Air Canada planes are pictured at Toronto Pearson International Airport in this file photo.Matthew Sherwood/The Globe and Mail
The robust financial turnaround at Air Canada should get even stronger during the next three years, the airline says, with international expansion propelling its growth.
Air Canada said Tuesday it has exceeded targets it set in 2013 for cost reduction, return on invested capital, profit margin and debt ratio, so it has set new goals for 2018.
"This is about long-term sustainable profitability," chief executive officer Calin Rovinescu told analysts and shareholders at an Air Canada investor-day meeting on Tuesday, noting how far the airline has come since the 2008-2009 recession.
"In 2009, we had a choice: transform or disappear," Mr. Rovinescu said.
Since then, the airline's financial turnaround has been evident in the form of record adjusted profit, improved credit ratings and the elimination of deficits in its pension plans – which are now in a surplus position. Lower costs will be one of the key elements that will drive improved profit margin during the next three years.
Costs per available seat mile, one of the main measures of an airline's costs, should drop by 21 per cent by the end of 2018 from 2012 levels, driven mainly by new aircraft, the growth of its low-cost Rouge network and the restructuring of an agreement with Jazz, which provides regional service to Air Canada.
That should help earnings before interest, taxes, depreciation, amortization and impairment and aircraft rent, or EBITDAR, a key measure of airline profitability, reach between 15 and 18 per cent of operating revenue by 2018.
Return on invested capital is now targeted to hit between 13 per cent and 16 per cent annually.
Growth will come from increasing flights between Canada and Asia, Europe, South America and the Middle East.
By 2018, 62 per cent of Air Canada's business will be generated by international flights, compared with 54 per cent in 2011.
North American business will drop to 38 per cent from 46 per cent in 2011.
The international growth will be spurred in part by the arrival of 25 Boeing 787 wide-bodied aircraft between the end of this year and 2018, which will make some international routes profitable. Air Canada will begin flying those planes to Delhi and Dubai later this year.
"We've been to India a couple of times before and it hasn't been sufficiently profitable so Air Canada had pulled out," Mr. Rovinescu said.
"Now we have the right equipment for India."
One of the airline's key goals is to encourage more Americans to fly to international destinations via Toronto if their home cities are not served directly by U.S. airlines.
Airline officials cited Philadelphia, for example, from where there are no direct flights to China.
But by connecting through Toronto, Americans could fly to Beijing or Shanghai on Air Canada. That international connecting traffic grew by 23 per cent in 2014 and 25 per cent in the first quarter of 2015.
But Air Canada is not getting its fair share, said Ben Smith, the carrier's president of Passenger Airlines.
Its fair share would be about 1.5 per cent of U.S. traffic to Europe or Asia not carried by U.S. airlines, compared with the existing figure of 0.8 per cent, Mr. Smith said.
Hitting the 1.5-per-cent figure would generate an extra $650-million in revenue annually, he said. Raising that figure to 2 per cent or 2.5 per cent of such traffic would bring total revenue to more than $1-billion.
"We see a huge opportunity here," he said.
"We're not reinventing anything, we're just finally leveraging one of the key assets that Air Canada has, which is its geographical position relative to the U.S."