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Air Canada is the national airline of Canada and with hubs at Toronto Pearson, Montreal-Trudeau and Vancouver International airports, it is the largest airline in the country. Operating a fleet of narrow and wide-bodied Boeing, Airbus and Embraer aircraft, Air Canada’s network includes service to 170 destinations in Canada, North America, South America, Central America, Europe, Asia and Australia. Air Canada is a founding member of the Star Alliance.
Location of Air Canada main hub (Toronto Pearson International Airport)
Air Canada B shares share price
1,371 total articles
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Some intrigue is surfacing around a new ultra low-cost airline that aims to debut from a base in Vancouver during summer 2014. Modelled after Spirit and the pioneer of the bare-bones business scheme Ryanair, it would arrive just as new carriers created by Canada’s dominant airlines Air Canada and WestJet hit their stride.
Founders of Canada Jetlines have recently been making the rounds among Canada’s media outlets touting their plan to operate Airbus narrowbodies to under-served and little-served markets, appealing to cost-conscious travellers with low base fares and an extensive a la carte menu that could even include a nanny service.
Given Spirit’s solid financial results since its initial public offering in 2011 and Ryanair’s consistent profitability levels, it was only a matter of time before an aspiring ULCC would sprout up in Canada. Of course the challenge is amply executing the theory that the time is ripe for the ultra low-cost model to succeed in Canada. There will also be many across the border watching closely.
WestJet dips a toe in the trans-Atlantic market with Dublin service; any prospective partners there?
WestJet’s decision to use St John’s as a launching pad for a conservative experiment in assessing the potential for trans-Atlantic service is not a huge threat to Air Canada yet. But it does put WestJet’s larger rival on notice that even as Air Canada’s fortunes look to be improving, WestJet does not have any intention of leaving any potential sources of revenue on the table, including trans-Atlantic routes where it can effectively deploy its Boeing 737 narrowbodies.
In some ways WestJet’s move is not surprising given that the carrier has previously hinted at international market expansion beyond the transborder and Caribbean and Latin American markets it serves. But as the carrier has previously stressed, any move into a widebody aircraft operation is at least five years off as its immediate focus is on ensuring the successful launch of its regional carrier Encore and continuing to optimise its network.
The carrier is, however, opting to engage in an exercise to learn more about the trans-Atlantic market while juggling the addition of several new elements to its business – Encore, new fare bundles centred on a premium economy product and its continuous quest to expand its business passenger base. It also helps make potential European partners aware that there is another Canadian airline bidding for expansion.
Air Canada reached a milestone in 3Q2013 as its return on invested capital (ROIC) as of 30-Sep-2013 was 10.8% compared with 7.7% at YE2012. The improvement is notable as the company broaches its stated objective of achieving an ROIC between 10% and 13% on a sustainable basis by 2015.
It is a laudable achievement given a couple of years ago the carrier was working feverishly to combat significant financial challenges and battled labour strife throughout much of 2012 in order to forge collective bargaining agreements that it believes will aid in its ultimate goal of sustainable profitability.
Obviously the carrier still has a long road ahead in proving its mettle in regular profitability, but for the moment it seems to be holding its own against increased competitive pressure from WestJet while getting its own new low-cost carrier Air Canada rouge off the ground.
WestJet beat previous estimates of unit cost reductions in 3Q2013, but overall the quarter was paradoxical for the carrier as yields and unit revenues continued to be pressured by high capacity growth; however, at the same time the airline is pleased with one of the main drivers of the capacity increase, the launch of its regional carrier Encore.
After unit revenues fell nearly 5% in 2Q2013 and almost 4% in 3Q2013, WestJet foresees flat unit revenue growth during 4Q2013 and is declining to offer guidance for FY2014 even as unit costs could grow by 1% during that same time period.
The carrier has undertaken numerous significant projects during 2013 in addition to the launch of a new airline – most notably the introduction of a premium economy section on its Boeing 737 narrowbodies and fare bundling options. At the same time WestJet now believes it will deliver on a CAD100 million (USD96 million) cost-cutting scheme a year early, by the end of 2014. Presumably all of those initiatives will pay off in the long term, but in the short term WestJet may continue to face pressure in some key financial metrics.
Air Canada’s low-cost carrier Rouge is ratcheting up service to leisure destinations in Europe during the 2014 summer high season, which should prove a definitive test for the carrier’s theory that a low cost operation on routes producing softer yields is the correct equation to turn profits.
The growth and operation of Air Canada Rouge to a possible fleet of 50 aircraft is a strategic pillar of the company’s efforts to cut its unit costs by 15% – quite a formidable goal. Similar to Rouge’s initial roll-out of service from Toronto to Athens, Edinburgh and Venice and from Montreal to Athens, most of Rouge’s planned route expansion during 2014 is into markets that have been served by Air Transat during the high season. With just a few months of operations under its belt, no clear-cut conclusions can be made about Rouge’s future or the total effects on Air Transat, but Air Canada appears to be throwing down the competitive gauntlet, noting that it is now in a much better position to compete on those routes.
After spending much of 2012 battling labour groups to forge contracts with more favourable terms, including the establishment of its new low-cost carrier Rouge, Air Canada is enjoying a more peaceful 2013, reflected most recently in its downward revision of cost guidance for the year. At the same time its stock has more than tripled during the past year as it intensifies its attempts to create a lasting business model.
After touting the highly anticipated launch of its new regional carrier Encore throughout 2012, Air Canada’s rival WestJet has encountered some headwinds in 2013 as its yields and unit revenues have come under pressure and its own capacity additions and an overall increase in domestic supply in Canada have pressured its yields and unit revenue.
As both carriers march towards reporting 3Q2013 earnings, Air Canada might be beginning to get some traction in its efforts to transform its legacy business model. WestJet, meanwhile, has warned of continued unit revenue degradation during 3Q2013 as it also works to beat back the inevitable cost creep associated with a certain level of maturity.
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