Air Canada 2013 Annual Report Download - page 75

2013 Management’s Discussion and Analysis
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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.
Regulatory Matters
The airline industry is subject to extensive Canadian and foreign government regulations relating to, among other things,
security, safety, consumer rights, privacy, licensing, competition, environment (including noise levels and carbon emissions)
and, in some measure, pricing. For example, new and proposed legislation have been considered or adopted concerning carbon
emissions emanating from the aviation industry. Such legislative initiatives include, for example, market-based mechanisms
called emissions trading systems, which are being proposed and implemented to reduce the amount of carbon emissions
through the setting of emissions allowances and charging aircraft operators for a certain percentage of theses allowances. The
implementation of additional regulations or decisions, including those relating to carbon emissions, and others, whether by
Transport Canada, the Competition Bureau and/or the Competition Tribunal, the Canadian Transportation Agency or other
domestic or foreign governmental entities, may have a material adverse effect on Air Canada, its business, results from
operations and financial condition.
The European Union passed legislation for an Emissions Trading System, which included carbon emissions from aviation
commencing in January 2012, including for flights operated between Canada and countries within the European Union. The
legislation requires aircraft operators to monitor and report on fuel use and emissions data. While this legislation is expected
to result in increased costs relating to the purchase of emissions allowances, the net financial impact will, in part, depend
upon how much of such cost, if any, will be recovered, including in the form of higher passenger fares and cargo rates. In
November 2012, the European Commission announced that it would defer their Emissions Trading System for international
aviation by approximately eleven months pending an anticipated agreement on a multilateral global alternative program
being agreed by the ICAO General Assembly. Following the outcome of the International Civil Aviation Organization (“ICAO”)
General Assembly, the European Commission announced a new legislative proposal to introduce a European Regional Airspace
Approach to be implemented between 2014 and 2020 until a single global international regime is adopted. Management
cannot predict the outcome of such legislative process or the impact it may have on Air Canada, its business, results from
operations and financial condition.
The availability of international routes to Canadian air carriers is regulated by agreements between Canada and foreign
governments. Changes in Canadian or foreign government aviation policy could result in the alteration or termination of these
agreements and could adversely affect Air Canada and its international operations.
Air Canada is subject to domestic and foreign laws regarding privacy of passenger and employee data, including advance
passenger information and access to airline reservation systems, which are not consistent in all countries in which Air Canada
operates. The need to comply with these regulatory regimes results in additional operating costs and further regulation in this
area could have a material adverse effect on Air Canada, its business, results from operations and financial condition.
Foreign jurisdictions (including the United States, European Union countries and other jurisdictions where Air Canada operates)
have enacted and implemented and they and domestic regulators may in the future enact and implement consumer
protection and passenger rights measures. Such measures may impose significant, unique, inconsistent or even conflicting
obligations on Air Canada, which may result in increased liability and costs to Air Canada and which may adversely impact
Air Canada, its business, results from operations and financial condition.
There can be no assurances that new laws, regulations or revisions to same, or decisions, will not be adopted or rendered, from
time to time, and these could impose additional requirements or restrictions, which may adversely impact Air Canada, its
business, results from operations and financial condition.