Skating On Thicker Ice: Air Canada is much improved. But it still lags behind most of its high-flying regional peers
Imagine a hockey team that has improved year after year since the start of the decade. Last year was its best season in a long time. And it hopes to do even better this year. But a chance at the Stanley Cup? Not even close.
In 2013, Air Canada was a candidate for global comeback player of the year, earning a $326m net profit ex special items, a whole lot better than the mere $57m it made in 2012 or the $36m it lost in 2011. But it plays in the toughest division worldwide, where it languishes near last place despite its impressive progress. Its operating margin, in fact, was just 5%, less than half of what its archrival WestJet managed, and worse than all but one of 10 major U.S. airlines. Even Virgin America had a better operating margin (although not a better net margin). The only North American airline with a worse operating margin than Air Canada last year: its joint venture partner United. And United, on the other hand, had a better net margin.
The point is, Air Canada is not enjoying the profit party experienced by most North American carriers—its financial results look much more like those of stumbling United than those of triumphant Delta. In fact, during this year’s first quarter, Air Canada lost money at the operating level, joining only United (among North American carriers that have reported—Virgin America hasn’t yet) in that dubious category.
Why can’t Air Canada be, say, another American, which similarly faced deep labor cost disadvantages—and similarly addressed them? In the past couple of years, after all, Air Canada engineered some monumental reforms, securing cost concessions from unions, lowering the cost of its regional feed, launching a low-fare unit, erasing its pension deficit and dramatically improving its balance sheet—don’t forget that just five years ago, the company faced a real risk of falling into bankruptcy for a second time.
Regrettably, Air Canada is different from its thriving U.S. peers in some important respects. Carriers there are piling on profits chiefly thanks to their domestic market, which is off limits to Air Canada. The much smaller Canadian domestic market, by contrast, which generates almost 40% of Air Canada’s revenues, did not experience any consolidation and hasn’t seen as much capacity restraint. WestJet, for example, grew ASK capacity 9% last year, while Air Canada itself plans to grow by roughly 9% this summer. The market’s third major…
This issue is not currently online. To inquire about purchasing a copy, please email firstname.lastname@example.org.