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Air Canada CEO: “Government Restrictions Are Preventing A Return To Normality”
Running a commercial airline is a tough job during the best of times, but during the COVID-19 pandemic, it has become even more difficult, especially when operating in an environment that restricts both domestic and international traffic.
In a webinar hosted by Aviation Week, Air Canada CEO Calin Rovinescu has explained some of the unique challenges that his carrier has been facing during the past three months,
On top of the prohibition for all non-essential international travel from Canada and the complete closure of the southern border with the U.S., Air Canada had to survive in an environment that has seen some of the Canadian provinces impose constraints and even quarantines to domestic passengers coming from other provinces, therefore stifling, even more, an already depressed demand for air transport.
“Our immediate approach was divided into three parts,” Rovinescu explained on the webinar. “First we had to raise enough cash to survive as long as possible in a low to zero revenue environment. Air Canada started 2020 with over 7 billion [Canadian] dollars ($5.15 billion) in cash on its balance sheet, but we also raised a further CA$4 billion through a combination sale of shares, convertible debt and bonds.”
According to Rovinescu, the next crucial step came in ensuring the public it would be safe to fly with Air Canada
“Then we had to restore some sense of confidence in the traveling public, and we did it with our CleanCare+ program, introducing new health standards, mandatory masks and temperature checks even before the ICAO measures were communicated,” he continued. “Finally, we had to create a feasible schedule to operate in accordance to five different levels of governmental restrictions, affecting our domestic, transborder and international flights.”
Rovinescu stressed how the Canadian government should proceed to reduce the restrictions and harmonize all the measures to favor a gradual return to some kind of normality, as the current environment will not be sustainable for long.
“We are currently losing approximately CA$22 million a day, and even if we have done a great job raising as much capital as possible, we will not be able to survive if these conditions are not normalized soon,” Rovinescu said. “Air Canada has so far not received any subsidies from the Government, unlike what has happened in the United States through the CARES Act and in Europe where Lufthansa, KLM and Air France, among the others, have all received significant financial support from their respective governments.”
Air Canada is the 14th largest carrier in the world and it is the only among the top 20 not to have received any kind of financial support from their government.
Air Canada is benefitting from a governmental program that is supporting the salaries of the employees up to a certain amount, although this has not prevented a round of layoffs for 20,000 employees, including 35% of the management.
Changes To the Fleet
The carrier has been able to quickly convert a number of Boeing 777 and Airbus A330 aircraft from passenger to cargo for transporting light materials such as medical equipment.
“Air Canada has operated 1,500 cargo-only flights since March, and this is thanks to the amazingly fast conversions realized by out maintenance people,” Rovinescu said.
The crisis has provided an opportunity to rationalize the fleet, with the decision to progressively retire the Embraer 190s and the Boeing 767s. Currently, there are still a number of Boeing 767s operating in a high-density configuration under the Rouge brand, but they will be quickly phased out and Rouge will be operating only A320 and A321 aircraft.
“We have made the decision to permanently exit 79 aircraft, eliminating two aircraft types from our fleet, therefore leading to the need to re-train and re-purpose some of the staff that was operating those aircraft. Rouge will become a narrow body operator, focusing on leisure destinations in the Caribbean, the sunny states in the U.S. and eventually returning to transatlantic services with the Airbus A321, which is an aircraft that we like very much,” Rovinescu said.
Next, he turned to the company’s widebody fleet.
“Our mainline widebody fleet with be based on Boeing 777s, Boeing 787s and Airbus A330s. The narrowbody fleet will see the return of the Boeing 737 MAX, which we expect will return into service by the end of the year, and it will still be based on the Airbus A320-family aircraft with the addition of the Airbus A220, which is a great aircraft for us, perfect for Air Canada’s geography.”
Air Canada will still be taking delivery of more A220s this year despite the current situation.
Demand seems to be recovering after the bottom reached in April: expectations are for a capacity of 25% of 2019 levels in the third quarter of 2020, with an assumption of a return to 2019 traffic levels by 2023.
“These are our projections, but they are based on having access to markets that are still closed at the moment owing to government restriction, Rovinescu said. “Our revenue management systems are building demand expectations looking at data from different industries, such as hotels and other means of transport since we cannot use historical data and run our usual models. We are building artificial intelligence models to redefine the concept of demand.”
He believes there will be a very clear pattern to how passengers take back to the skies.
“The initial restart will be driven by VFR passengers, visiting friends and relatives,” continued the Air Canada CEO. “Then there will be domestic tourists, followed by transborder traffic, provided the U.S.-Canada border is open, and, by September, some uptick in business traffic. It may take longer to have a significant resurgence of international traffic.”
This story was updated on Monday, June 15 at 11:55 a.m. ET to correct an error saying Air Canada is the only Canadian airline to continue operation. This is not accurate.
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