Citing increasing competition, the waning of demand for seats which command a higher airfare, and the reporting of a loss of $260 million for the first quarter of 2013, Calin Rovinescu — chief executive officer of Air Canada — wants to trim $50 million in costs throughout the company by implementing such measures as ending the use of consultants, negotiating lower costs with suppliers, and executing a freeze on hiring new employees.
Although the loss for the most recent quarter was $14 million dollars fewer than the loss in the same quarter in 2012, Air Canada is attempting to financially position itself more competitively against the likes of WestJet and Porter Airlines. The launch of rouge by Air Canada this summer will be met by Encore, a new regional subsidiary of WestJet — both of which are expected to be launched later this year.
Meanwhile — in contrast to the financial woes of Air Canada — WestJet reported a profit for the 32nd consecutive quarter, announcing its “best ever” earnings for the first quarter of 2013.
Given that it is estimated by National Geographic that 75 percent of the population of Canada lives within 100 miles of the border of the United States, I wonder if Air Canada may have considered another factor: the fact that millions of Canadians are crossing the border into the United States to save money on airfares, which can be significantly less expensive.
According to an article authored by George Erb of the Puget Sound Business Journal, the United States is “winning the airfare war along the Canadian border” with low-cost airlines setting up service in the United States at airports within driving distance of Canada and “using their price advantage to lure Canadian passengers across the border.”
That price difference translates into an average of $428.00, according to Erb, who cites the chief reason as “a variety of Canadian fees and structural expenses that are passed on to passengers.”
The Canadian Union of Public Employees — which represents the flight attendants who are employed by Air Canada — claims that the airline “acted too quickly” in its goal to trim expenses by $50 million in the current quarter. Rovinescu counters that Air Canada needs to act fast…
…so who is correct? Is Air Canada doing the right thing by attempting to trim $50 million in costs before the end of the current quarter — or could it be “cutting off its nose to spite its face”? Is $50 million enough, or must Air Canada undertake other changes in order to strengthen itself against its competitors?