Questionn: 44

Read the Case Study and Answer the Questions

Air Canada, the nation's largest domestic and international airline serving over 48 million customers each year, planned to cut its workforce by at least half as the pandemic continued to negatively impact the airline industry in 2020. Effective June 7, of that year, "approximately 50 to 60 percent" of the company's 38,000 employees were laid off.

Air Canada said the move came after a "fundamental review of what we must do to successfully emerge from this crisis, begin rebuilding our airline" and be profitable again. The airline said it is currently flying at about 5 percent of the capacity it flew in 2019 and hopes to ramp up to 25 percent later in the year if government-imposed travel restrictions are eased. Though traffic is expected to pick up, Air Canada's CEO Calin Rovinescu claims the recovery will be slow, with at least three years of subpar earnings.

This problem is still widespread, impacting Canadian airlines from WestJet to Air Transat to Porter, to Sunwing, who have been hit hard due to the pandemic. This global pandemic is not just negatively impacting the Canadian airline industry as we witnessed the shutdown in countries across the globe halting all non-essential travel from coast to coast.

Airplanes worth $10 billion were parked at airports across Canada, losing money, said Mike McNaney, the President of the National Airlines Council of Canada, which represents Air Canada, Air Transat, and WestJet. He added he's "astounded" that 90 percent of the market is gone. Most airlines finance their aircraft purchases from various suppliers like Bombardier, Airbus Boing, which can cost more than $100 million each. For them to be profitable, they must be flying all the time. While they are not flying, you still must insure them, maintain them, and you have to pay for them. Without government assistance, the industry will not survive."

John McKenna, President of the Air Transportation Association of Canada, which represents carriers like Porter and Sunwing Airlines, claims that the airline industry is a capital-intensive industry and that everyone is hurting all across the country. Airlines have been applying for the federal government's wage subsidy programs to hire back thousands of laid-off workers, but say they need an infusion of cash, loans, and a freeze on taxes and fees to prop up the industry.

Heading into the pandemic, some of Canada's large airlines were posting excellent profits. For example, Air Canada was doing really well before the pandemic, with reported revenues of $19.13 billion for the 2019 fiscal year. But COVID-19 brought international travel to a halt, something the sector has never experienced before.

It is a good opportunity for airlines to team up and adapt to the crisis brought on by the COVID-19 pandemic, but this would require some mergers and acquisition of sorts. Air Canada had previously submitted a bid to buy Air Transat in 2019 but it did not go through. Perhaps they can now team up to reinvent themselves. Both airlines are great companies that know and understand our industry and have had undisputable success in the travel business. This represents the best prospect for not only maintaining but growing both business and jobs over the long term.

Behind the scenes, major airlines were pressing the federal government for an aid package to help them survive the pandemic and quickly recover when countries finally lift their travel restrictions. "The carriers are [spending all their] cash," said Mike McNaney.

Earlier in the pandemic, Prime Minister Justin Trudeau said he recognized the industry has been hit "extremely" hard and that help was on the way. Former Finance Minister, Bill Morneau has waived airport authorities' rent fees, worth an estimated $331 million. The government gave $17 million to Yukon, Northwest Territories and Nunavut to help airlines flying essential goods to remote northern communities. At that time, Morneau's office said the government was still evaluating "all options to support the industry."

"We have been in touch with airlines, and we understand the impact COVID-19 is having on their industry and we are with the workers who are facing a difficult situation in these unprecedented times," said a spokesperson for Finance Canada, Mava Proteau, in a statement to CBC News. Mark Williams, Sunwing's President, said talks continue with the government to come up with an equitable solution so that all companies big and small receive help. "The government shouldn't be picking winners or losers here," he said. "They need to support the industry as a whole."

New financing from the federal government could become a key factor in helping lift Canada's airlines from a financial disaster, caused by the COVID-19 pandemic, industry experts say. A consumer group warns that if a taxpayer bailout is on the way, it should come with conditions banning airlines from paying executive bonuses and requiring them to reimburse consumers for cancelled flights during the pandemic. McNaney added that the airline and tourism industries are key to rebuilding Canada's economy.

In April 2021, the federal government announced it would be providing Air Canada with a multi- billion-dollar deal to help cope with massive financial losses and millions in customer refunds for cancelled trips due to COVID-19. This provided access to up to $5.375 billion in interest-bearing loans and $500 million in equity for a total of $5.875 billion in liquidity, Air Canada said

As restrictions start to ease, and Canadians begin to travel on a global scale, Air Canada claims that "we deeply appreciate the Government of Canada's support as this helped maintain a level playing field at a time when governments around the world, recognizing the importance of air travel to their economies, were also assisting their national carriers in the face of unprecedented downturn caused by the pandemic." This preserved 1000's of jobs and provided support to the airlines which should enable them to stay competitive in a post-pandemic market.

Question 1

Using Michael Porter's Five Forces model, analyze the Canadian airline industry. Remember to include recommendations that you would make based on your analysis. Explain and provide information from the case to support your analysis.

Questions #2 Compare and contrast the advantages and risks for Air Canada diversifying through an Acquisition rather than Internal Development. Be sure to refer to information from the case to support your analysis.

Question 3

a) Explain how the political force (in the general external environment) has been impacting the airline and travel industry. Be sure to provide information from the case to support your analysis.

b) Was the government's decision to ground all non-essential travel based on the steps of the Rational Model of Decision Making? Explain and justify your answer with information from the case.