Air Canada Seeks to Cut $50 Million in Costs — But…

A Boeing 767-333ER aircraft operated by Air Canada — with the door to its cargo bay open — awaits its passengers at a gate at Heathrow Airport in London in 2011. Photograph by FlyerTalk member Weean. Click on the photograph for a trip report written by Weean.

Citing increasing competition, the waning of demand for seats which command a higher airfare, and the reporting of a loss of $260 million for the first quarter of 2013, Calin Rovinescu — chief executive officer of Air Canada — wants to trim $50 million in costs throughout the company by implementing such measures as ending the use of consultants, negotiating lower costs with suppliers, and executing a freeze on hiring new employees.
Although the loss for the most recent quarter was $14 million dollars fewer than the loss in the same quarter in 2012, Air Canada is attempting to financially position itself more competitively against the likes of WestJet and Porter Airlines. The launch of rouge by Air Canada this summer will be met by Encore, a new regional subsidiary of WestJet — both of which are expected to be launched later this year.
Meanwhile — in contrast to the financial woes of Air Canada — WestJet reported a profit for the 32nd consecutive quarter, announcing its “best ever” earnings for the first quarter of 2013.
Given that it is estimated by National Geographic that 75 percent of the population of Canada lives within 100 miles of the border of the United States, I wonder if Air Canada may have considered another factor: the fact that millions of Canadians are crossing the border into the United States to save money on airfares, which can be significantly less expensive.
According to an article authored by George Erb of the Puget Sound Business Journal, the United States is “winning the airfare war along the Canadian border” with low-cost airlines setting up service in the United States at airports within driving distance of Canada and “using their price advantage to lure Canadian passengers across the border.”
That price difference translates into an average of $428.00, according to Erb, who cites the chief reason as “a variety of Canadian fees and structural expenses that are passed on to passengers.”
The Canadian Union of Public Employees — which represents the flight attendants who are employed by Air Canada — claims that the airline “acted too quickly” in its goal to trim expenses by $50 million in the current quarter. Rovinescu counters that Air Canada needs to act fast…
…so who is correct? Is Air Canada doing the right thing by attempting to trim $50 million in costs before the end of the current quarter — or could it be “cutting off its nose to spite its face”? Is $50 million enough, or must Air Canada undertake other changes in order to strengthen itself against its competitors?

9 thoughts on “Air Canada Seeks to Cut $50 Million in Costs — But…”

  1. C-Kay says:

    Recently flew with AC Ottawa to Vancouver and was surprised that a meal was not offered on board. It was around dinner time and the FA started taking orders. Their prices are outrageous. $7 for a small sandwich. Sure this is a domestic flight, but Vancouver is 5hrs away (I can go to London UK same time) and the flight isn’t cheap either. This practice is common for companies like easyjet, jet2, etc, but Air Canada?
    My fault for not checking before the flight that meals were not included, but this is the first and last time they will have me buy a meal on board.
    oh and for our Vancouver to Calgary flight, we were surprised that a snack was going to be provided. It was a pack of 2 cookies.
    The flight attendants could learn to smile too and not make a long face when you call them for something.
    Soon they will start charging you for the 1 free checked luggage on domestic flights. No wonder AC is going downhill.

  2. atsak says:

    It could also be that they “enhanced” their frequent flyer program this year to make it a lot less valuable to people flying 35 – 50K and have been enhancing their program for their 100K+ flyers for a few years, and that’s showing in the bottom line. By removing some of their differentiation with their US and Canadian competitors, maybe some people are just shopping on price. Also the Tango fare scourge is taking away the usefulness of their upgrade instruments since trans continental tango fares can’t be upgraded. I have voted with my wallet costing a bit over $2500 to AC coffers, so I wonder how many other people have too. Hard to quantify. Maybe I”m unique, but maybe I’m not.

  3. Transpacificflyer says:

    The more AC cuts, the more it loses its profitable premium flyers. I have to go to SIN. The cost on 5* Qatar in J is significantly less than with AC. On the Qatar flight, it will be flown with an upgraded clean B777, I will be treated to an excellent meals, premium wines, a mattress on my lie flat seat with a cover where my head will lie, complimentary pajamas and a premium toiletry bag. The FAs will provide service with a smile and not behave as if they are doing me a favour. I will arrive well rested on an airline that has a superior on time performance. AC cannot compete on service or price with the Gulf state and Asian airlines. Nor can AC can compete with the superior service offered by Porter and West Jet. The cost cutting will only make it worse.
    If AC wants to save some money, it should start first by closely examining its executives salaries and bonuses and start paying them based upon on their performance, which to date has been less than stellar. Board of Directors stipends should be reduced as well. AC executives and board members should be forced to take a few long haul flights in the back of the plane. Let them line up at the crowded checkin desks that are understaffed, and let them experience the poor baggage service to understand what their cost cutting has achieved.

  4. FlightNurse says:

    The problem is airlines like most business start making too many cuts at once and start the alienate thier core customers, look at what happened with UA. If AC really wants to be profitable they need to look at ways to do it without hurting the people who fly them. How about cutting the CEO pay by say, 20%…. It’s nice that management want the people who make flying enjoyable take pay cuts, but the people who make outragious salaries needs to set up also.

  5. DarrenChannel says:

    On Mexico-Canada routes that I fly, AC appears to have given up completely with fares far in excess of their competitors. Westjet, United, and US Airways always have them beat — and often by a significant amount (ie, $200+ on an economy round trip ticket). And the difference on business class tickets is even crazier — in June, MEX-YYC in biz on AC is $990 (one-way) vs. $650 on US, UA, or AA. I truly do not understand how AC management operates. Most insulting of all, they send me emails of “fare sales”, and when I go to check my regular routes, I find that their “sale” fares are the same price as their regular prices.

  6. Baldpacker says:

    I think AC actually provides a very good service considering what it has to work with. The unions are a huge cost issue for AC and a hangover from the days when it was a government run company. I also believe the government fees and taxes greatly hurt AC and, as considered in the article, drive people to the US for their flying requirements. There is a great Conference Board of Canada article that looks at the Canadian airport fee structure and it’s about time the government adopts some of their recommendations.
    The only issue I really have with this is the use of less consultants. I would have thought AC should try to use MORE consultants to get away from the inflated costs of union workers.

  7. efe83 says:

    so union workers’ costs are inflated but consultants’ not?

  8. Palal says:

    Their problem is production costs, and more specifically labor costs. They can’t compete with WestJet on that factor alone.

  9. seanthepilot says:

    A company that Canadians love to hate… and AC has done nothing to change this (inaccurate) brand image over the years. Actually, they are a good airline… but…
    They would rather have a seat go empty than to sell it cheaper.
    I am happy to comply. That seat goes empty. And I fly someone else.
    They play bait and switch. Excessive fuel charges. An advertised fare ends up so much higher than touted.
    It’s not the cuts killing Air Canada, it’s Air Canada’s mindset killing them.

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