Air Canada Company’s Challenging Environment

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Table of Contents

Executive Summary
Background
Statement of the problem
Statement of criteria
Situational analysis

Executive Summary

Air Canada is one of the largest airline companies in the world ranked at position fifteen. Skytrax ranked the company as the best airline in North America in 2010. Despite these achievements, Air Canada faces several challenges arising from its business environment, which are majorly economic conditions, government regulations, security and political challenges, competition, and natural weather conditions.

This paper provides a background of the challenges which face Air Canada, and a statement of the problems faced by the company. It discusses the objectives for the best solution to Air Canada’s problems. It also provides a situational analysis of Air Canada’s strengths, weaknesses, opportunities as well as threats by analysing all its internal and external business environments. It identifies possible solutions and evaluates each alternative based upon Air Canada’s ability to work within the challenging airline industry and internal business environment.

Finally, it suggests the best possible solutions that can be adopted by Air Canada based on the facts presented in this case study. It discusses short-term, mid-term and long-term solutions which can be adopted by the company to overcome these challenges that it currently faces.

Background

Air Canada, which is ranked at the fifteenth position among the largest airline companies in the world, operates in a very challenging business environment. Despite these challenges, the company continues to dominate the domestic market where its main rival is WestJet. However, in 2004, the company was forced to use bankruptcy protection to handle its major financial problems after the 9/11 terrorist attacks caused the airline industry to experience a significant decline in the number of travellers.

This was just one of the shocks experienced in the airline industry as it has hard to deal with several political, economic and environmental challenges which include government regulations, such as tax laws as well as flight restrictions; economic conditions like fuel/food prices, competitions and recessions; security challenges; political conflicts; as well as, natural weather conditions such as snowstorms, volcanic ash among other weather conditions. All these factors make the airline industry very challenging since it is difficult to adopt efficient strategies as well as plans for the unanticipated events.

Statement of the problem

The main problem facing Air Canada is how to create and plan efficient strategies that would enable it to deal with the unexpected challenges such as recessions, increase in fuel prices, natural weather conditions and government regulations, in its business environment so as to avoid or mitigate losses.

Air Canada faces many challenges which include how to overcome the impacts of the global recession which made the company incur losses in millions of dollars; and how to deal with unevenly rising fuel costs without affecting the ticket prices and in turn the customers. Air Canada also faces the problem of how to maintain its competitiveness and increase its market share and position in the market, both locally and internationally.

Again, Air Canada is also faced with how to deal the high taxes that the Canadian government charges for airport rent, security charges, provincial as well as federal fuel excise taxes, and airport improvement fees. In addition, Air Canada is faced with how to deal with the new security challenges which have resulted from rising terrorist activities.

Statement of criteria

The objective of the solution to Air Canada’s challenges should aim at addressing how to cut the cost of Air Canada’s operations, how to offer products or fares that would make it more competitive and attract more customers, as well as, how to negotiate with the government to lower taxes and charges imposed on the airline. Again, the solutions should address how to deal with rising fuel costs which sometimes cause the ticket prices to go high and unaffordable to most customers. Rising fuel costs negatively affect air travel as it causes ticket prices to skyrocket, thus limiting the number of people who can afford the air travels. In addition, the solutions should also address how to deal with security challenges.

Situational analysis

Strengths

Air Canada’s strength lies in its reputation in the market. It is ranked fifteenth among the largest airline companies in the world, and this gives it a competitive advantage over other smaller players in the domestic and international market. This allows it to dominate the domestic market, the Canadian market, even though there are several players in Canada. It was named the best airline company in North America in 2010 by Skytrax, independent research.

Air Canada’s other strength lies on its adaptability. It was able to adapt to the global recession which rocked economies in 2008 through 2009. It adopted better marketing strategies which allowed it to put its finances under control. It was able to make new agreements with its suppliers as well as major credit providers, and this allowed it to reduce its losses during that period.

Again, its strength lies in its pricing strategy. Its differentiated pricing has enabled it to beat its main rival in the domestic market, WestJet. It introduced lower-priced Tango fares to enable it to compete effectively in the low-frill as well as budget travel segment. Its ability to partner with international companies and Jazz also boosts its competitive advantage in the airline industry as it allows it to cut costs.

Weakness

Air Canada’s weakness lies in its inability to maintain profitability. The company acknowledges that it has not been able to develop efficient strategies as well as plans which could enable it to mitigate unexpected challenges in its operations. Despite having made new agreements with its suppliers as well as major credit providers, it still made a loss of $138 million in the first quarter of 2010.

Opportunities

Air Canada has several opportunities to exploit. First, the Canadian government newly negotiated deal with the European Union presents new opportunities to Air Canada to expand its operations. The new deal reduced restrictions and barriers to both EU airlines and Air Canada. It provides Air Canada with the opportunity to introduce more new direct flights in European Union member countries.

In addition, the partnership agreements and alliances which it has made with other international airliners provide it with excellent opportunities to expand its operations while reducing costs. Its partnerships with Lufthansa, United and Continental airlines in the Atlantic-Plus-Plus will enable it to compete in the Trans-Atlantic segment as it takes advantage of these companies established routes. Its involvement in the Star Alliance and partnership with Jazz also provides with an excellent opportunity to build its reputation and acquire more customers.

Threats

Extreme natural weather conditions present serious threats to Air Canada and the airline industry as a whole. The major threats include snowstorms, severe winds, volcanic ash, icy weather as well as severe thundershowers which cause delays and disruptions to air travels. In April 2010, Air Canada incurred losses of $20 million a day during the six-day period of the Eyjrfiallajokull volcano eruptions which covered large parts of the Northern European skies.

The high charges and taxes imposed on the airline industry by the Canadian government threaten Air Canada’s profitability. The government chargers high fuel excise taxes, airport rents and improvement fees, as well as, higher security charges which make it difficult for the company to make profits.

Finally, the airline industry is also threatened by the rising security challenges, especially terrorist activities, flu pandemics as well as political conflicts between states and civil wars. These threaten the safety of its operations, assets and customers.

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