Air Canada 2014 Annual Report Download - page 41

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41
2014 Management’s Discussion and Analysis
FUEL EXPENSE DECREASED 5% FROM THE FOURTH QUARTER OF 2013
In the fourth quarter of 2014, fuel expense of $791 million decreased $40 million or 5% from the fourth quarter
of 2013. The decrease in fuel expense year-over-year was due to the impact of a 16% decline in Jet fuel prices
year-over-year, which accounted for a decrease of $133 million to fuel expenses in the fourth quarter of 2014.
These decreases were largely offset by the unfavourable impact of a weaker Canadian dollar versus the U.S.
dollar when compared to the fourth quarter of 2013, which accounted for an increase of $50 million, as well as
a higher volume of fuel litres consumed, which accounted for an increase of $43 million.
The table below provides Air Canada’s fuel cost per litre and economic fuel cost per litre for the periods
indicated.
CANADIAN DOLLARS IN MILLIONS, EXCEPT WHERE
INDICATED
FOURTH QUARTER CHANGE
2014 2013 $ %
AIRCRAFT FUEL EXPENSE – GAAP $ 791 $ 831 $ (40) (5)
Add: Net cash payments on fuel derivatives (1) 10 37233
ECONOMIC COST OF FUEL – NON-GAAP (2) $ 801 $ 834 $ (33) (4)
FUEL CONSUMPTION (THOUSANDS OF LITRES) 992,320 942,940 49,380 5.2
FUEL COST PER LITRE (CENTS) – GAAP 79.7 88.2 (8.5) (9.6)
ECONOMIC FUEL COST PER LITRE (CENTS) – NON-GAAP (2) 80.7 88.4 (7.7) (8.7)
1 Includes net cash settlements on maturing fuel derivatives and premium costs associated with those derivatives.
2 The economic cost of fuel is not a recognized measure for financial statement presentation under GAAP, does not have a standardized meaning, and may not be comparable to similar
measures presented by other public companies. Air Canada uses this measure to calculate its cash cost of fuel. It includes the actual net cash settlements from maturing fuel derivative
contracts during the period and premium costs associated with those derivatives.
WAGES, SALARIES AND BENEFITS EXPENSE AMOUNTED TO $604 MILLION IN THE
FOURTH QUARTER OF 2014, AN INCREASE OF $51 MILLION OR 9% FROM THE
FOURTH QUARTER OF 2013
In the fourth quarter of 2014, wages and salaries expense of $477 million increased $46 million or 11% from
the fourth quarter of 2013, mainly due to Air Canada having recorded one-time payments totaling $30 million
related to its collective agreement with ACPA in 2014 while no such payments were recorded in the fourth
quarter of 2013. Higher average salaries and an increase in expense accruals related to the annual employee
profit sharing programs were also contributing factors to the increase year-over-year. These increases were
partly offset by the favourable impact of Air Canada having outsourced its London ground handling operations
to a third party provider.
In the fourth quarter of 2014, employee benefits expense of $127 million increased $5 million or 4% from the
fourth quarter of 2013, mainly due to an increase in expenses related to post-employment benefits, which
included premiums with the transition to an insured model for new long-term disability claims. This increase
was largely offset by the impact of higher discount rates which decreased the current service cost of defined
benefit pension plans.
CAPACITY PURCHASE COSTS INCREASED 5% FROM THE FOURTH QUARTER OF 2013
In the fourth quarter of 2014, capacity purchase costs of $295 million increased $15 million or 5% from the
fourth quarter of 2013, mainly due to higher rates under the capacity purchase agreement with Jazz and an
unfavourable currency impact. These increases were partly offset by a decline in block hours flown by Jazz
under the Jazz CPA.