Air Canada 2014 Annual Report Download - page 73

73
2014 Management’s Discussion and Analysis
develop alternatives to overcome fee increases.
Though certain authorities have implemented some
fee reductions, if authorities in Canada or elsewhere
were to significantly increase their fees, Air Canada,
its business, results from operations and financial
condition could be materially adversely affected.
DEPENDENCE ON TECHNOLOGY
Air Canada relies heavily on technology,
including computer and telecommunications
equipment and software and Internet-based systems,
to operate its business, increase its revenues and
reduce its costs. These systems include those relating
to Air Canada’s telecommunications, websites,
computerized airline reservations and airport
customer services and flight operations. Air Canada
also depends on the performance of its key suppliers,
whose performance is in turn dependent upon their
respective technology systems.
Technology systems may be vulnerable to a
variety of sources of failure, interruption or misuse,
including by reason of third party suppliers’ acts
or omissions, natural disasters, terrorist attacks,
telecommunications failures, power failures, computer
viruses, unauthorized or fraudulent users, and other
operational and security issues. While Air Canada
continues to invest in initiatives, including security
initiatives and disaster recovery plans, these measures
may not be adequate or implemented properly.
Any such technology systems failure, interruption
or misuse, whether at Air Canada or a third party
on whom Air Canada relies, could materially and
adversely affect Air Canada’s operations and could
have a material adverse effect on Air Canada, its
business, results from operations and financial
condition.
KEY SUPPLIES AND SUPPLIERS
Air Canada is dependent upon its ability to source,
on favourable terms and costs, sufficient quantities
of goods and services in a timely manner, including
those available at airports or from airport authorities
or otherwise required for Air Canada’s operations
such as fuel, aircraft and related parts and aircraft
maintenance services. In certain cases, Air Canada
may only be able to access goods and services from
a limited number of suppliers and transition to new
suppliers may take a significant amount of time
and require significant resources. A failure, refusal
or inability of a supplier may arise as a result of a
wide range of causes, many of which are beyond
Air Canada’s control. In addition, there can be no
assurance as to the continued viability of any of
Air Canada’s suppliers. Any failure or inability of
Air Canada to successfully source goods and services,
including by reason of a failure, refusal or inability of
a supplier, or to source goods and services on terms
and pricing and within the time frames acceptable to
Air Canada, could have a material adverse effect on
Air Canada, its business, results from operations and
financial condition.
AEROPLAN®
Through its commercial agreement with Aeroplan,
Air Canada is able to offer its customers who
are Aeroplan® members the opportunity to earn
Aeroplan® Miles. Based on customer surveys,
management believes that rewarding customers with
Aeroplan® Miles is a significant factor in customers’
decision to travel with Air Canada and contributes to
building customer loyalty. The failure by Aeroplan to
adequately fulfill its obligations towards Air Canada
under the Aeroplan Commercial Participation and
Services Agreement and in connection with the
Aeroplan program, or other unexpected interruptions
or disruptions of Aeroplan services which are beyond
Air Canada’s control, could have a material adverse
effect on Air Canada, its business, results from
operations and financial condition.
REGIONAL CARRIERS
Air Canada seeks to enhance its network through
capacity purchase agreements, including the Jazz CPA
and other capacity purchase agreements with regional
airlines, such as Sky Regional, operating flights on
behalf of Air Canada.
Under the Jazz CPA, Jazz provides Air Canada’s
customers service in lower density markets and
higher density markets at off-peak times throughout
Canada and to and from certain destinations in the
United States and also provides valuable traffic feed
to Air Canada’s mainline and rouge routes. Pursuant
to the terms of the Jazz CPA, Air Canada pays Jazz
a number of fees, some which are fixed and others
which are determined based upon certain costs
incurred by Jazz. Air Canada also reimburses Jazz for
certain pass-through costs incurred by Jazz, such as
fuel, navigation, landing and terminal fees and certain
other costs. In addition, the Jazz CPA requires that
Jazz maintain a minimum fleet size and contains a
minimum average daily utilization guarantee which
requires Air Canada to utilize Jazz for that amount of
flying. Significant increases in Jazz’s costs, the failure
by Jazz to adequately fulfill its obligations under the
Jazz CPA, factors which may reduce the utilization of
Jazz fleet, including economic or market downturns,
and unexpected interruptions or cessation of Jazz’s
services could have a material adverse effect on
Air Canada, its business, results from operations and
financial condition.