Air Canada 2013 Annual Report Download - page 72

2013 Air Canada Annual Report
72
Airport User Fees and Air Navigation Fees
With the privatization of airports and air navigation authorities in Canada, airport and air navigation authorities have
significantly increased their fees. Air Canada may not be in a position to prevent or develop alternatives to overcome fee
increases. Though certain authorities have implemented some fee reductions, if authorities in Canada or elsewhere were to
significantly increase their fees, Air Canada, its business, results from operations and financial condition could be materially
adversely affected.
Dependence on Technology
Air Canada relies heavily on technology, including computer and telecommunications equipment and software and internet-
based systems, to operate its business, increase its revenues and reduce its costs. These systems include those relating to
Air Canada’s telecommunications, websites, computerized airline reservations and airport customer services and flight
operations. Air Canada also depends on the performance of its key suppliers, whose performance is in turn dependent upon
their respective technology systems.
Technology systems may be vulnerable to a variety of sources of failure, interruption or misuse, including by reason of third
party suppliers’ acts or omissions, natural disasters, terrorist attacks, telecommunications failures, power failures, computer
viruses, unauthorized or fraudulent users, and other operational and security issues. While Air Canada continues to invest in
initiatives, including security initiatives and disaster recovery plans, these measures may not be adequate or implemented
properly. Any such technology systems failure, interruption or misuse, whether at Air Canada or a third party on whom
Air Canada relies, could materially and adversely affect Air Canada’s operations and could have a material adverse effect on
Air Canada, its business, results from operations and financial condition.
Key Supplies and Suppliers
Air Canada is dependent upon its ability to source, on favourable terms and costs, sufficient quantities of goods and services in
a timely manner, including those available at airports or from airport authorities or otherwise required for Air Canada’s
operations such as fuel, aircraft and related parts and aircraft maintenance services. In certain cases, Air Canada may only be
able to access goods and services from a limited number of suppliers and transition to new suppliers may take a significant
amount of time and require significant resources. A failure, refusal or inability of a supplier may arise as a result of a wide
range of causes, many of which are beyond Air Canada’s control. In addition, there can be no assurance as to the continued
viability of any of Air Canada’s suppliers. Any failure or inability of Air Canada to successfully source goods and services,
including by reason of a failure, refusal or inability of a supplier, or to source goods and services on terms and pricing and
within the timeframes acceptable to Air Canada, could have a material adverse effect on Air Canada, its business, results from
operations and financial condition.
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 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 or
disruptions 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.
Regional Carriers
Air Canada seeks to enhance its network through capacity purchase agreements, including the Jazz CPA and other capacity
purchase agreements with regional airlines, such as Sky Regional, operating flights on behalf of Air Canada.
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 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 contains 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.