Air Canada aims to keep up with the 'Gangnam' crowd

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Story highlights

  • In 2012, Air Canada turned a profit for the first time in five years
  • Calin Rovinescu, the CEO, wrote that the company needed to keep up with the competition by going 'Gangnam'
  • One major change was introducing premium economy class
  • The company also started a low-cost airline called Rouge, which has vacation-oriented routes

Air Canada has seen quite a turnaround. A few years ago, Canada's national carrier was on the brink of declaring bankruptcy for a second time in a decade, and at the end of 2011 it reported a $60 million loss.

After a year-long shakeup, however, the once-turbulent company has seen a dramatic rise in profits, and its end-of-year earnings for 2012 were $8 million (the first time the company had turned a profit in five years).

Calin Rovinescu, the company's CEO, attributes the upturn to his "Gangnam-style" approach. In a recent issue of the airline's in-flight magazine, he wrote:

"Full-service, established airlines like Air Canada have to be especially flexible and nimble to avoid becoming the great-uncle launching into a twist at the wedding, whilst the youngsters go 'gangnam'."

In other words, Air Canada realized it had to learn new moves, or, as Rovinescu clarifies, "get off the dance floor."

One of the carrier's most prominent restructuring methods is adding 109 more seats to five new Boeing 777-300ERs, and introducing a new premium economy class.

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"I want us to be the leading, premium airline in North America," says Rovinescu, who acknowledges there is stiff competition.

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    Though there's always a risk that a boosted up economy class will lure a few passengers who would have otherwise booked a more expensive business-class ticket, Rovinescu is confident the move will instead attract a new demographic of economy passengers who want a few extra creature comforts.

    "People that are on the edge of being able to pay for a business class seat may well move to the premium economy, but our expectation is that it will be more than made up by economy class passengers that buy in (because they find) the pricing of a business class too high."

    Another major move is that the airline has started to launch a bigger presence in the Asian market, increasing their routes between Toronto and Vancouver to Beijing, Shanghai and Hong Kong.

    Perhaps the most dramatic change, though, is the addition of a second, low-cost airline, called Rouge, which the company is billing as its "leisure" service. Rouge employs smaller planes and travels to separate, more vacation-themed destinations than the main carrier.

    "We're a pretty good brand in the leisure market, though word is that we do well on the business travel-side internationally. We look at our business and say, well, we could either abandon (the leisure-side) over time, as there will always be an efficient, lower cost producer, or we could get into it in a much more meaningful way."

    It's still too early to see what effect these changes will have on Air Canada's bottom line in the long run. But the company's recent profit margins bode well.

    "One year does not a transformation make," acknowledges Rovinescu, "but I'm really encouraged by the results of last year. I will characterize ourselves as a baseball game. We are probably in the fifth inning right now of a transformation process."

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    The company also faced labor challenges last year with disputes with the airlines' two largest unions, the International Association of Machinists and Aerospace Workers. The launch of Rouge was one point of contention, with airline staff worried about the implications for the safety of their jobs.

    "Some of the things (we implemented) were a little bit of a shock to the airline, a shock to the system. The contracts were all settled and everybody did a great job and went back to work," he says. "Otherwise, we wouldn't be winning awards," he adds.

    The accolades he refers to include an award for best international airline in North America for three years running in the World Airline Awards. The carrier also was named best North American airline for international travel and best North American airline in-flight experience (as voted on by readers of U.S. magazine Business Traveler). As Rovinescu points out, Air Canada has a legacy to maintain, and sometimes doing so can be harder than starting from scratch.

    "As significant as it is for an entrepreneur to start a business, it's a lot tougher to convert a business that has been around for twenty five years, and that's really what we're doing now," he says.

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