Canadian's first-quarter loss of C$107.8 million ($70 million) underscores its need for change. The first quarter is typically tough in Canada, but this year's result is C$22.3 million worse than a year earlier. It represents Canadian's third consecutive quarter of deteriorating year-to-year results.
Even before Canadian released these figures, Standard & Poor's had downgraded its outlook on Canadian because of "continued weakness in yield - causing mounting losses - and a possible tightening of cash and liquidity". Canadian concedes yield erosion is a concern, but insists cash reserves are adequate, even C$30-40 million better than a year ago. This is mostly due, however, to its first quarter sale of two McDonnell Douglas DC-10s and its stake in Equant, the telecommunications business floated off from Sita.
Many of Canadian's woes can be traced to low-cost start-up WestJet, which has wrested much of the western Canada market away from Canadian. As Canadian's results slide, WestJet's have soared. The start-up operates 10 Boeing 737s to serve a network of 11 cities - two of them added in March.
Last year it producing a 63% jump in operating revenue and a 35% increase in profit before taxes and profit sharing. More ominously for Canadian, WestJet is discussing a non-equity commercial alliance with Air Canada.
Canadian has launched a 60-90 day review into ways to improve domestic results. Chief executive Kevin Benson says he is considering a low-cost subsidiary to match WestJet, although the airline has one of the lowest unit costs of any major North American carrier. Poor yield is a bigger problem.
Geography works against Canadian. Western Canada, where it competes with WestJet, is predominantly a leisure market, while eastern Canada, Air Canada's bulwark, is a region which generates more business traffic.
"We need to focus far more heavily in the eastern markets than we have," Benson concedes. "We want what Air Canada has and I want to find a way to get it."
Another thing Canadian wants is access to US capital markets. The airline has held informal talks with Ottawa about relaxing its 25% lid on foreign ownership. Benson says: "The time is probably very close when we will want to visit the minister and put a more formal proposal to him."
Source: Airline Business
