Air Canada 2014 Annual Report Download - page 42

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4242 2014 Annual Report
AIRPORT AND NAVIGATION FEES
INCREASED 6% FROM THE
FOURTH QUARTER OF 2013
In the fourth quarter of 2014, airport and navigation
fees of $247 million increased $15 million or 6% from
the fourth quarter of 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.
AIRCRAFT MAINTENANCE EXPENSE
INCREASED 27% FROM THE FOURTH
QUARTER OF 2013
In the fourth quarter of 2014, aircraft maintenance
expense of $201 million increased $43 million or 27%
from the fourth quarter of 2013, largely due a higher
volume of engine and airframe maintenance activity
versus the fourth quarter of 2013 and an unfavourable
currency impact of $12 million.
SALES AND DISTRIBUTION COSTS
INCREASED 11% FROM THE FOURTH
QUARTER OF 2013
In the fourth quarter of 2014, sales and distribution
costs of $153 million increased $15 million or 11%
from the fourth quarter of 2013 on passenger
revenue growth of 7.6%. 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 9%
FROM THE FOURTH QUARTER OF 2013
In the fourth quarter of 2014, depreciation,
amortization and impairment expense of $134 million
decreased $14 million or 9% from the fourth quarter
of 2013. This decrease in depreciation, amortization
and impairment expense was due to Air Canada
having recorded an impairment charge of $6 million
in the fourth quarter of 2013 while no such charge
was recorded in the fourth quarter of 2014 and to the
impact of certain maintenance events becoming fully
amortized. These decreases were partly offset by the
impact of additional Boeing 777 and 787 aircraft in
the airline’s operating fleet.
GROUND PACKAGE COSTS
INCREASED 12% FROM THE FOURTH
QUARTER OF 2013
In the fourth quarter of 2014, the cost of ground
packages at Air Canada Vacations amounted to
$74 million, an increase of $8 million or 12% from the
fourth quarter of 2013. This increase was mainly due
to higher passenger volumes and, to a lesser extent,
an increase in the price of ground packages and an
unfavourable currency impact.
OTHER OPERATING EXPENSES
INCREASED 21% FROM THE FOURTH
QUARTER OF 2013
In the fourth quarter of 2014, Other operating
expenses of $294 million increased $51 million or
21% from the fourth quarter of 2013 mainly due
to the 8.5% capacity growth and an increase in
Remaining other expenses of $32 million or 31%. The
increase in Remaining other expenses included growth
in advertising and promotion expenses and higher
customer inconvenience costs, as well as certain
unfavourable accrual variances of $15 million, which
were mainly related to various commodity taxes and
which are not expected to re-occur. The increase
in advertising and promotion expenses was driven
by additional promotional programs, such as those
related to Air Canada’s new Boeing 787 Dreamliners,
while the higher customer inconvenience costs was
mainly driven by an increase in passenger volumes
and higher passenger compensation pursuant to a
Canadian Transportation Agency ruling. An increase in
terminal handling expenses of $10 million or 21% was
due to Air Canada’s international expansion, as well
as 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).