MONTREAL – The union representing flight attendants at Air Canada says the airline acted too quickly in moving to cut costs by $50 million in the current quarter.
Michel Cournoyer, head of CUPE’s airline division, said the industry usually makes most of its money near the end of the year and he’s convinced Air Canada will end up turning a profit, as it did in 2012.
“I think it’s premature to make an assessment after the first quarter,” said Cournoyer, who represents some 7,000 flight attendants.
“We made lots of cuts and changes internally so I predict we will profitable.”
In a memo sent to senior management, and obtained by The Canadian Press, chief executive officer Calin Rovinescu said the Montreal-based company must trim its expenses to better compete against its rivals.
The plan includes a hiring freeze, ending the use of consultants, and finding more savings through its suppliers.
Rovinescu said “the revenue environment has been and is expected to remain extremely challenging.”
“While we have made good progress on controlling costs, the ground beneath us is shifting almost daily and the goalposts are moving with it,” Rovinescu said in the memo.
“Certainly our competitors are not standing still.”
The memo points to increased competition from Canadian airlines such as Toronto-based Porter and Calgary-based WestJet, along with a growing challenge from U.S. carriers.
It notes that WestJet recently announced it would reduce the number of flight attendants from one for every 40 passengers to one for every 50 in a cost-cutting measure.
“We are facing intensifying competition and significant capacity additions on our key trans-border and Rapidair markets,” Rovinescu said.
“In addition, we expect to be pressed even further as WestJet will soon launch its regional carrier Encore and our U.S. competitors are pricing aggressively and adding capacity in places such as South America.”
The company-wide hiring freeze, which was approved by the executive team, is effective immediately. Exceptions will be made for new hires that are considered “mission-critical” and for those joining Air Canada’s new discount carrier, Rouge.
Air Canada lost $260 million in its most recent quarter, down from a loss of $274 million in the same quarter a year earlier.
Last year, net income was $131 million on revenues of $12.1 billion, compared with a net loss of $249 million on revenue of $11.6 billion in 2011.
The goal is to report a profit again in 2013, Rovinescu said.
“Last year’s profit was an important achievement for all of us and it cannot be a “one-off” nor can we allow Air Canada to relapse into a money-losing spiral,” he said.
Not everyone is convinced the changes will be enough.
Fred Lazar, an associate professor of economics at York University, said the airline’s planned cost reductions likely wouldn’t be sufficient to offset revenue declines. He said $50 million in cuts is only “a start.”
Lazar suggested Rovinescu should set an example by starting at the top, trimming back the management ranks and cutting the salaries and bonuses of executives.
“I do not know what the right number should be, but most likely a multiple of the $50 million — maybe in the $150-$250 million range,” Lazar said in an email.