Air Canada 2014 Annual Report Download - page 70

70 2014 Annual Report
Canadian low-cost and other carriers have entered
and/or expanded or announced their intention to
compete in many of Air Canada’s key domestic
(including regional) markets and, along with some
U.S. carriers have also entered and/or expanded their
operations in the U.S. transborder and leisure-oriented
markets. Carriers against which Air Canada competes,
including U.S. carriers, may undergo (and some have
undergone) substantial reorganizations (including by
way of merger with or acquisition by another carrier),
creating reduced levels of indebtedness and lower
operating costs and may therefore be in a position to
more effectively compete with Air Canada.
The proximity of several American airports in cities
close to the Canadian border (such as Plattsburgh,
Buffalo and Bellingham) has also presented an
additional challenge for Air Canada. Higher taxes,
charges and fees for passengers departing from
Canada travelling to the U.S. has redirected
appreciable passenger traffic away from Canadian
airports. Low-cost carriers based in the U.S. have
and may continue to increase their capacity at these
airports and attract Canadian-originating, price-
sensitive customers.
International
Air Canada is also facing increasing competition
in international markets as carriers increase their
international capacity, both by expansion and by
shifting existing domestic capacity to international
operations to avoid low-cost domestic competition.
Given Canada’s diverse, sustained immigration levels
and multicultural population, Canadian gateways
such as Toronto, Montreal and Vancouver are deemed
attractive by international carriers. In 2014, foreign
carriers such as Air France-KLM, AeroMexico, EVA
Air, China Airlines, China Eastern Airlines, Hainan
Airlines, Copa Airlines, Icelandair, All Nippon Airways
and LATAM Airlines have entered or announced
their intention to enter or expand their international
operations into Canada.
Increased competition in the domestic, transborder or
international markets could have a material adverse
effect on Air Canada, its business, results from
operations and financial condition.
LABOUR COSTS AND LABOUR
RELATIONS
Labour costs constituted another one of Air Canada’s
largest operating cost items in 2014. There can be
no assurance that Air Canada will be able to
maintain such costs at levels that do not negatively
affect its business, results from operations and
financial condition. There can be no assurance that
future agreements with employees’ unions or the
outcome of arbitrations will be on terms consistent
with Air Canada’s expectations or comparable to
agreements entered into by Air Canada’s competitors.
Any future agreements or outcome of negotiations
or arbitrations, including in relation to wages or other
labour costs or work rules, may result in increased
labour costs or other charges, or terms and conditions
restricting or reducing Air Canada’s ability to
sustain its business objectives or pursue its strategic
initiatives, which could have a material adverse effect
on Air Canada, its business, results from operations
and financial condition.
Most of Air Canada’s employees are unionized and
collective agreements with certain unions are coming
up for renewal and negotiation. In 2011, tentative
collective agreements with UNIFOR (formerly called
CAW), the union representing Air Canada’s customer
service employees at airports and call centres, as well
as with CUPE, the union representing Air Canada’s
flight attendants, were concluded and, respectively,
ratified or conclusively settled through arbitration.
The agreement with UNIFOR is in effect until
February 28, 2015 and the agreement with CUPE
is in effect until March 31, 2015. In the first quarter
of 2012, Air Canada concluded agreements with
UNIFOR, in relation to in-flight crew schedulers and
flight operations crew schedulers, and with CALDA,
in relation to flight dispatchers. In June 2012, the
decision of the arbitrator was issued in respect of the
IAMAW final offer selection arbitration conducted
in accordance with the process legislated by the
federal government in the Protecting Air Service Act.
The arbitrator’s final offer selection concluded a new
five-year collective agreement between Air Canada
and the IAMAW which is in effect until March 31,
2016. On October 6, 2014, Air Canada reached a
new agreement with ACPA which provides collective
agreement terms for 10 years, ending September 29,
2024, subject to certain openers and benchmarks over
this period.
ACPA and the IAMAW have, each, independently,
instituted proceedings to contest the constitutional
validity of the legislation which referred to arbitration
the resolution of the issues that had not been
resolved in bargaining. Air Canada is not currently
a party to these proceedings. Air Canada expects
that in both cases the legislation (and therefore
the collective agreements concluded through the
arbitration process) will be upheld.
There can be no assurance that collective agreements,
including any which may be expiring in the near
term, will be further renewed without labour conflict
or action or that there will not otherwise be any
labour conflict or action that could also lead to a
degradation, interruption or stoppage in Air Canada’s