Air Canada 2014 Annual Report Download - page 76

7676 2014 Annual Report
costs that do not meaningfully fluctuate with
passenger demand in the short-term.
As described elsewhere, demand for and cost of air
travel is also affected by factors such as geopolitical
and economic conditions, war or the threat of war or
terrorist attacks, fare levels and weather conditions.
Due to these and other factors, operating results for
an interim period are not necessarily indicative of
operating results for an entire year, and operating
results for an historical period are not necessarily
indicative of operating results for a future period.
Regulatory Matters
The airline industry is subject to extensive Canadian
and foreign government regulations relating to,
among other things, security, safety, consumer
rights, privacy, data security, licensing, competition,
environment (including noise levels and carbon
emissions) and, in some measure, pricing. For
example, new and proposed legislation have been
considered or adopted concerning carbon emissions
emanating from the aviation industry. Such legislative
initiatives include, for example, market-based
mechanisms called emissions trading systems, which
are being proposed and implemented to reduce the
amount of carbon emissions through the setting of
emissions allowances and charging aircraft operators
for a certain percentage of theses allowances. The
implementation of additional regulations or decisions,
including potentially inconsistent or conflicting
regulations, including in relation to carbon emissions,
and others, whether by Transport Canada, the
Competition Bureau and/or the Competition Tribunal,
the Canadian Transportation Agency or other local,
domestic or foreign governmental entities, may have
a material adverse effect on Air Canada, its business,
results from operations and financial condition.
The European Union passed legislation for an
Emissions Trading System, which included carbon
emissions from aviation commencing in January
2012, including for flights operated between Canada
and countries within the European Union. As a result
of ongoing international opposition, the European
Parliament and Council announced that they are
exempting all flights between Europe and third
countries from the EU ETS until and inclusive of
2016, pending the creation by 2020, of an ICAO led
global market-based measure (MBM) that is likely to
reduce greenhouse-gas emissions. If reinstated, the
EU ETS would be expected to result in increased costs
relating to the purchase of emissions allowances.
The net financial impact would, in part, depend upon
how much of such cost, if any, would be recovered,
including in the form of higher passenger fares
and cargo rates. Management cannot predict the
outcome of ICAO’s efforts to set-up a global MBM
or the impact such global MBM may have on
Air Canada, its business, results from operations
and financial condition.
The availability of international routes to Canadian air
carriers is regulated by agreements between Canada
and foreign governments. Changes in Canadian or
foreign government aviation policy could result in the
alteration or termination of these agreements and
could adversely affect Air Canada and its international
operations.
Air Canada is subject to domestic and foreign laws
regarding privacy and security of passenger, employee
and other data, including advance passenger
information and access to airline reservation systems,
which are not consistent in all countries in which
Air Canada operates. The need to comply with these
regulatory regimes results in additional operating
costs and further regulation in this area could have
a material adverse effect on Air Canada, its business,
results from operations and financial condition.
Non-compliance with data privacy and security
requirements may have a material adverse effect
on Air Canada, its business (including by impacting
Air Canada’s goodwill and reputation), results from
operations and financial condition.
Foreign jurisdictions (including the United States,
European Union countries and other jurisdictions
where Air Canada operates) have enacted and
implemented and they and domestic regulators
may in the future enact and implement consumer
protection and passenger rights measures. Such
measures may impose significant, unique, inconsistent
or even conflicting obligations on Air Canada,
which may result in increased liability and costs
to Air Canada and which may adversely impact
Air Canada, its business, results from operations and
financial condition.
There can be no assurances that new laws, regulations
or revisions to same, or decisions, will not be adopted
or rendered, from time to time, and these could
impose additional requirements or restrictions, which
may adversely impact Air Canada, its business, results
from operations and financial condition.
AVAILABILITY OF INSURANCE COVERAGE
AND INCREASED INSURANCE COSTS
The aviation insurance industry has been continually
re-evaluating the terrorism risks that it covers,
and this activity may adversely affect some of
Air Canada’s existing insurance carriers or Air Canada’s
ability to obtain future insurance coverage. To the
extent that Air Canada’s existing insurance carriers
are unable or unwilling to provide it with insurance