How Air Canada is sneaking up on everybody to become the newest global carrier

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When it comes to maintaining domestic air superiority, U.S. carriers have been shaking their fists at Persian Gulf airlines that have rapidly increased their American presence.    Yet there’s another threat that may be growing in their own backyard — or more precisely, just north of it.   Air Canada has been around for 80 years, but only recently sought to parlay torrid growth into global ambition. The company aims to turn its three major Canadian hubs into larger transfer points for global travellers crossing North America.   Flying to Europe or Asia? Try Toronto, Montreal, or Vancouver as your connection — you may very well like these airports far more than Chicago, New York, or Los Angeles, Air Canada is telling travellers.    And the carrier isn’t shy about singing its own praises.
“Every time an American flies up on us they go ‘Oh my God, you’re the best kept secret.    How did we not know about this?’” said Ben Smith, Air Canada’s president of passenger airlines.    “That is what’s music to my ears.”
Air Canada’s full-year 2016 results are expected Friday, and will probably continue a remarkable financial turnaround that began after what chief executive Calin Rovinescu described as “the near-death crisis years” of 2008-2009.    The carrier has been radically increasing its international footprint, and in the second and third quarters of 2017 will become the champion of long-haul capacity growth.  That seating capacity comes atop annual, overall capacity growth averaging about 20 per cent.    As it ramps up seasonal flying this spring, Air Canada’s total long-haul capacity will exceed 18 per cent, surpassing Emirates, which has been adding new routes from Dubai to just about everywhere. In the summer quarter, long-haul seat growth will top 10 per cent.

New American routes
With these powerful numbers as a backdrop, Air Canada is launching an all-out assault to the south.    In May, the airline launches new service to a half dozen U.S. cities, including smaller markets such as Memphis and Savannah, Ga.    These will further expand a global route map that stretches from Algiers to Reykjavik and Taipei to Tel Aviv.    The airline is also scouting Africa for future destinations.

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A massive international expansion, attractive hubs for global jetsetters, and now brand new routes across its southern border
So-called “sixth freedom” flying — the right of an airline to carry passengers or cargo between two foreign countries as long as it touches down in its home nation — is the cornerstone of Air Canada’s strategy.    It’s helped the Montreal-based airline post record net income of $308 million in 2015, more than double the prior year.
Boosting Air Canada as an international connecting point is also crucial to broadening its long-haul service, such as the nonstop Toronto to Delhi flight launched in 2015 and a new nonstop to Mumbai that begins in July. (Meanwhile, among U.S. carriers, only United Continental Holdings Inc. flies to India.)
In order to fill planes bound for Sydney or Munich, Air Canada requires a healthy dose of traffic from elsewhere.    “That connecting flow helps you support the launch of new services,” said Cameron Doerksen, a transportation analyst with National Bank of Canada Financial Inc. “You may not have thought it was viable to launch Toronto-Delhi unless you were getting some connecting traffic from the U.S.”
Air Canada isn’t alone in pursuing this type of international transfer strategy, given the range capabilities of modern aircraft and the enormous hubs that have emerged in the Persian Gulf.  Low-cost Iceland leisure carrier WOW Air, though only five-years-old, has grand ambitions to boost its Reykjavik base as a North Atlantic hub, and Singapore Airlines Ltd. has similar designs on making Changi Airport an easy one-stop connection for North Americans heading to Southeast Asia.
Yet for Air Canada, the tactic comes with some risk.    The carrier is nowhere near the size of the American behemoths to the south, most of which don’t take kindly to losing passengers to anyone. Long-haul flying typically commands higher fares and thus a more lucrative customer base, placing it among the more fiercely contested segments in air travel, said Helane Becker, an aviation analyst with Cowen & Co.
Carriers like Delta Air Lines Inc. are notoriously sharp-elbowed when it comes to turf scuffles, and Emirates has the ability to throw on huge capacity as needed simply by moving the service to its superjumbo Airbus A380.    In other words, Air Canada may be running a risk of getting squeezed.
“I don’t know when, but there will be a reaction by the U.S. carriers at some point when the supply of seats gets too high,” Becker said.    “In the short term, the U.S. carriers are probably focusing on some other markets as a group — Los Angeles, Orlando, San Francisco — but once they stop focusing on that, you might start to see some competitive response to Air Canada.   For now, it’s not on their radar screen.    They have bigger fish to fry, such as the Middle East carriers.”

Revenge for the lean years
Smith, who on Feb. 9 helped unveil Air Canada’s striking new black-and-white aircraft livery during a ceremony in Toronto, isn’t too worried about U.S. rivals.    Air Canada is targeting a 1.8 per cent market share of the U.S.-international market, he said, which is roughly double its current amount. “And that means one or two business customers a day from Philadelphia, you know? One or two from Cleveland,” he said. “If someone’s going to add an extra flight to go fight for that, then they’re kind of irrational.”
Moreover, he argues, Air Canada’s flexing is only fair.    Foreign carriers have been poaching its international traffic for a long time.    Having acquired Canadian Airlines Ltd. in 1999 — then the nation’s No. 2 carrier — Air Canada was hobbled by heavy debt and high costs.    The airline sought protection from creditors four years later, and didn’t expand its 56 plane wide-body aircraft fleet for a dozen years.    Air Canada acquired its first Boeing 777 — a staple of most international long-haul fleets — just a decade ago.
During these lean times, Montreal tour company Transat A.T. Inc. emerged as its largest competitor on trans-Atlantic routes.    Smelling blood, domestic upstarts and Emirates grew exponentially at Air Canada’s expense as well, and Asian airlines targeted Canada as part of their North American expansion.  “Talk about sitting there watching by the sidelines as prime routes into our prime markets have been taken away by premier carriers,” said Smith. “It drives you crazy.”

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Posted on February 17, 2017, in Air Canada, Uncategorized and tagged , . Bookmark the permalink. Leave a comment.

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