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On 4/16/2003 9:46:13 PM Boomer wrote:
Tell us about Canadian Airlines International, how much did it cost us to get tied into the fiasco and how much more did it cost us to get out?
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Great question.
We invested CA$241M (US$177M) in 1994. In 1996, we wrote down $251M associated with the investment. In 1999, we recouped $40M by selling the preferred shares to Air Canada and another $67M tax benefit from losses related to the initial investment. In 2000, we got a $41M break-up fee from Air Canada.
We paid out $177M, wrote off $251M, but later recouped around $148M. Net loss of around $30M to $100M depending on whose fuzzy math you use, right?
Wrong.
We also earned between $50M and $100M per year in fees from Canadian. Most of that was for technology services provided by Sabre (still owned by AMR at the time), but also for other services performed by AA, such as accounting, revenue management, weight and balance planning, and ground handling at stations in the US. Most of the work done by AA employees for CP was pretty much incremental, meaning we didn't necessarily go out and hire people to do the work, but instead used people who were already on payroll, and we simply made better use of their time.
That came out to around $500M during the lifetime of the agreement with CP, and doesn't include incremental revenue from codesharing where CP customers flew on AA metal, or where CP customers bought tickets on AA so they could get mileage in CP's ff program. Far more CP people flew on AA than the other way around, so it was revenue positive for AA.
So, was that really a failure? If you look at just the raw dollars invested, probably. If you consider all of the other "fluff" that we were able to get in the deal, it was brilliant.