2023 Consolidated Financial Statements and Notes
AIR CANADA
2023 Consolidated Financial Statements and Notes
3. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
The preparation of financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the amounts reported in these financial statements and accompanying notes. These estimates
and associated assumptions are based on historical experience, future operating plans and various other factors
believed to be reasonable under the circumstances, and the results of such estimates form the basis of judgments
about carrying values of assets and liabilities. These underlying assumptions are reviewed on an ongoing basis. Actual
results could differ materially from those estimates.
Significant estimates and judgments made in the preparation of these financial statements include the following areas,
with further information contained in the applicable accounting policy or note:
Impairment Considerations on Long-lived Assets
When required, an impairment test is performed by comparing the carrying amount of the asset or cash-generating unit
to their recoverable amount, which is calculated as the higher of an asset's or cash-generating unit's fair value less
costs to dispose and its value in use. Fair value less costs to dispose may be calculated based upon a discounted cash
flow analysis, which requires management to make a number of significant market participant assumptions including
assumptions relating to cash flow projections, discount rates and future growth rates. Refer to Note 6.
Employee Future Benefits
The cost and related liabilities of the Corporation's pension, other post-retirement and post-employment benefit
programs are determined using actuarial valuations. The actuarial valuations involve assumptions and estimates
including discount rates and mortality assumptions. Also, due to the long-term nature of these programs, such estimates
are subject to significant uncertainty. Refer to Note 9 for additional information.
Aeroplan Loyalty Program
Loyalty program accounting requires management to make several estimates including the ETV of Aeroplan Points
issued and the breakage on Aeroplan Points. The ETV of Aeroplan Points issued is determined based on the value a
passenger receives by redeeming Points for a ticket rather than paying cash. This ETV is estimated with reference to
historical Aeroplan redemptions as compared to equivalent ticket purchases after considering similar fare conditions,
advance booking periods and other relevant factors including the selling price of Points to third parties. ETV estimates
and assumptions are considered for updates at least annually. A change in the ETV rate is accounted for prospectively.
Breakage represents the estimated Points that are not expected to be redeemed. Breakage is estimated by
management based on the terms and conditions of membership and historical accumulation and redemption patterns,
as adjusted for changes to any terms and conditions or other circumstances that may affect future redemptions.
Management uses statistical and simulation models to estimate breakage. A change in assumptions as to the number
of Points expected to be redeemed could have a significant impact on revenue in the year in which the change occurs.
Given the unique impact the COVID-19 pandemic had on travel demand and consumer spending patterns, and
considering the launch of the new Aeroplan program in 2020 and the special benefits and accommodations for Aeroplan
members in response to the COVID-19 pandemic, the breakage estimate is unchanged in 2023 and is based on a
qualitative update of the prior assessment. In addition, the estimate is based on management's long-term expectations
of breakage over the life of the program.
As at December 31, 2023, the Aeroplan Points deferred revenue balance was $3,562 million. For the purposes of
sensitivity analysis, a 1% change in the number of outstanding Points estimated to be redeemed would result in an
approximate impact of $36 million on revenue with a corresponding adjustment to Aeroplan deferred revenue.
Breakage
Breakage estimates and resulting amount of breakage revenues recorded are estimated based on historical breakage
patterns and are subject to measurement uncertainty. Estimates of breakage may vary in future periods. These
estimates have been impacted by the COVID-19 pandemic including: (i) flight cancellations, (ii) the conversion of certain
tickets into non-expiring travel vouchers for flights that were cancelled with travel dates after February 1, 2020 and
purchased before April 13, 2021, and (iii) changes in ticket usage and exchange patterns.
Depreciation and Amortization Period for Long-lived Assets
The Corporation makes estimates about the expected useful lives of long-lived assets and the expected residual value
of the assets based on the estimated current and future fair values of the assets, the Corporation's fleet plans and the
cash flows they generate. Changes to these estimates, which can be significant, could be caused by a variety of factors,
including changes to maintenance programs, changes in jet fuel prices and other operating costs, changes in utilization
of the aircraft, and changing market prices for new and used aircraft of the same or similar types. Estimates and
assumptions are evaluated at least annually. Generally, these adjustments are accounted for on a prospective basis,
22View entire presentation