Not-so-blue Skies Ahead for Air Canada

http://www.canadianbusiness.com/managing/strategy/article.jsp?content=20090330_10023_10023&page=1

THE GOOD, THE BAD AND THE UGLY (AIR CANADA)

*i chose this article because Air Canada’s pricing strategy was mentioned during class*

Blue skies ahead for Air Canada?

taken from : http://www.globalgiants.com/archives/fotos/AirCanadaBoeing0407.jpg

“Stock of low-cost rival WestJet, which was one of the few North American airlines to remain profitable through the recession, is largely unchanged since the start of the year.”

taken from : http://ca.reuters.com/article/businessNews/idCATRE68C3XW20100913

The article discusses the dire economic situation of Air Canada (AC) and its huge debt.  Key contributors are high costs of production, decrease in consumer demand and pension payouts.

“Extraordinarily high fuel costs” mean higher costs of production which result in subnormal profits. Even though oil prices have since gone down, AC purchases $99/barrel oil supplies. Coupled with decrease in consumer demand, the profit margins are further squeezed. Pension payouts are also losing value in accordance with the stock market bust.

Possible outcomes would be a government bailout, as suggested in the article. I don’t think this is ideal.  Certainly, it would prevent the loss of employees and avoid “restructuring, and the disruption it causes”. Also, the issue seems to be tied largely to the “stock market slide” which seems to be looking up. However, Air Canada’s market share has been rapidly decreasing. Credit card partners lose revenue when they have to refund customer fares. Plus, there are more efficient competitors which are establishing brand names and consumer loyalty.

Air Canada’s attempts to mitigate its situation by reducing capacity (supply) are weak at best.

Leave a Reply

Your email address will not be published.