Air Canada CEO strikes a cautious tone for recovery

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Air Canada CEO Calin Rovinescu is warning that a potential bottoming out of the economic downturn is no reason to assume the airline industry is beginning an upswing.

"Although we are seeing indications that the bottom of the recession is behind us, the industry is still facing an extremely challenging revenue environment," he recently told analysts. "We do not expect to see a full recovery for another 12-18 months."

Air Canada specifically achieved a one percentage improvement in system load factor during the third quarter to 83.5% through the right sizing of its operation and capacity reductions.

"Our traffic performance is encouraging, but we realize that full planes are not necessarily a sign that we are on the verge of a robust recovery," says Rovinescu. "Our yields remained under significant pressure in the quarter, particularly in the premium cabin." The carrier's third quarter premium passenger revenues fell by $77 million versus the same three months in 2008, and accounted for 21% of the carrier's total decrease in system passenger revenues, which fell by C$366 million, or 13% during the quarter.

A recovery in premium traffic will obviously take longer than a rebound in leisure traffic counts, says Rovinescu.

Air Canada has embarked on a cost transformation programme to bring its unit costs to more competitive levels. The target is $500 million in annual revenue and cost reduction initiatives by 2011. The carrier projects achieving $50 million in 2009, $250 million in 2010, followed by the full amount in 2011.