Wings Magazine

Air Canada says business travel recovering slowly

June 17, 2010, Montreal - Business travel, a key driver of Air Canada's efforts to improve the airline's profitability, is improving but at a very slow pace following the economic recession, a senior executive said Wednesday.

June 17, 2010  By The Canadian Press

"(Increased business travel is) happening slowly but it has not happened to any great degree at this point in time,'' Michael Rousseau, the airline's chief financial officer said at the Bank of America Merrill Lynch transportation conference in New York.

A recovery of premium business travel is an important part of the airline's recovery plan. Passengers paying higher-prices fares grew by 15 per cent in the recent quarter but remained far below pre-recession levels in 2008.

Part of the improvement reflects last year's poor results, but the situation is slowly improving, Rousseau added.

"We believe business travel is coming back, largely because of initiatives we put in place.''


It typically takes two to three years after a recession for business travel to resume, Rousseau said. Air Canada is starting to see change but many large Canadian corporations have yet to relax rules about flying above economy class.

Delta Air Lines CEO had a rosier picture of the recovery of business travel, saying corporate sales grew by 63 per cent compared to last year, through May 31.

"Corporate revenues are driving a considerable amount of the improvement,'' Ed Bastian, president of the world's largest carrier told the conference.

Canada's largest airline has about 56 per cent of the domestic
market share, 39 per cent of the international market and 34 per
cent of the market for flights to the U.S.

While it doesn't breakdown the profitability of the various regions it serves, international service earns higher margins, Rousseau told analysts.

"One of our key priorities for 2010 and 2011 is to expand our international operations. As such our international capacity growth is expected to significantly outpace our system capacity growth.''

Domestic capacity is expected to increase by no more than 1.5 per cent this year.

Despite being Canada's market leader, Rousseau told investors the airline has no immediate plans to match higher U.S. baggage fees because of the unwillingness of rival WestJet (TSX:WJA) to follow suit.

Most American legacy carriers charge for each checked bag.

Air Canada allows two free checked bags on domestic flights, but charges for a second checked bag on flights to the U.S. and Europe.

Analysts asked why competition from WestJet would dictate Air Canada's policy when U.S. carriers face much more competition, including from low-cost carriers like Jet Blue and Southwest, which don't have baggage charges.

"They're not small. They've got 30-something per cent. It's not like they have five per cent,'' he added.


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