Canadian Airlines International has unveiled a three-pronged business plan designed to return the struggling carrier to profit by the first quarter of 1997 in a last ditch survival bid.
The plan includes a 10 per cent pay cut across the company, a review of overheads - including fees paid to AMR Services - and a shift in capacity away from loss-making routes. The latter is expected to add US$45 million a year in revenues while each of the cost cuts will save US$52.5 million.
The airline's new chief executive Kevin Benson predicts these actions will 'bring [US$600 million] to the bottom line over the next four years,' and start showing a 12 month rolling basis profit by the first quarter of next year.
Informed sources suggest the carrier may also drop its own services in eastern Canada in favour of a franchise agreement, possibly with a Canadian charter airline. But Canadian says it is not dropping services, and is instead switching to smaller aircraft during offpeak hours on domestic business routes. It is also seeking codeshare partners to add lift on Canadian Regional's routes in Ontario and Quebec. The airline plans to redeploy narrowbody capacity to higher yield US routes.
Canadian's continuing losses have eroded its cash base despite the raising ofUS$214 million over the last year from a successful aircraft sale/ leaseback exercise. Doug Carty, the airline's chief financial officer, tells Airline Business the carrier has run out of aircraft unburdened by debt. 'We can no longer finance ourselves,' he admits.
The airline had only US$83 million in cash at the end of its third quarter and officials concede this could run out if losses are not stemmed. 'We have a chronic loss history and it is threatening our viability,' says Benson.
Benson wants employees to reply to the 10 per cent wage reduction proposal by the end of November. 'This deadline is essential,' he says. He insists the pay cut is non-negotiable, but the company is offering a profit-sharing plan to offset it. Union leaders have denounced the idea; Benson insists there is no other choice. 'The final savings can only come from one place and that's the employees.'
The airline's revenue strategy emphasises more feed from Canada and the US through its Vancouver gateway to Asia. On the transatlantic it has already dropped unprofitable routes from Toronto to Paris and Frankfurt in favour of codesharing with partner British Airways over Heathrow. A senior source at Air Canada predicts the carrier will gain US$15-25 million a year from the switch.
Despite a lack of capacity Carty says Canadian will defer or sell two A320s scheduled to arrive in 1997. 'We do not contemplate any [capacity] growth,' he says.
David Knibb
Source: Airline Business
