DAVID KNIBB SEATTLE
Air Canada has cut back its network capacity and trimmed staff numbers. Some believe these moves and falling profits are to do with problems related to the firm's recent acquisition and subsequent integration of Canadian Airlines.
Some analysts see a tailspin starting from Air Canada's take-over of Canadian Airlines. Others refuse to read any more into it than a response to temporary conditions, including Canada's typically slow winter season. The reality may lie somewhere in between.
Air Canada has said it will slash its work force by 8%, raise fares 6%, and report fourth-quarter 2000 losses almost four times worse than analysts had forecast. On the network front, it has dropped its Toronto-Amsterdam and Montreal-Tel Aviv routes, and trimmed plans for international growth from 8% to 5% this year. Domestically, it has slashed capacity on some routes by 34% and warned of more cuts.
Robert Milton, the airline's chief executive, blames about half of these losses on non-recurring costs due to the integration of Canadian Airlines. But he also admits Air Canada has been hurt by extra annual fuel costs of C$600 million ($400 million), winter storms that grounded 800 flights, new domestic rivals and a slowing economy. Several US carriers have been similarly affected.
Avi Dalfen, analyst at Research Capital Corp, reacted to this news by downgrading Air Canada's stock for the second time in two days. He warns that North America's slowing economy, the impact of new competition and Air Canada's heavy debt could all conspire against the airline.
Clive Beddoe, president and chief executive of WestJet Airlines, told reporters: "It's about time Air Canada faces up to doing what it does best, and not try to be all things to all people. I don't see how they can maintain the capacity to be competitive in the short-haul market," he warned.
But Ted Larkin, a veteran aviation analyst at HSBC Securities (Canada), is still positive about Air Canada's outlook. Despite its "near-term challenges related to weather and fuel prices", Larkin predicts a combined Air Canada and Canadian will still generate "above industry average profit margins" over the next few years.
One hint of the airline's near-term fortune could come early in February when Canada's Competition Bureau expects to rule on its first case applying new predatory pricing rules to Air Canada.
Source: Airline Business
