Air Canada 2013 Annual Report Download - page 37

Download and view the complete annual report

Please find page 37 of the 2013 Air Canada annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 148

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148

2013 Management’s Discussion and Analysis
37
Fuel expense increased 1% from the fourth quarter of 2012
In the fourth quarter of 2013, fuel expense of $831 million increased $10 million or 1% from the fourth quarter of 2012,
mainly due to the unfavourable impact of a weaker Canadian dollar versus the U.S. dollar when compared to the fourth
quarter of 2012, which accounted for a $41 million increase. Partly offsetting this increase was the impact of lower jet fuel
prices, which accounted for a $32 million decrease to fuel expense in the fourth quarter of 2013.
The table below provides Air Canada’s fuel cost per litre and economic fuel cost per litre for the periods indicated.
Fourth Quarter Change
(Canadian dollars in millions, except where indicated) 2013 2012 $ %
Aircraft fuel expense – GAAP $831 $821 $10 1
Add: Net cash payments on fuel derivatives(1) 3 9 (6) (67)
Economic cost of fuel – Non-GAAP(2) $ 834 $830 $4 1
Fuel consumption (thousands of litres) 942,940 941,397 1,543 0.2
Fuel cost per litre (cents) – GAAP 88.2 87.2 1.0 1.2
Economic fuel cost per litre (cents) – Non-GAAP(2) 88.4 88.2 0.2 0.3
(1) Includes net cash settlements on maturing fuel derivatives and premium costs associated with those derivatives.
(2) The economic cost of fuel is not a recognized measure for financial statement presentation under GAAP, does not have a standardized meaning, and may not be
comparable to similar 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.
Wages, salaries and benefits expense amounted to $553 million in the fourth quarter of 2013, an increase of
$25 million or 5% from the fourth quarter of 2012
In the fourth quarter of 2013, wages and salaries expense of $431 million increased $12 million or 3% from the fourth quarter
of 2012, largely due to an increase in expense accruals related to the annual employee profit sharing programs as well as
higher average salaries.
In the fourth quarter of 2013, employee benefits expense of $122 million increased $13 million or 12% from the fourth
quarter of 2012, mainly due to the impact of lower discount rates which increase the service cost of pension and other
employee benefits.
Capacity purchase costs increased 6% from the fourth quarter of 2012
In the fourth quarter of 2013, capacity purchase costs of $280 million increased $17 million or 6% from the fourth quarter of
2012, mainly due to an increase in block hours flown by Sky Regional under its capacity purchase agreement with Air Canada,
higher rates under the Jazz CPA and an unfavourable currency impact. These increases were partly offset by a decline in block
hours flown by Jazz under the Jazz CPA.
Aircraft maintenance expense decreased 2% from the fourth quarter of 2012
In the fourth quarter of 2013, aircraft maintenance expense of $158 million decreased $3 million or 2% from the fourth
quarter of 2012, mainly due to a lower volume of engine and airframe maintenance events. Largely offsetting this decrease
was the impact of Air Canada having recorded a favourable adjustment of $32 million related to its end of lease maintenance
return provision in the fourth quarter of 2012 while a favourable adjustment of $9 million was recorded in the fourth quarter
of 2013. An unfavourable currency impact and higher deicing activity year-over-year were also offsetting factors.
Sales and distribution costs increased 4% from the fourth quarter of 2012
In the fourth quarter of 2013, sales and distribution costs of $138 million increased $5 million or 4% from the fourth quarter
of 2012 on passenger revenue growth of 1.9%. The increase in sales and distributions costs year-over-year was largely due to
an increase in transaction fees paid to global distribution service providers which was largely driven by a higher volume of
transactions, an increase in credit card expenses which was in line with sales and revenue growth, and an unfavourable
currency impact. A decrease in commission expense partly offset these increases.