Air Canada predicts continued CASM reduction

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Air Canada continues to paint a positive financial picture, predicting that ongoing cost reduction initiatives will continue to pay financial dividends.

A presentation given on 11 June by Air Canada chief financial officer Michael Rousseau predicts the company will continue to realise strong return on invested capital (ROIC).

The company expects RIOC, which was 10.7% at the end of March, will be 10% to 13% in 2015, compared to 11% in 2013 and 7.9% in 2012, according to the presentation, given during Morgan Stanley’s Leveraged Finance Conference in New Orleans.

The document says cost reduction initiatives, if fully implemented, can push down Air Canada’s cost per available seat mile (CASM) by 15%, from roughly 17.5 Canadian cents (16 cents) to about 15 Canadian cents.

The acquisition of fuel-efficient Boeing 787s, new “high-density” Boeing 777-300ERs and the ongoing transition of mainline Air Canada leisure routes to low-cost subsidiary Rouge can drive those reductions, says the company.

Air Canada has taken delivery of five high-density 777-300ERs outfitted with 36 business class seats, 24 premium economy seats and 398 economy seats.

With a total of 458 seats, those aircraft provide a 21% CASM improvement over the other 777s in Air Canada’s fleet, says the company.

In addition, last month Air Canada received the first of 37 787s, which the company says will have a CASM 29% lower than its 767-300ERs.

Savings will also come from 33 737 Max 8s and 28 737 Max 9s that the company has ordered to replace its existing narrowbodies.

The presentation also notes that Air Canada will continue transitioning leisure routes to Rouge, which is expected to have a fleet of 44 aircraft, including 14 767-300s and 30 Airbus A319s, by the end of 2016.

Air Canada says Rouge, which had 24 aircraft at the end of May, generates a CASM savings of between 21% and 29% compared to its mainline operations.

Savings will also be generated by offering only defined contribution retirement plans, not pension plans, to all new employees, says the company.