|
|
|
Home Company Profile Registration Photo Gallery Testimonials Book a Speaker Contact Us |
|
Previous speakers include:
Lord
Jeffrey Archer |
Topic:
The Truth About Air Canada INTRODUCTION by Steven Convey, Accenture Canada Good afternoon ladies and gentlemen. Thank you for that kind introduction, Steven. And in anticipation of the question period, I'll tell you now that I have nothing to clarify on the subject of Celine's contract except to confirm that, as you just saw on the video clip, we are indeed getting great value. It's a real pleasure to be here today. As the year 2004 winds down, I'm sure all of us will remember the past twelve months for different reasons. Just to refresh your memory: we have already endured: one Super Bowl wardrobe malfunction, four major hurricanes, two Britney Spears' marriages and zero NHL hockey this season. Fortunately, though, there has been one very good news story for Air Canada. In October, we reached an important milestone as we successfully emerged from CCAA. And I have to tell you, ladies and gentlemen, that it's a chapter we're all happy to leave behind. To mark the occasion, I joined Air Canada employees across the country to celebrate our emergence and talk about our future as a restructured and revitalized national carrier. We introduced an updated design and colour scheme for the Air Canada fleet, new uniforms and new in-flight enhancements for our customers. And we also introduced our new theme song - You and I Were Meant to Fly - by Celine Dion…which, in Celine's absence, I have the pleasure of now singing for you. But seriously, while I may not be able to hit the high notes that Celine so easily does, in many respects both Air Canada and Celine sing from the same song sheet. Celine shares with Air Canada a passion to succeed and a reputation for excellence around the globe. That's what brought us together to introduce the new Air Canada to the world and the results so far have been extremely positive. Our launch received amazing media coverage not only here in Canada but around the globe. Pictures of Celine in the new Air Canada uniform were seen on the front page of newspapers across the country and as far away as Brazil and Australia and even made it into the latest issue of that great American journalistic institution - STAR magazine - alongside an article entitled "Desperate Housewives - Who had Plastic Surgery" The title of my speech today could well be: "Extreme Makeover: Airline Edition: Desperate Airlines Who Required Financial Surgery". Unfortunately, that pretty well sums up the state of the North American industry these days. For several years, I have been a very public advocate that the legacy airline model is broken and I am now convinced more than ever that it is.
After
its recent makeover, I don't feel that Air Canada can be considered a "legacy
carrier" any longer. Our balance sheet doesn't look the same, how we sell our product
isn't the same. We are a truly different carrier after our restructuring and I think that
all U.S. legacy carriers will also have to restructure, most likely formally, before all
is said and done. What has taken place and continues to take place in North America has now firmly implanted itself around the world. What I would like to do today is share a personal perspective on this crisis and the business strategy which has emerged from the crucible that is CCAA. As you may know, last month, Air Canada officially pulled the plug on enforced minimum stay rules and stopped telling customers where to spend their Saturday nights. For decades, the airline business has been all about protecting revenues with fences and rules and regulations and waiting for economic upswings to generate meager profits. Airline revenue managers spent hours trying to make our customers do silly things to squeeze the highest amount of revenue they could. Now, add to that: terrorism, an economic downswing, the rise of the low cost carrier as well as internet distribution and you have the majority of the North American industry on life support and operating in crisis mode. Despite a huge amount of hard work and restructuring since 1999, Air Canada could not fix its problems fast enough to deal with the economic and geopolitical adversity. The final straw was the arrival of SARS right here in Toronto which dried up revenues at our most important hub almost overnight. By the end of 2003, Air Canada qualified as the world's only international airline that had suffered both its home airspace being shutdown after 911 and its home hub being impacted by SARs. That was the end of the old Air Canada. The airline went into CCAA in April 2003 and the most significant business restructuring in Canadian history began. Since then, many people - especially executives and CEOs - have asked me what it's like to go into CCAA. In case there is any doubt in this room, let me assure you that the act of filing is one of the most miserable moments of any CEO's professional life. From that point on, the only way to ensure success is to take the hand you are dealt and work with it. In that respect, in no time at all, I realized that this was the most liberating thing that could happen to Air Canada. Finally, we could work with issues that had been festering for decades.
Through our CCAA filing, we could
truly change a legacy carrier with its roots as a government-owned "Crown
Corporation" into a modern and flexible carrier for the future. What would it take to make Air Canada durable, profitable and competitive on a sustainable basis? I did not want to do what some of the US carriers have done which was to restructure to compete with other legacy carriers. What I wanted to do and what we have done at Air Canada is to restructure ourselves into a carrier able to compete against low cost carriers. I think it goes well beyond restructuring or cost cutting. I think the success of any enterprise or venture, especially here in Canada, requires three ingredients: competitive cost structure, a sound business model and a framework for success. But if you want to boil it down to its essence, it's all about creating a new business relationship between the consumer and the company. That's certainly the case in the airline business. Just look at its history. Once in the pre-deregulation world, there was a romantic time in the business where if you did a better job of scheduling, deploying capacity and using a better product, you could win a competitive war. Your mission was simple. Keep business travelers buying business fares and prevent them from buying down. When your costs went up, you simply generated more revenues through price increases or by expanding services. In large part, we were telling the customer when to buy, when to fly and how much to pay. Against this backdrop of escalating legacy carrier costs, especially labor costs, and with the advent of the internet, low-cost carriers didn't just enter the marketplace - they took the business by storm. They were embraced by consumers and the best - like Southwest Airlines in the US - became champions of value for customers. The founder of Southwest is the legendary Herb Kelleher - outrageous anecdotes about this smart and funny guy have been a staple of the industry for the past 30 years. But behind Southwest is a deadly serious business model: a one class, value-based pricing model that allows the company to win in any economic climate. The relationship with the consumer is: we'll offer you cheap fares but no frills. But the engine that enables this relationship is a low-cost base. So to compete with the likes of Southwest, cost structure was job one for Air Canada. This was a daunting task. Throughout CCAA, there was a backdrop of disdain and cynicism from analysts and observers who said that this was mission impossible.
· They said Air Canada would never
get labor to agree but we did.
At the end of CCAA, we changed the
airline. We have removed annually: During a conference call some weeks ago, one airline analyst called this "financial liposuction". I took that as a major compliment. We also reduced Air Canada's debt load from some $12 billion to approximately $4 billion and, against the odds, raised $1.1 billion in new equity - perhaps the largest equity raise for any passenger airline in history. So that's the cost structure part of the equation. So far, so good. But it's not enough. We have to do something bold with this cost structure. We have to apply it to the marketplace in a way that makes money. That means redefining our relationship with consumers like yourself - because the old way wasn't working. Simply stated we have to beat the low cost carriers at their own game. We have to be better champions of value. Of course, this is not unique to the airline business. There are many sectors of the economy where legacy companies are failing. Not because they are bad companies, but because the world has changed. New companies have come in with a lower cost base and exploited new technologies or new markets. The Internet is a good example of technology which can change the rules of the game overnight. For new low-cost airlines, the Internet makes product distribution cheap and easy. A direct pipeline to consumers. At Air Canada, we asked ourselves how we could turn that paradigm on its ear and take back the Internet as a competitive tool for our success versus low cost carriers. The answer was to use the Internet as a shop window for consumers to see, compare, choose and buy the product they want. Today, we distribute over 60% of our domestic sales via the Internet. No other legacy carrier even comes close to that. Of course, to make it work, we had to simplify our product line. Our goal is to rebuild your trust in buying directly from us with full transparency through easy to understand conditions. Now there are just five simple fares for flying Air Canada. You see them all on aircanada.com. You pay only for the desired one-way ticket type you want, starting from the lowest fare and paying consecutively higher prices for premiums such as priority seating, Aeroplan points or return-date flexibility that you chose to add on.
Through the internet, customers are
also able to surf through competitors' fares. And they will see for themselves that the
CEO of one of our low cost competitors had it right when he said, and I quote: "Air
Canada matches us, dollar for dollar, on every single fare, every single minute of every
single day." Personally, I can't think of a better endorsement for our product! In a world of full service, legacy carriers, this is a big gamble and Air Canada has become a test-bed for others in the North American industry. But it's paying off. Our recent load factors are proof. We've had seven straight record months of loads including the highest load factor in our history this past August. And on Friday we reported a third quarter operating profit of $243 million - given current record fuel prices, this is a clear indication that our commercial strategy is producing the desired results. Unlike our U.S. counterparts, we embraced the new business model with relish. Montie Brewer, our EVP Commercial, has helped Air Canada lead the way in implementing our new business model. In his honour, we at Air Canada, now call this the "Full Montie" that's Montie with an "I-E" instead of a "Y". We are today the only carrier to offer this new pricing model on our entire domestic and transborder networks. And just as they did with Tango, the world's airlines are watching Air Canada closely. Aircraft is another example of the new business model in action. Today, I see our aircraft not just as operational equipment -- but as a means of changing our fundamental relationship with consumers. We're intent on matching our aircraft as precisely as possible to the markets we serve. One size no longer fits all. Personally, I love Boeing 747s. They're fabulous aircraft, but they don't suit the needs of our consumers or the consumers we want to serve in new markets. So, once again, we threw out the conventional wisdom on aircraft. As part of a recent 105 aircraft order, we've announced the acquisition of new Bombardier CRJ regional jet aircraft as well as Embraer new generation small jet aircraft. These small jets will change the rules of the game in the North American marketplace. How? Well, over the years, low cost carriers have used smaller aircraft to undercut legacy carriers in their traditional markets. With smaller aircraft containing fewer seats, low cost carriers have fragmented traditional legacy carrier markets requiring fewer customers to make a profit. With the new Embraer 75-95 seat new generation jets, we will more effectively challenge low cost players by offering more non-stop flights to smaller markets and just as with the low cost carriers, we'll need to fill fewer seats to make a route work. In other words, Air Canada will do to the low cost carriers what they have done to legacy carriers. We've come full circle and these new aircraft will fragment the market down further. We'll be able to by-pass hubs and match fares - there's no escaping consumer preference for non-stop, point to-point service.
Our fleet strategy also includes the
right compliment of efficient wide body aircraft which will allow us to take advantage of
many international growth opportunities, largely from our Toronto hub but also from other
Canadian cities. Latin American routes launched over the past year, including Peru, Chile, Argentina, Costa Rica, Cuba, Venezuela and Colombia, and I am happy to report they are also performing very well. Demand is bolstered by the convenience of Air Canada service for travelers worldwide impacted by U.S government visa requirements when transiting via the United States - this means that Air Canada becomes an obvious choice of airline for passengers traveling between Asia and Latin America for example. We also see further opportunities for expanded or new service in Europe, Asia, South America and the Middle East. Fleet and Internet are just two examples of a fundamental shift in the way Air Canada does business. So now we've got a new competitive cost structure and a new business model predicated on a new relationship with consumers. The missing piece of the puzzle is a framework for success. By this I mean the environment in which we operate. For Canada's airlines, that means a new aviation policy, something that has eluded us for decades. It's something our airline, our industry and our country has desperately needed. A couple of weeks ago, Transport Minister Jean Lapierre announced that the government will examine liberalizing Canada's air policies. To say that I'm 'pleased' by this initiative is like saying Red Sox fans are 'pleased' with the World Series. The federal government's past approach to air policy stressed protectionism, interventionism and regulation over free market principles. It is the airline equivalent of the 'Curse of the Bambino'. It prevented Canadian carriers from flying international routes, helped foreign carriers and prevented Canada from maximizing its aviation potential. It's a policy which has historically been part of the problem - not part of the solution. I can't resist giving my favourite example of this because it cracks me up -- even to this day. Under the old policy in place until the late 1990's, Air Canada could serve all of Germany except Munich from eastern Canada and Frankfurt from Western Canada -- while Canadian Airlines could fly from western Canada to Frankfurt, but not to the rest Germany. They could, however, fly to Munich from Eastern Canada. I think you can understand why we at Air Canada find it is so refreshing that this new Minister of Transport has finally decided to break the Transport Canada mold, to challenge the status quo, take on the sacred cows and hopefully prepare for the creation of a framework for success for Canada's airlines. We will support Minister Lapierre's liberalization initiative and we will work cooperatively towards a common goal. We urge him to get started as soon as possible - first with the Canada-U.S. market and then onto other markets around the world starting with the largest markets first. But moving towards liberalized air agreements is not enough. We also need to modernize the way customers are handled through immigration and customs procedures at our airports. One of the great disadvantages of transiting through Toronto is the inconvenience associated with Canada's immigration and customs procedures. Let me give you one example: A customer traveling from Sao Paulo, Brazil to Tokyo, Japan is forced to clear Canadian immigration and customs formalities even though they have absolutely no intention to stay in Canada. For someone traveling through Toronto, that means arriving from Sao Paulo in the in-field terminal building; taking the shuttle bus to the main terminal building; clearing Canadian Immigration formalities; exiting the secure area; going through security screening; re-entering the secure area they left just 10 minutes before; taking the shuttle bus a second time; and boarding the flight to Tokyo back in the in-field terminal building they arrived at an hour before. As you can clearly see, this is a totally unnecessary and exceedingly customer unfriendly process - when the customer has absolutely no intention of even setting foot on Canadian soil why must we put them through so much hassle? Procedures such as this - which could only have been devised by a sadist - not only add significant cost but also negatively impact on the competitiveness of Toronto and indeed the whole country as an international connecting point. There has clearly got to be a better way - such as the one used at London's Heathrow Airport, Singapore's Changi, Amsterdam's Schiphol, and the list goes on, to process international transiting customers and I encourage the Government of Canada to find lasting solutions to this problem. When you put a financially-restructured Air Canada together with a new business model and the prospect of a modern aviation policy, you finally have the key elements for sustainable success. I envision an Air Canada of the future recognized as one of the best international airlines, connecting regions everywhere in the world, with domestic service still representing an important but smaller share of total revenue. I envision an airline which will leverage its natural potential and maximize the potential of this country's aviation and airline sector. No other airline of our size and capability in the world is in the same enviable position at this time. Air Canada is an airline of the moment and we are determined to make the most of it. I know that many of you in the audience are customers and I'd like to close by thanking you for your unwavering support throughout our restructuring process. We're honored that as the numbers have shown, more and more of you than ever before are choosing to fly on Air Canada. We know that Air Canada's future success will be driven by your ongoing loyalty and we will work to earn your continued support. We'll do this through excellent service and a renewed focus on providing you with value-driven products and services that place Air Canada at the forefront of international carriers. Thank you.
|
Copyright© 2010 Speakers Forum Inc. All Rights Reserved. A division of Celebrity Speakers Inc.
