Air Canada plans 50% profit boost through cost control

Fleet, network and distribution shake-up part of strategy to exit bankruptcy protection

Air Canada aims to boost its operating profits by almost 50% next year by focusing on cost control. The strategy is outlined in a 426-page business plan that it will propose to shareholders this month in order to exit bankruptcy protection.

The Star Alliance member believes it can turn in an EBITDAR (earnings before interest, taxes, depreciation, amortisation and rent) of C$1.6 billion ($1.2 billion) in 2005 - almost 50% up on its forecast for 2004. That would be on revenues of C$9.1 billion - just 3% better than the 2004 forecast.

Use of regional jets "with lower trip costs" will be stepped up, older aircraft will go, distribution will be further moved onto the internet, and on-board product will be revised.

The network will also be modified, with "new international destinations", but on "key domestic and transborder markets" capacity will be cut through using smaller aircraft while maintaining frequencies.

As a result 2004 capacity in available seat kilometres will grow by 4% over 2003, but will grow by only a further 1% in 2005. "The new revenue model is based on simplified low fares that are easy to book on line," says Air Canada.

Alongside the network and distribution changes comes a fleet revision that will see all remaining Boeing 747-400 Combis, 737-200s and BAe 146s leave the fleet by 2005, along with "the oldest [Bombardier] Dash 8 aircraft in [regional subsidiary] Jazz".

The airline says it will spend about C$2 billion on the regional jets it intends to take from Bombardier and Embraer. It confirms satisfactory financing for those commitments has been secured.

A new corporate structure will see increased moves towards creating separate business segments. "The main businesses to be established as separate standalone businesses or limited partnerships include technical services, cargo and ground-handling," says Air Canada.

The airline's workforce has been cut by 16% in the past year and is down to just under 33,000.

Unsecured creditors, whose claims total C$10-15 billion, are warned to expect only 6-9 cents per dollar, but will hold nearly 46% of the equity in the new company.

That will be alongside about9% held by Cerberus Capital Management, which supported the restructuring with a C$250 million investment, about 3% held by Air Canada executives via a revised option plan, and 42% underwritten by major investor Deutsche Bank.

KIERAN DALY / LONDON

Source: Flight International