Air Canada 2014 Annual Report Download - page 30

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30 2014 Annual Report
AIRPORT AND NAVIGATION FEES
INCREASED 5% FROM 2013
In 2014, airport and navigation fees of $1,031 million
increased $48 million or 5% from 2013, largely due
to the addition of Boeing 777 and 787 aircraft to
Air Canada’s operating fleet, an unfavourable currency
impact, and rate increases in certain stations. These
increases were partly offset by the favourable impact
of the agreement, concluded in October 2013, with
the GTAA which is allowing the airline to grow its
share of international connecting traffic at Toronto
Pearson on a more cost effective basis.
AIRCRAFT MAINTENANCE EXPENSE
INCREASED 15% FROM 2013
In 2014, aircraft maintenance expense of $728 million
increased $96 million or 15% from 2013.
This increase in aircraft maintenance expense was
due to a $43 million unfavourable currency impact,
an increase in expenses related to maintenance
provisions, a higher volume of engine and airframe
activity, as well as the impact of Air Canada having
recorded favourable accrual adjustments of $15
million in 2013 while no such adjustments were
recorded in 2014. The increase in expenses related to
maintenance provisions was mainly due to a fewer
number of aircraft lease extensions when compared
to 2013 which resulted in an expense increase of $27
million. Lease term extensions postpone the expected
timing of the end of lease costs and lengthen the
period over which expenses are recorded, and result
in a cumulative adjustment to reflect the revised
provision required as at the balance sheet date,
thus reducing maintenance expense in the period.
These increases were partly offset by the impact of
favourable terms and discounts negotiated on new
maintenance service agreements.
SALES AND DISTRIBUTION COSTS
INCREASED 10% FROM 2013
In 2014, sales and distribution costs of $672 million
increased $59 million or 10% from 2013 on passenger
revenue growth of 7.1%. This growth in sales and
distribution costs was mainly due to the impact of
a higher volume of ticket sales generated through
GDS providers, a change in commission structure to
drive higher passenger revenues, and an increase in
credit card expenses which was in line with sales and
revenue growth. An unfavourable currency impact
was also a contributing factor to the increase in sales
and distribution costs year-over-year.
DEPRECIATION, AMORTIZATION AND
IMPAIRMENT EXPENSE DECREASED 6%
FROM 2013
In 2014, depreciation, amortization and impairment
expense of $543 million decreased $35 million or 6%
from 2013.
In 2013, Air Canada recorded an impairment charge
of $30 million, including $24 million related to four
Airbus A340-300 aircraft (none of which were being
operated by Air Canada), while no such charge was
recorded in 2014.
The impact of the addition of five Boeing 777 and
six Boeing 787 aircraft to the airline’s operating fleet
was largely offset by the impact of certain engine
and airframe maintenance events becoming fully
amortized, the disposal of Airbus A340-300 aircraft
(none of which were being operated by Air Canada)
and by a decrease in depreciation expense related to
the airline’s interior refurbishment programs.
GROUND PACKAGE COSTS INCREASED
15% FROM 2013
In 2014, the cost of ground packages at Air Canada
Vacations amounted to $377 million, an increase
of $50 million or 15% from 2013. This increase was
primarily due to higher passenger volumes and an
unfavourable currency impact.
AIRCRAFT RENT EXPENSE DECREASED 2%
FROM 2013
In 2014, aircraft rent expense of $313 million
decreased $5 million or 2% from 2013. A decrease in
aircraft rent expense due to more favourable rates on
lease renewals was largely offset by an unfavourable
currency impact of $20 million.
OTHER OPERATING EXPENSES
INCREASED 6% FROM 2013
In 2014, Other operating expenses of $1,069 million
increased $58 million or 6% from 2013. The increase
in Other expenses was driven by the 7.8% capacity
growth, an increase in terminal handling expenses as
a result of Air Canada’s international expansion and
the impact of the airline having outsourced its London
ground handling operations to a third party provider
in 2014 (the savings associated with this initiative are
included in other expense categories, such as wages
and salaries expense, for a net overall cost reduction),
and by higher advertising and promotion expenses.
Partly offsetting these increases was the impact of
Air Canada having recorded favourable tax-related
provision adjustments of $41 million in 2014 while