Air Canada 2014 Annual Report Download - page 93

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2014 Consolidated Financial Statements and Notes 93 2014 Consolidated Financial Statements and Notes
has rights to, variable returns from its involvement
with the entity and has the ability to affect
those returns through its power over the entity.
All inter-company balances and transactions
are eliminated.
Non-controlling interests represent equity
interests in subsidiaries owned by outside parties.
The share of net assets of subsidiaries attributable to
non-controlling interests is presented as a component
of equity.
Structured Entities
The Corporation has aircraft leasing and other
agreements with a number of structured entities.
Under IFRS 10 Consolidated Financial Statements, the
Corporation controls and consolidates leasing entities
covering aircraft (22 as at December 31, 2014). The
Corporation has concluded that it controls these
entities because the lease or other agreements with
these structured entities give Air Canada the power
to control the principal economic decision on lease
expiry of whether to purchase the aircraft and thereby
collapse the structured entity.
The Corporation also leases certain aircraft from
structured entities where it does not guarantee any
portion of the residual value of the aircraft on lease
expiry. In the absence of residual value guarantees,
the Corporation’s maximum exposure to loss from its
involvement with these structured entities is limited
principally to its lease payments. These entities
are not controlled and are not consolidated by the
Corporation.
C. PASSENGER AND CARGO REVENUES
Passenger and cargo revenues are recognized when
the transportation is provided, except for revenue
on unlimited flight passes which is recognized on
a straight-line basis over the period during which
the travel pass is valid. The Corporation has formed
alliances with other airlines encompassing loyalty
program participation, interline agreements and
code sharing and coordination of services including
reservations, baggage handling and flight schedules.
Revenues are allocated based upon formulas
specified in the agreements and are recognized as
transportation is provided. Passenger revenue also
includes certain fees and surcharges and revenues
from passenger-related services such as ticket
changes, seat selection, and excess baggage which are
recognized as the services are provided.
Airline passenger and cargo advance sales are deferred
and included in Current liabilities. Advance sales also
include the proceeds from the sale of flight tickets
to Aimia Canada Inc. (“Aeroplan”), a corporation that
provides loyalty program services to Air Canada and
purchases seats from Air Canada pursuant to the
Commercial Participation and Services Agreement
between Aeroplan and Air Canada (the “CPSA”).
D. CAPACITY PURCHASE AGREEMENTS
Air Canada has capacity purchase agreements with
Jazz, Sky Regional and certain other regional carriers,
including those operating aircraft of 18 seats or less,
some of which are referred to as Tier III carriers.
Under these agreements, Air Canada markets, tickets
and enters into other commercial arrangements
relating to these flights and records the revenue it
earns under Passenger revenue. Operating expenses
under capacity purchase agreements include the
capacity purchase fees and pass-through costs. Pass-
through costs are non-marked-up costs charged to
the Corporation and include fuel, airport and user fees
and other costs. These expenses are recorded in the
applicable category within Operating expenses.
E. AEROPLAN LOYALTY PROGRAM
Air Canada purchases Aeroplan Miles® from Aeroplan,
an unrelated party. Air Canada is an Aeroplan
partner providing certain of Air Canada’s customers
with Aeroplan Miles®, which can be redeemed by
customers for air travel or other rewards acquired by
Aeroplan.
Under the CPSA, Aeroplan purchases passenger
tickets from Air Canada to meet its obligation for
the redemption of Aeroplan Miles® for air travel. The
proceeds from the sale of passenger tickets to Aeroplan
are included in Advance ticket sales. Revenue related to
these passenger tickets is recorded in passenger revenues
when transportation is provided.
For Aeroplan Miles® earned by Air Canada customers,
Air Canada purchases Aeroplan Miles® from Aeroplan
in accordance with the terms of the CPSA. The cost
of purchasing Aeroplan Miles® from Aeroplan is
accounted for as a sales incentive and charged against
passenger revenues when the points are issued, which
occurs upon the qualifying air travel being provided to
the customer.
F. OTHER REVENUES
Other revenue includes revenues from the sale of the
ground portion of vacation packages, ground handling
services and other airline related services. Vacation
package revenue is recognized as services are provided
over the period of the vacation. Other airline related
service revenues are recognized as the products are
sold to passengers or the services are provided.
Other revenue also includes revenue related to the
lease or sublease of aircraft to third parties. Lease