Air Canada last week completed a court-supervised restructuring 18 months after filing for the Canadian version of bankruptcy under the Companies' Creditors Arrangement Act. The carrier's business plan calls for simplified operations—including a transparent fare structure already in place and a rationalized fleet—and a network featuring high-frequency routes throughout North America and expanding international reach.
Air Canada in April 2003 sought court protection
(BTNonline, April 1, 2003) and used the restructuring to dramatically lower costs. It expects by year-end to remove roughly C$1.5 billion (US$1.18 billion) in annual expenses, with another C$500 million (US$393 million) planned by 2006.
"Air Canada no longer can be considered a legacy carrier," said president and CEO Robert Milton, during a presentation last week to investors. "We are ready to compete aggressively and effectively with low-cost carriers."
To do so, Air Canada built a fare structure that mimics pricing designs at low-cost competitors in North America, notably Canada's WestJet. "The old fare complexity drove customers away and was a costly way of doing business for us," said commercial executive vice president Montie Brewer. "We were not a trusted provider of low fares."
The airline last year introduced its simplified pricing in the domestic Canadian market and this winter expanded it to transborder U.S. routes
(BTN, Feb. 9). Though he wouldn't break out usage numbers of each new ticket type, Brewer said customers "are buying up" to higher-yielding fares. "The marketplace still is learning our business model from a point-of-sale standpoint."
Air Canada's fare redesign complemented efforts to drive bookings through its lower-cost Web site distribution channel. Web site bookings now represent 26 percent of system revenue, up from 2 percent in early 2002.
The carrier by year-end expects to introduce a redesigned Web site, including a booking engine furnished by Amadeus subsidiary E-Travel. Further online functionality was switched on last month when the carrier expanded Internet checkin to all domestic Canadian flights.
Meanwhile, Air Canada is preparing to expand operations to new overseas destinations. It has or soon will launch services to Buenos Aires, Lima and several other Latin American cities. In Asia, the carrier will focus on China and Korea, adding to existing nonstop service between Toronto and Hong Kong. "There are opportunities to fly from Vancouver to cities all across the Pacific Rim," Milton said.
He also mentioned interest in niche markets in Africa, the Middle East and Southeast Asia "that U.S. carriers will not be able to operate to for political reasons for a long time to come." Air Canada already offers nonstop service to Delhi, India, from Toronto.
In Europe, the carrier on April 4 will resume daily nonstop services between Toronto and Rome. It suspended service on that route last year. After returning as the only carrier serving the market, Air Canada plans to reinstate codeshare services with Star Alliance partners from Rome to other European destinations.
In North America, Air Canada is focused on providing high-frequency services in major markets. To achieve such ambitions, the carrier recently finalized a new agreement with Bombardier for dozens of new regional jets, the first of which will begin arriving next month in the fleet of regional subsidiary Air Canada Jazz. The carrier last week also finalized an order for 45 93-seat Embraer 190s, which will begin arriving next autumn.
Milton characterized Air Canada's decision to refocus on jets with 75 to 100 seats as a "game-changing move" that will improve the carrier's aircraft utilization and short-haul economics. "The pilot costs on the Embraers are in striking distance of JetBlue's," he explained, referring to JetBlue Airways' Embraer 190 plans
(BTN, Aug. 16).As smaller planes come into the fleet, certain types of larger aircraft are being cut to simplify operations. Milton, however, hinted that Air Canada might explore new, long-range aircraft to fit its "ultra long-haul" interests.
Meanwhile, Air Canada has earmarked spending for improved inflight services, including a new video entertainment system on international routes and seatback screens on all new North America aircraft, excluding 50-seat regional jets. Carrier executives said to expect soon the next step in seating comfort and meal services on long-haul aircraft "as part of larger fleetwide program to improve the inflight experience."
In completing its restructuring, Air Canada became part of holding company Ace Aviation Services, which encompasses the mainline carrier, regional unit Jazz, the Aeroplan loyalty program, technical services, a cargo division, a vacation company and several other business units. The company's goal is to maintain service levels and a much lower cost.
"We have improved productivity and have fewer employees," said Paul Brotto, executive vice president for planning and cost management, "but we are running the same size airline."