Air Canada 2014 Annual Report Download - page 25

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25
2014 Management’s Discussion and Analysis
The 0.6% PRASM decrease was due to the lower yield
largely offset by a passenger load factor improvement
of 0.6 percentage points.
Refer to section 7 “Results of Operations” of this
MD&A for year-over-year percentage changes in
passenger revenues, capacity, traffic, passenger load
factor, yield and PRASM by quarter for the fourth
quarter 2014 and each of the previous four quarters.
DOMESTIC PASSENGER REVENUES
INCREASED 3.4% FROM 2013
In 2014, on a capacity increase of 4.8%, domestic
passenger revenues of $4,381 million increased
$144 million or 3.4% from 2013 due to traffic growth
of 5.3% as well as an increase in baggage fee revenue
year-over-year (baggage fee revenues are not included
in Air Canada’s yield and PRASM results). These
increases were partly offset by a yield decline of 2.3%.
Components of the year-over-year change in
domestic passenger revenues included:
The 5.3% traffic increase which reflected traffic
growth on all major domestic services. The traffic
growth in 2014 reflected increases on services within
Canada, as well as incremental connecting traffic to
international destinations.
An increase in baggage fee revenue following an
adjustment to the airline’s first checked bag policy
which became effective for travel on or after
November 2, 2014.
The yield decline of 2.3% which reflected increased
industry capacity and significant competitive pricing
activities on routes within Ontario and Quebec and
on routes within Western Canada. Also, early in 2014,
domestic yields were under pressure due to certain
commercial initiatives in the marketplace related
to channels of distribution. In addition, in 2014,
Air Canada experienced higher proportional growth
of lower-yielding international and U.S. transborder
passenger flows connecting onto domestic flights.
These yield decreases were partly offset by a
favourable currency impact of $29 million.
The 1.8% PRASM decrease was due to the
yield decline as passenger load factor improved
0.4 percentage points year-over-year.
U.S. TRANSBORDER PASSENGER
REVENUES INCREASED 9.4% FROM 2013
In 2014, on capacity growth of 9.8%, U.S. transborder
passenger revenues of $2,379 million increased
$203 million or 9.4% from 2013 mainly due to
traffic growth of 13.1% partly offset by a yield
decrease of 2.8%.
Components of the year-over-year change in
U.S. transborder passenger revenues included:
• The traffic increase of 13.1% which reflected traffic
growth on all major U.S. transborder services
with the exception of services to Hawaii where
capacity was reduced year-over-year. The traffic
growth was achieved by successfully filling long-
haul capacity and through traffic growth on U.S.
short-haul routes. Air Canada also experienced
higher proportional growth of international-to-
international passenger flows from the U.S. when
compared to 2013 in addition to traffic growth
between Canada and the U.S.
• The 2.8% yield decline which reflected a 3.4%
longer average stage length, driven by route
composition changes as long-haul (lower-yielding)
capacity grew while short-haul (higher-yielding)
capacity was slightly reduced when compared
to 2013. This increase in average stage length
had the effect of reducing U.S. transborder yield
by 1.9 percentage points. Long-haul growth
was led by lower-cost Air Canada rouge flying
allowing Air Canada to effectively compete on
lower-yielding leisure routes. Additionally, 2014
experienced a significantly higher proportion
of lower-yielding incremental international-to-
international passenger flows in support of the
airline’s international expansion strategy. These
yield declines were largely offset by improvements
in Air Canada’s business cabin revenue performance,
traffic growth on high-yielding short-haul routes,
and a favourable currency impact of $47 million.
The 0.1% PRASM increase was due to a passenger
load factor improvement of 2.4 percentage points
which was almost fully offset by the yield decline.
ATLANTIC PASSENGER REVENUES
INCREASED 12.8% FROM 2013
In 2014, on capacity growth of 14.3%, Atlantic
passenger revenues of $2,554 million increased
$291 million or 12.8% from 2013 due to traffic
growth of 13.6% partly offset by a yield decrease
of 0.6%.
Components of the year-over-year change in Atlantic
passenger revenues included:
• The 13.6% traffic increase which reflected traffic
growth on all major Atlantic services.
• The 0.6% yield decline which reflected a longer
average stage length, which had the effect of
reducing Atlantic yield by 0.4 percentage points,
a higher proportion of seats into leisure-focused
long-haul markets, additional Atlantic services
being served with lower-cost Boeing 777 higher-