Kevin O'Toole/LONDON
CANADA'S TWO MAIN airlines struggled to deliver their promised profit improvements in 1995, but the heads of Air Canada and Canadian Airlines believe that recovery will come this year as the effects of capacity expansion and cost-cutting show through.
Canadian Airlines International saw losses virtually double, to C$195 million ($142 million), as traffic growth failed to live up to expectations. The group also paid out C$61 million to cover restructuring. That included cutting unprofitable routes, consolidating heavy maintenance at Vancouver and the sale and leaseback of 18 aircraft to raise badly needed cash.
President Kevin Jenkins says that, with the restructuring now largely complete, the group expects a "significant improvement" in its 1996 financial performance.
Unit costs held steady in 1995, and are due to go down further, says Jenkins. He notes that the deals already signed with four of the airline's six unions towards the end of the year will cut wage bills by between 17% and 24%.
Canadian is also banking on new marketing initiatives to bring back traffic into the network. Over the last year, traffic growth remained sluggish, leaving Canadian unable to fill its rapidly growing capacity. The signing of the US-Canada open-skies agreement in February 1995 did help towards a 9% growth in North American traffic, but the carrier expanded by nearly 15%. New routes to 19 US destinations were opened with alliance partner American Airlines.
Air Canada expanded even more aggressively during the year, including the launch of 29 routes to US cities and three new intercontinental services.
The airline's out-going president, Hollis Harris, says that the airline will soon be deriving the majority of revenues from international services, which are already close to accounting for half of the carrier's business.
Over 1995, Air Canada's international passenger revenues soared as traffic grew by 15% and yields rose by 8%. Domestic passenger traffic rose by only 6% and yields fell.
Net profit of C$52 million was down by roughly half on 1994, when the group had made gains on the sale of its share in the Gemini computer-reservation system. Air Canada kept underlying operating margins steady and is looking for further improvements in 1996. The group ended the year with C$750 million in cash. Canadian Airlines had C$200 million.
Source: Flight International
