Air Canada 2013 Annual Report Download - page 93

2013 Consolidated Financial Statements and Notes
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D) CAPACITY PURCHASE AGREEMENTS
Air Canada has capacity purchase agreements with Jazz, Sky Regional and certain other regional carriers, including those
operating aircraft of 18 seats or less, some of which are referred to as Tier III carriers. Under these agreements, Air Canada
markets, tickets and enters into other commercial arrangements relating to these flights and records the revenue it earns
under Passenger revenue. Operating expenses under capacity purchase agreements include the capacity purchase fees, which,
under the capacity purchase agreement between the Corporation and Jazz (the “Jazz CPA”), are based on variable and fixed
rates (“CPA Rates”) plus mark-up and pass-through costs. The CPA Rates are periodically set by the parties for rate periods of
three years. The parties set the rates through negotiations based on, amongst other things, Jazz’s forecasted costs for the
applicable rate period and an operating plan for the applicable rate period provided by Air Canada, and the results of
benchmarking exercises, which compare Jazz costs to other regional carriers. Pass-through costs are non-marked-up costs
charged to the Corporation and include fuel, airport and user fees and other costs. These expenses are recorded in the
applicable category within Operating expenses.
E) AEROPLAN LOYALTY PROGRAM
Air Canada purchases Aeroplan Miles® from Aeroplan, an unrelated party. Air Canada is an Aeroplan partner providing certain
of Air Canada's customers with Aeroplan Miles®, which can be redeemed by customers for air travel or other rewards acquired
by Aeroplan.
Under the CPSA, Aeroplan purchases passenger tickets from Air Canada to meet its obligation for the redemption of Aeroplan
Miles® for air travel. The proceeds from the sale of passenger tickets to Aeroplan are included in Advance ticket sales. Revenue
related to these passenger tickets is recorded in passenger revenues when transportation is provided.
For Aeroplan Miles® earned by Air Canada customers, Air Canada purchases Aeroplan Miles® from Aeroplan in accordance
with the terms of the CPSA. The cost of purchasing Aeroplan Miles® from Aeroplan is accounted for as a sales incentive and
charged against passenger revenues when the points are issued, which occurs upon the qualifying air travel being provided to
the customer.
F) OTHER REVENUES
Other revenue includes revenues from the sale of the ground portion of vacation packages, ground handling services and other
airline related services. Vacation package revenue is recognized as services are provided over the period of the vacation. Other
airline related service revenues are recognized as the products are sold to passengers or the services are provided.
Other revenue also includes revenue related to the lease or sublease of aircraft to third parties. Lease or sublease revenues are
recognized on a straight line basis over the term of the lease or sublease. Rental revenue from operating leases and subleases
amounted to $53 in 2013 (2012 – $90).
In certain subleases of aircraft to Jazz, for accounting purposes, the Corporation acts as an agent and accordingly reports the
sublease revenues net against aircraft rent expense as the terms of the sublease match the terms of the Corporation’s lease.
The Corporation acts as lessee and sublessor in these matters.
G) EMPLOYEE BENEFITS
The cost of pensions, other post-retirement and post-employment benefits earned by employees is actuarially determined
annually as at December 31. The cost is determined using the projected unit credit method and assumptions including market
interest rates, salary escalation, retirement ages of employees, mortality rates, and health care costs.
Past service costs are recognized immediately in income. Gains and losses on curtailments or settlements are recognized in
the period in which the curtailment or settlement occurs.
Net actuarial gains and losses are recognized immediately in other comprehensive income and deficit without subsequent
reclassification to income. The current service cost and recognized element of any past service cost of employee benefits
expense is recorded in Wages, salaries and benefits. The interest arising on the net benefit obligations are presented in Net
financing expense relating to employee benefits.