentive compensation programs was partly offset by the impact of
higher average salaries year-over-year and an increase in the average number of full-time equivalent (“FTE”) employees from
the fourth quarter of 2010. On capacity growth of 2.5%, the average number of FTE employees, increased 1.5% year-over-
year, resulting in a productivity improvement of 1.0%, as measured by ASMs per FTE employee.
Employee benefits expense amounted to $109 million in the fourth quarter of 2011, an increase of $23 million or 27% from
the fourth quarter of 2010, in large part due to an increase in pension and post-employment benefits expenses resulting from
changes in actuarial assumptions year-over-year. An increase of $5 million related to an updated valuation of workers’
compensation liabilities was also a factor in the increase in employee benefits expense.
Airport and navigation fees increased 3% from the fourth quarter of 2010
Airport and navigation fees amounted to $237 million in the fourth quarter of 2011, an increase of $8 million or 3% from the
fourth quarter of 2010. This increase was mainly due to a growth of 1.3% in aircraft departures, the impact of changes in
schedule and aircraft types operated to certain destinations, as well as an increase in terminal user fees, effective April 1, 2011,
at London Heathrow Airport. Costs associated with Air Canada’s new services operated by Sky Regional between Billy Bishop
Toronto City Airport and Montreal Trudeau Airport also contributed to the increase.
Capacity purchase costs increased 4% from the fourth quarter of 2010
Capacity purchase costs amounted to $251 million in the fourth quarter of 2011 compared to $241 million in the fourth
quarter of 2010, an increase of $10 million or 4%. This increase was mainly due to higher Jazz CPA rates and costs associated
with Air Canada’s new services operated by Sky Regional between Billy Bishop Toronto City Airport and Montreal Trudeau
Airport.