WestJet

Air Canada vows bankruptcy is not an option as its losses continue to mount

Air Canada is vowing another bankruptcy is not an option as it continues to battle an unprofitability streak and continued fallout from its ongoing labour strife and the closure of its main maintenance provider Aveos. Patience appears to be wearing thin as four years of losses continue to plague investors looking for an elusive return on investment. The airline is opting not to give any clear-cut timing for a return to profitability as it first needs to achieve new collective bargaining agreements with two remaining labour groups – pilots and mechanics – that have staged work stoppages that in the short term have further diluted its brand.

Despite paying down CAD260 million (USD259.2 million) in debt during 1Q and achieving a more than CAD500 million (USD498.5 million) improvement in a cost reduction scheme, Air Canada overall remains unprofitable. Its CAD3.1 billion (USD3 billion) in expense outpaced the CAD3 billion (USD3 billion) recorded in revenues, which drove a 27% increase in its operating loss year-over-year to CAD93 million (USD92.7 million).

Steady demand fuels strong revenue performance for Canadian carriers in first quarter

Favourable demand trends helped Canada’s two main carriers record strong unit revenue performance year-over-year during 1Q2012. But the similarities end there as WestJet recorded a profit of CAD68.3 million (USD68.6 million) while Air Canada widened its loss from CAD19 million (USD19.1 million) to CAD210 million (USD210 million) year-over-year as its fuel expense grew by CAD147 million (USD147.7 million). Both carriers face challenges heading into the rest of year as WestJet has revised its cost guidance upwards and Air Canada continues to manage the fallout from its prolonged labour strife.

WestJet’s 6% growth in passenger unit revenues beat the carrier’s own forecast as CEO Gregg Saretsky explained the revenue growth allowed WestJet to fully recover the 19.6% rise in fuel costs the airline recorded year-over-year.

Total revenue at WestJet increased 15.3% during 1Q to CAD891 million (USD895.2 million) as yields increased 4.8% on a 8.8% rise in supply.

Porter quietly reaches profitability in fast-changing Canadian market

Small Canadian carrier Porter Airlines during 2011 celebrated its fifth anniversary by recording its first annual profits as rival Air Canada spent most of the year embroiled in contentious labour negotiations with employees that have escalated into employees participating in work slow-downs during the last couple of months. In contrast, so far during 2012 Porter has enjoyed steady increases in its traffic as it continues expansion of its route network. But the carrier could start to see pressure next year in some of its markets as WestJet prepares to launch a regional subsidiary operating the same size aircraft as Porter, which could create challenges for the carrier in sustaining its new-found profitability.

Porter CEO Robert Duluce recently told The Ottawa Business Journal that Porter enjoyed its first profitable year in 2011 and expects to remain profitable this year. Porter reached its profitability milestone while some if its key business markets came under intense pressure.

Air Canada faces a tough transformation as it celebrates a milestone anniversary

Air Canada limped into its 75th year of business after posting two consecutive years of losses and now finds itself in a public relations fiasco as wildcat strikes by employees recently disrupted operations and the sudden closure of its primary maintenance provider Aveos has put the carrier on the defensive as it attempts to deflect criticism for 2600 employees suddenly losing their jobs.

Those snafus, followed a higher number of pilots calling in sick as the Canadian Government stepped in to prevent both pilots and mechanics from striking as negotiations to reach agreements to replace concessionary contracts forged in 2009 hit impasses. It looks as if Air Canada and its management team headed by CEO Calin Rovinescu face major obstacles in their goal of concluding labour contracts that he concludes are “essential to create a climate of stability”.

WestJet’s plan to launch a regional carrier shows growing maturity of its network

WestJet’s decision to push into new, less-dense domestic Canadian markets through the establishment of a new regional subsidiary reflects the 16-year-old carrier’s maturity in markets served by its Boeing 737 narrowbodies, but also shows a certain agility WestJet enjoys that allows it to execute new strategies quickly.

The carrier exhibited that agility last year when it bolstered its presence in the highly competitive Canadian eastern triangle (Toronto-Montreal-Ottawa) to build up its base of higher-yield business travellers and intensify competition with Air Canada and Porter Airlines.  

But WestJet’s decision to add a second fleet type to penetrate markets not viable for its fleet of 737s also reflects the realities of the Canadian commercial air transport market, the finite possibilities of exclusively operating narrowbodies and the genuine opportunities for higher-margin regional flying.

WestJet and New York. Moving in a new direction?

The announcement last week that WestJet had successfully bid for eight slots at New York’s LaGuardia airport, along with its press release that indicated a new focus on “increased business travel in the East”, may signal a new phase in the airline’s development.