09 November 2008

Poster Child Air Canada - trouble in the Great White North

Air Canada has been lauded from here to the stars about their unbundled pricing model.

The airline made a remarkable recovery from its first foray into the Canadian equivelenet of Chapter 11 and then the restructuring that occurred in 2003/4. From then the company seems to have gone from strength to strength. It became a stock market darling for spinning out several assets - the FF program (Aeroplan) their Regional Subsidiary (Jazz), MRO etc.

However it seems not all is sweetness and light these days in the House that Robert built. AC like the US carriers is suffering the dramatic decline in both total traffic and in particular high value premium biz travelers. As Westjet continues to slowly eat away at AC base we can see that AC is facing a winter of discontent.

Over the weekend the Wall Street Journal put out a story on concerns for AC's liquidity that no doubt will be big news among the Canadian biz rags today.


In the professor's opinion, I believe that AC has some work to do to shore up its finances just like the other North American carriers. Particularly is fellow Star Alliance members US Airways and United are probably in fairly shaky condition should the economy head further south which is of course fairly likely.

Further - this should be a caution to those who think the AC model is the right one. Consider this. AC is still struggling to get its Polaris project (new PSS) out the door. The complexity of its GVC product line has created confusion among the passenger community. Unlike the US airline who have serious coin coming in from ancillary revenue - the unbundled model is not generating new gross revenues for the Canadian airline.

Stay tuned, AC could be in for a bumpy ride.


1 comment:

Professor Sabena said...

Dear readers, I added a new TLA without explanation - thanks to Professor Richard over at Boeing for pointing this out.

GVC - Global Value Carrier. This is another variant on HVC for Hybrid Value Carrier that operates in a global environment. Mea Culpa - I might retire this one before its time.


The Professor