Air Canada

Air Canada reports record year

An Air Canada Boeing 787 departs Vancouver in February 2019. The airline transported more than 50 million passengers for the first time in 2018.

Nearly 51 million passengers chose to fly on Air Canada in 2018, more than ever before, but higher costs – including an extra billion dollars spent on fuel – meant profits were down significantly from their highs of 2017. But much like the situation at rival Westjet, never has the airline carried so many people, yet had so little profit to show for it.

Canada’s largest airline released its year-end results Friday, reporting growth across all sectors, led by capacity flying outside the country. Revenues rose to a record $18 billion, though profits fell to $167 million for the year, after reaching more than $2 billion in 2017.

“Ten years ago, Air Canada undertook to repair a badly broken business model,” said Calin Rovinescu, President and Chief Executive of Air Canada, “with the aim of transforming itself into a global champion that could be sustainably profitable over the long term. Our 2018 performance… can leave no doubt we are achieving these ambitious goals.”

The largest passenger increase came from people flying from international to international destinations through Air Canada’s hubs in Toronto, Montreal and Vancouver. That connecting traffic – mainly between the United States and Europe – increased almost 50% on the year.

Traffic to the United States grew 9.7% in 2018, with markets from hubs in Eastern Canada to California and Florida performing particularly well, while traffic flying within Canada grew 1.5%.

“We continue to see gains in Eastern Canada,” said Lucie Guillemette, Air Canada’s Chief Commercial Officer. But “we continue to observe increased competition pressure and capacity from domestic ultra low-cost carriers in the intra-West market, and more specifically Alberta regional routes where we have a relatively small presence.”

Guillemette said Air Canada would continue focusing on flying from its Canadian hubs to overseas hubs – bad news for smaller airports, such as Edmonton and Winnipeg, hoping to land Air Canada service to Europe.

“Demand (to Europe) that we’re observing is still quite solid,” said Guillemette. “What we are observing is our premium cabins have performed very, very well on the trans-Atlantic front.”

The only turbulence reported by the airline occurred over the Pacific, where capacity was down 20%. Air Canada responded by consolidating flights from Toronto to Tokyo-Haneda, and flying smaller planes to China and Hong Kong.

“The environment (to Asia) has been very competitive for quite some time,” said Guillemette.

Looking ahead, Rovinescu saw important changes for Air Canada, notably a new reservation system on the ground, and in the air receiving the last two Boeing 787s and the first delivery of the “game changing” A220 for Air Canada.

“Despite all of the backdrop of the noise that we hear of fears of recession and trade wars and the rest of it, we do see a fairly strong and bullish market,” said Rovinescu.

The other uncertainty comes from the political realm, where the federal government has proposed Bill C-49, the Passenger Bill of Rights, which could force airlines to compensate passengers for delays, but which critics contend actually rolls back protections for the flying public.

“The jury is still out on Bill C-49,” said Rovinescu. “I think that one of the consequences will be the passing on of some of these expenses, because an unintended consequences of bill C-49 is that it will drive fares up.”

A tough pill to swallow, said Rovinescu, for an industry that already faces some of the highest rents, security surcharges, airport improvement fees and fuel taxes in the world.