Air Transport World

Air Canada faces tough challenges as Canada dabbles with deregulation.

Air Canada faces tough challenges as Canada dabbles with deregulation

Government-owned Air Canada, formerly Trans-Canada Air Lines, was established to tie the country together. Now in its 50th year, the carrier is experiencing pressures the founders never contemplated: competition within Canada; the impact of U.S. airline freedom; possible sale to the public; the need to operate like a business, not a government employer. Air Canada is yet another case of a company which must change its entire corporate orientation if it is to survive.

The pressures are taking their toll. January-June 1986 results showed a net loss of C$43.1 million, compared with a C$3.6 million net profit for the same 1985 period. In 1985, when it incurred two strikes in order to cut costs, the company lost C$14.8 million, compared with a 1984 profit of more than C$28 million. The company may eke out a "modest profit' this year.

There are other signs of stress. The airline has just reorganized for the third time in six years. At a time when industry employment is up in the U.S., Air Canada continues a hiring freeze. On-time performance is down, disturbingly so. The company needs a batch of new aircraft but can't buy them because of losses and costs that must still be reduced. Partial or total privatization, which would permit more financing flexibility, is in doubt because of financial performance.

Denis J. Groom, one of two executive VPs in the latest reorganization, came to Air Canada from Cunard six years ago. He told ATW, "There's been one crisis after another since I've been here. Before I joined (traffic) growth was 7% a year every year. The inefficiencies of the company were masked by the growth. But with no growth you can no longer mask the inefficiencies.'

Units to provide relief

This reorganization divides the company in two. The passenger airline is one half and all other activities are the other half. Groom is in charge of the latter, called "business units': computer services, credit card, cargo, the pension fund and other subsidiaries and investments. This includes Air Canada's 26% holding in GPA, the leasing company whose return far exceeds even the most successful airlines and certainly Air Canada's.

Cargo already is a profit center and the other units probably will be, too. Some 20% of the company's total assets are employed in its non-passenger business activities and that will rise.

Executive VP R.W. Linder, whose background is operations research, heads the passenger airline. Its fluctuations are no longer supposed to be a drag on the corporation's non-airline business decisions. The new units are designed to provide some relief from the relentless squeeze on costs and yields in passenger operations.

The restructuring actually returns the airline to its general shape prior to President and Chief Executive Officer Pierre Jeanniot's last reorganization 18 months ago. It is supposed to relieve him of the excessive amounts of daily decision-making that had found their way to his office in that period. It also unites the airline's marketing and sales departments, making it easier to assess responsibility for wrong-- or right--decisions. Apparently, too, some managers have returned to jobs more suited to their talents.

Like other entities emerging from decades of protection, Air Canada has some inherited problems. …

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