Air Canada sinks to $250 million 2011 loss as labor issues vex

Air Canada 777-300. By Rob Finlayson

Air Canada (AC), in the midst of navigating challenging labor negotiations, reported a disappointing C$249 million ($250.2 million) 2011 net loss, widened from a C$24 million net deficit in 2010.

President and CEO Calin Rovinescu conceded to analysts and reporters that the carrier's current financial situation is untenable, necessitating change. "We are into a transformation," he said. "For us to be successful long-term, we have to transform."

He said the company is aggressively tackling controllable costs, exploring revenue enhancement initiatives, maintaining strong liquidity (about C$2.1 billion at year end 2011) and will continue to manage capacity "conservatively," with full-year system ASMs expected rise no more than 1.5% year-over-year in 2012.

But the labor situation, including the Air Canada Pilots Assn. calling for a strike vote this week and AC narrowly avoiding a flight attendants' work action last year (ATW Daily News, Oct. 14, 2011), continues to be "very challenging," Rovinescu said. The carrier is attempting to collectively bargain new labor deals with nearly all of its work groups.

Rovinescu said he is "optimistic" AC can solve its labor problems through "negotiations" and avoid service disruptions. He noted that "pension reform" remains the "main challenge" in talks with unions.

AC's plan to establish a subsidiary low-cost carrier (ATW Daily News, April 14, 2011) is also "proving contentious" in labor negotiations, he allowed, but added that AC believes the segment is important and "we are considering various options" to engage in low-cost operations.

Rovinescu took note of rival WestJet's announcement Wednesday that it will launch a regional turboprop airline next year (ATW Daily News, Feb. 9). "There's no question this WestJet announcement is something we find of interest," he said. "They are a strong competitor … and we expect them to compete in the regional market."

But he emphasized that AC's focus will be more on growing its international network than buttressing domestic services. "We are mindful of the fact that we have a mature market in Canada," Rovinescu said. "There's no question there is pressure on domestic yields."

AC's 2011 revenue increased by 7.6% to C$11.61 billion while expenses heightened 8.3% to C$11.43 billion, including a 27.5% jump in aircraft fuel costs to C$3.38 billion. Operating income was C$179 million, down 35.6% year-over-year.