Air Canada’s push for global growth is raising worries about its ability to match that expansion with customer service.
Calin Rovinescu, the company’s president and chief executive officer, said Thursday that Air Canada continues to put pressure on its operations to compete as profitably as possible, largely by expanding internationally.
Yet as the airline acquires five new Boeing 777-350ER long-haul aircraft – crammed with 398 “slimline” seats in economy class, up from 307 in previous versions – the concern among company watchers is that the drive for profits stretch the airline too thinly and hurt service.
The delicate balance Air Canada must reach is also one facing other carriers such as WestJet Airlines Ltd., as packed planes and busier flight schedules tax the airlines’ operations.
Along with the five Boeing 777-300ERs beginning delivery in the summer, Air Canada is introducing a new premium economy class on international flights, with roomier seats and other perks. And this is happening as Air Canada also prepares to introduce its Rouge discount airline come summertime. With all of these changes, service could potentially take a back seat.
“We fully expect there to be complexity, but we think that generally speaking we’ve managed to do it pretty well,” Mr. Rovinescu said in a conference call to analysts. “I won’t make light of the fact that improving our operational performance is a key initiative of ours,” he added, noting Air Canada’s current four of five stars in the Skytrax Airline Star Ranking of world airlines.
This drive for profit is working, the CEO said, given the turnaround in earnings seen in the fourth quarter and full year 2012. The carrier’s profit hit $131-million or 45 cents per diluted share for 2012, a turnaround from the steep loss of $249-million or 92 cents in 2011. In the fourth quarter, Air Canada saw a small profit of $8-million or 3 cents a share, compared with a loss of $60-million or 22 cents.
With the focus on expanding international routes, Mr. Rovinescu stressed that “the strong revenue performance of our international network was led by significant improvements, not only in the Pacific region, but also on the Atlantic.”
Operating expenses in 2012 rose $250-million over the year, as fuel, wages and other costs added up. At the same time, the airline expects to grow and capacity to increase by 1.5 per cent to 3 per cent in 2013.
Air Canada argued Thursday that this expansion is proceeding carefully. “We have growth coming internationally, but on the domestic front it is small. There has been a lot of discussion from some of the pundits out there as to whether this is a dramatic increase in capacity, but this is obviously not the case,” Mr. Rovinescu said.
Company watchers were upbeat about the adaptations made by the airline, as well as its workers. “The key here is that with Air Canada securing new flexibility from union negotiations, the company can significantly optimize its mainline fleet and respond far better to competitive pressures,” Walter Spracklin of RBC Dominion Securities said in a report.
As the airline sees it, the expansion of travel options, new aircraft and services is key, even if it further stretches the company. “It is critical to continue developing new products and refresh existing ones in order to ensure we offer customers the product features to meet their needs on a market-by-market basis,” said Ben Smith, Air Canada’s executive vice-president and chief commercial officer.