AC Extends Record Results Streak, Doesn’t Fear Competition

By Bruce Parkinson

Calin Rovinescu

Anyone who still believes the resurgence of Air Canada is a flash in the pan or the wind-aided result of historically low oil prices may need to reconsider.

Q3 2016 marked the 7th consecutive quarter of record results for the increasingly confident airline that has launched 20 new international and trans-border routes over the past year. 
Previous Q3 records for EBITDAR, operating revenues, operating income and adjusted net income were all eclipsed.

Two of Air Canada’s major priorities showed strong progress in the quarter: traffic was up 18.9% year-over-year, reflecting significant expansion, mostly international; and the number of international-to-international pax connecting in Canada jumped 27.9%, displaying AC’s success in turning YYZ, YVR and YUL into international hubs. 

For CEO Calin Rovinescu and the other executives on a conference call with financial analysts, a plan is coming to fruition. Rovinescu, recently named ‘Canada’s Outstanding CEO of the Year,’ says the quarter “showcased the full potential of an optimized Air Canada, even in a somewhat challenging environment.”

Rovinescu cited several factors key to the company’s success, including cost-savings, a more fuel-efficient and flexible fleet, labour peace, the success of lower-cost subsidiary rouge and reduced reliance on the domestic market.

“We can now compete with the best and strongest airlines in the world,” Rovinescu said.

Increased competition is coming at home, following last week’s federal government decision to grant foreign ownership restriction exemptions to two planned ‘ultra-low-cost’ carriers, Canada Jetlines and Enerjet. Each will be allowed to have up to 49% foreign ownership effective immediately, and the Liberal gov’t will introduce legislation soon to raise that number for all players.

The AC CEO says he’s not worried. “We face low-cost competition in many markets and with Air Transat and WestJet we’re familiar with low-cost competition at home. Whether you put a ‘U’ in front of it (for ultra-low-cost), we still feel confident.”

Air Canada would have preferred that the new entrants be required to wait for legislation to pass before being allowed to increase foreign ownership – to keep the playing field level, Rovinescu says – but that’s not his main concern about Canada’s aviation regulatory regime.

“We have to tackle taxation on aviation. The #1 issue continues to be the level of airport rents, security charges and fuel taxes. We rank 136th out of 140 countries around the world. The rates and charges methodology really needs to be looked at.”

On the subject of airport privatization, an issue that has been raised in the government’s review of aviation policy, Rovinescu again brought the subject back to high taxes and fees.

“The price of aviation cannot go up. If privatization will deliver lower costs, it will be a good thing. If not, we will not support it.”

Air Canada’s lower-cost leisure subsidiary rouge has been an effective buffer against competition and “can be deployed to be competitive as needed,” Rovinescu said, indicating that AC will defend its domestic market share, despite being “much less dependent on domestic travel” thanks to the rapid expansion of international routes.

AC executives say it’s not just financial results that are improving. The airline has faced major customer service and satisfaction issues in the past, but better staff training and an ongoing corporate culture shift are resulting in a “flexible, entrepreneurial and proud” workforce and better scores on customer satisfaction surveys.

The airline was recently honoured as one of ‘Canada’s Top 100 Employer’ for the 4th consecutive year and has also seen its brand valuation rise significantly of late, now ranking among the top 50 most valuable Canadian brands according to UK-based Brand Finance.
Investors reacted positively to Air Canada’s third quarter. On the TSE, shares closed up 7.4% to $12.83 in Monday trading.

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