Loss balloons in quarter because of war and SARS
Carrier grounds planes after losing $4 million a day
RICK WESTHEAD
BUSINESS REPORTER
Air Canada’s preliminary first-quarter loss ballooned to $354 million after the war in Iraq and concerns over the SARS virus drove away customers.
The insolvent airline announced sweeping cuts to its service to overseas and U.S. destinations to pare its capacity in the historically busy period of June, July and perhaps August by 17 per cent. Losing $4 million a day, Air Canada said it would ground 40 of its 232 aircraft.
The airline indefinitely suspended service to Dayton and Grand Rapids, and won’t fly from Toronto to Kansas City, St. Louis or New Orleans until after Labour Day. Routes slashed until summer 2004 are Calgary-Chicago, Montreal-Atlanta, Montreal-San Francisco, Toronto-San Diego, Toronto-Tokyo/Narita, Vancouver-Washington/Dulles and Vancouver-Nagoya.
Air Canada’s loss in the quarter compared with a loss of $219 million, or $1.83 a share, in the year-earlier period, according to the airline’s unaudited first-quarter financial statement. The per-share loss for the first quarter of 2003 won’t be available until the airline’s books are audited.
Air Canada, the country’s largest airline and 11th biggest in the world, also said it lost $828 million, or $6.89 a share, in 2002, compared to a loss of $1.3 billion, or $10.95, the previous year. The losses for the year were about $400 million more than the airline previously reported in February because of a tax-related charge.
Air Canada yesterday joined SAS Group, Scandinavia’s largest airline, and Air France SA, Europe’s second-largest carrier, in reporting wider quarterly losses that were attributed to the Iraq war and spread of SARS.
“SARS will clearly have a sustained impact in every affected area of the world and has already had a ruinous effect on our summer 2003,” Air Canada president Robert Milton said.
“I do not expect international travel demand to Canada to recover in the near term,” Milton said. “The terrible revenue environment we are now facing with SARS immediately after the war with Iraq necessitates drastic action to survive what is expected to be one of our weakest second and third quarters in history.”
Air Canada estimates it lost $152 million in April alone, $125 million of which was attributable to SARS.
The deadly form of pneumonia has spread through nearly 30 countries, including China, Vietnam and Singapore, since its February discovery, killing 579 people, including 24 in Canada — all in the Greater Toronto Area. Air Canada’s traffic on Asian routes, meantime, has plummeted 60 per cent.
A month after the International Air Transport Association estimated the war in Iraq could cost the airline industry $10 billion (U.S.), Air Canada’s traffic spiralled downward. In April, the airline flew 22.3 per cent fewer revenue passenger miles than it did in the comparable year-ago period.
Besides cutting routes, Air Canada has also asked unions representing 40,000 employees to help save $770 million with salary cuts and other concessions, and $400 million in pension and benefits reductions.
Citing negative stock market returns and falling interest rates, Air Canada yesterday said its pension plan is under-funded by $1.3 billion.
By: MapleLeaf_330 - 16th May 2003 at 14:38
i would think in the the latter two examples provided by mongu and greekdude, that the EU partner of Thai could simply sell those seat on the Thai flight eventally bound for BKK as its own.
I think AC may have had some deal with DL, but I honestly don’t know if it still exists. I will check. A buddy of mine at work here worked on the open skies agreement.
By: mongu - 15th May 2003 at 23:53
That depends on whether they have the right to do so – it isn’t a given, for non-EU airlines.
Generally, they will get that right, but they can’t sell the tickets to the public as such. Eg. If i want to travel ROM to ATH, I probably couldn’t do so on Thai unless I started off in BKK.
SIA do the same: SIN-MAN-AMS, but the MAN-AMS portion is not on sale on a standalone basis.
By: greekdude1 - 15th May 2003 at 22:36
In order for them to sell seats on a particular flight, do they have to be European based? For instance, I know Thai does BKK-ATH-ROM and then back again. Are they allowed to sell seats on the ATH-ROM portion, or are they only for pax originating in BKK?
By: mongu - 15th May 2003 at 22:28
Lufthansa could do exactly that.
In theory, the EU has full and unrestricted open skies by virtue of the Common Market – free movement of capital, free trade, no tarrifs. It is happening to a certain extent – Deutsche BA, VLM, Ryanair and Buzz all did this, with Buzz having a French domestic network in addtion to its main hub operations from London. VLM fly domestically in the UK, eg. MAN to LCY.
In practice, the EU is still basically protectionist thanks to the beaurocrats going against the spirit of EU law.
By: greekdude1 - 15th May 2003 at 21:43
You are correct, Mapleleaf, and I don’t think UA ever intended to open up new markets, as a result of this. About 6 months ago, UA started serving YUL from DEN and ORD with RJ’s, but that had nothing to do with AC cutting flights. If anything, AC will funnel more customers onto UA’s existing Canada flights as a result of these cutbacks. If I’m not mistaken, AC also has some sort of codeshare agreement with Delta, correct?
By: MapleLeaf_330 - 15th May 2003 at 21:21
I don’t think that a US carrier can just take over Canadian slots, unless, as you pointed out, they are already code shares. American has a very big presence in Canada as a result of its former alliance with Canadian Airlines International. US Airways is growing in the east.
By: greekdude1 - 15th May 2003 at 21:17
I think you were typing your post as I was typing mine, Mapleleaf. Who can’t do what? I don’t think LH can do what you were saying, even if they were continuing on to a German city. Anybody from Europe, can you shed some light on this?
By: MapleLeaf_330 - 15th May 2003 at 21:06
They can’t do that either. There are very strict guidelines surrounding open skies b/w US and Canada. Let’s just say that they’re only partially open. Can a European carrier, like LH for instance fly b/w say LHR and CDG without continuing on to a German destination?
I think eventually Canada and the US will have complete open skies.
I think AC is still to receive the A340-500, just delayed. I don’t know if they are still the launch customer.
By: greekdude1 - 15th May 2003 at 21:03
United really doesn’t have that strong a presence in Canada to begin with, which is why the rely a lot on Air Canada. The only cities they serve themselves, from various hubs, are the biggies: Vancouver, Calgary, Toronto, and only recently Montreal. AC could put their codes on UA’s flights to and from those cities to their hub cities, IAD, ORD, DEN, LAX, and SFO. As far as ATL goes, they’d have to rely on Delta for that and nobody is based in San Diego, but perhaps there wasn’t a strong demand for a nonstop, they can just connect.
By: Saab 2000 - 15th May 2003 at 20:39
Greekdude,
I was thinking more about the North American flights like from Montreal to Atlanta or Toronto to San Diego being taken over by an US airline?
By: greekdude1 - 15th May 2003 at 18:21
United can’t fly YYZ-NRT non-stop by routing laws, I would think. There would have to be a connection in ORD, SFO, or LAX.
By: Gaurav - 15th May 2003 at 18:15
I was reading in the mag about hoe bad they were doing , but never expected it to be this bad
By: Saab 2000 - 15th May 2003 at 17:00
Extreme action is needed to guarantee their survival in these tough times, hence a lot of flight cuts. Sad really, no A340-500 for them I guess. Doesn’t really need it now considering it was going to go on the Toronto-Tokyo route. Probably some of those routes will be taken over by American airlines like United?
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May 14, 2003 at 9:08 pm