Here's a story from the WSJ. They are profitable again and the Canadian market has recovered. They have lots of debt though. The assitance UA gave to AC was the only positive impact Goodwin had during his short tenure.
Air Canada's Outlook Clears,
But Industry Concerns Linger
By JOEL BAGLOLE
Staff Reporter of THE WALL STREET JOURNAL
OTTAWA -- After three turbulence-filled years, Air Canada is once again gaining altitude.
In contrast to most major U.S. airlines, Canada's dominant carrier is finally on the mend from the decline in air travel following last year's terrorist attacks on the U.S. -- and it is recovering from its bumpy merger with former rival Canadian Airlines. Analysts who had been writing off Air Canada a year ago, now say they are cautiously optimistic about its prospects.
After racking up net losses for three straight quarters, Air Canada was the only major international carrier in North America to post profit for this year's second and third quarters.
The company Friday reported third-quarter net income of 125 million Canadian dollars (US$79.9 million), or 91 Canadian cents a share, compared with a year-earlier loss of C$903 million. Excluding various items, earnings were C$37 million, compared with a year-earlier loss of C$447 million. Revenue rose 6%, to C$2.75 billion from C$2.59 billion.
The third-quarter results are particularly encouraging in the context of the crisis facing the North American airline industry, said Robert Milton, president and chief executive.
A year ago, the Montreal carrier was among the most hobbled in the industry. Some of its bonds were trading at less than half their face value, and analysts were speculating that it could be headed for a bankruptcy-protection filing. Its battered stock fell to as low as C$1.64 a share. Air Canada's stock was at C$5.57, up 12 Canadian cents, in Friday trading on the Toronto Stock Exchange.
Air Canada's obviously done some things right, says Nicholas Morton, managing director at Toronto brokerage firm RBC Capital Markets.
The airline still faces challenges. Fuel prices are rising, the international travel market remains tepid and lucrative business travel has yet to return. Critics still balk at the airline's dominant position in Canada and complain of poor service. And a possible bankruptcy-protection filing by UAL Corp.'s United Airlines looms over Air Canada: The two carriers are part of the Star Alliance code-sharing pact, from which Air Canada draws C$600 million in annual revenue.
UAL is in talks with Air Canada and other Star Alliance partners about possible loans or other aid. Air Canada spokeswoman Laura Cooke declined to comment on United's situation.
Concerns also persist about Air Canada's C$12.5 billion in long-term debt, a burden that ballooned when the company acquired Canadian Airlines in 2000. But Air Canada has resolved several other internal problems resulting from its acquisition of the debt-laden airline, while also reacting successfully to a drop in demand over the past two years, analysts say.
Air Canada has merged the unions of the two carriers and reached collective agreements with all its unions except the flight attendants. (Collective bargaining with the flight attendants is now under way). Air Canada has pared 7,000 employees from its work force, removed 61 aircraft from service -- cutting its fleet to 234 planes -- and reduced costs by moving to electronic tickets and cutting travel-agent commissions.
In January, Air Canada will be released from conditions the government imposed on its acquisition of Canadian Airlines that forced it to provide service to remote communities for three years on unprofitable routes. And with Air Canada's market share down to 73% from 85% in 2000, following the start-up or expansion of several small airlines, the government has eased its crackdown on Air Canada's market dominance.
Air Canada's come a long way in the last few years, Canadian Transport Minister David Collenette says. Considering we had a difficult merger of Air Canada and Canadian Airlines, and 9/11, I'd say competition now isn't that bad.
The Canadian market hasn't been as affected by last year's terrorist attacks as the U.S. market. Analysts say this explains why Air Canada's traffic rose 3% in this year's first nine months, while traffic at major U.S. carriers fell 8.3% in the same period. At profitable WestJet Airlines, a nimble discount carrier that controls 20% of Canada's market, traffic is up 53% year to date, due partly to an expansion of its fleet. Also, Air Canada and WestJet, of Calgary, Alberta, haven't engaged in the aggressive price cutting that has eroded revenue at U.S. carriers.
Air Canada thinks its subbrand strategy is crucial to its long-term viability. Air Canada this summer started four niche airlines, such as Tango, a low-cost, low-fare national carrier, and Zip, a low-fare carrier based in western Canada. Air Canada says Tango achieved an 81.4% load factor -- percentage of seats filled -- in the third quarter, compared with a 76.7% load factor for the company overall. The carrier says it is considering starting several more subbrands, focused on everything from cargo service to business travel.
Moving to low-fare domestic service has enabled Air Canada to reconfigure planes, removing empty business-class seats and expanding coach seating. This has enabled it to cut costs by, for example, no longer providing meals on flights.
Write to Joel Baglole at joel.baglole@wsj.com
