Michael Rousseau, President and Chief Executive Officer, Air Canada, says Canadian aviation regulations must change. Interview by Graham Newton.
What are your immediate priorities?
Although we are optimistic that the worst of COVID-19 is behind us in Canada, as with the disease itself the after-effects on our industry will persist and need to be dealt with.
Most immediately, we are focused on working with the government on a plan for safely reopening our country. Canada put in place some of the strictest travel and quarantine rules in the world which, for a global carrier like Air Canada, were especially harmful.
The plan should include clear metrics and requirements for each stage, not only for us to plan but also so that our customers, who we know are eager to travel, can book with confidence. This will also allow us to expand our network and, very importantly, start recalling employees, who have made tremendous sacrifices.
Additionally, we are focused on minimizing our cash losses to insure we take on as little incremental debt as possible to allow us to recover quicker and make the necessary future investments to remain competitive and meet all of our long-term goals.
What does the financial agreement with the government and the customer refunds mean for the carrier’s financial position?
We entered the pandemic with one of the industry’s strongest balance sheets relative to our size. We had nearly C$7 billion in unrestricted liquidity and, subsequently, we raised an additional C$6.8 billion on our own.
Though our financial position was strong, the depth and severity of the pandemic exceeded even the most pessimistic scenarios. And there was ongoing uncertainty as to the future direction and duration of this crisis.
As a result, we felt it was only prudent to take advantage of the Canadian government’s large corporation support program to obtain repayable debt commitments for up to C$3.975 billion. In addition, the Canadian government purchased C$500 million of Air Canada equity representing about 6% of the outstanding share count and provided a repayable loan to refund customers who had purchased non-refundable fares.
Ideally, we will not need to access this money. Instead, it provides an extra layer of insurance and along with our still fairly deep unencumbered asset pool and access to debt markets, should provide confidence to customers, the financial markets, and our employees that Air Canada will emerge strongly from the pandemic.
Under the agreement, the government made available up to C$1.4 billion to help us refund customers holding non-refundable tickets who did not travel due to the pandemic. The fact of the matter is we have been pleased by how few customers have requested refunds and instead are holding onto future travel credits. This is an encouraging sign people want to travel again.
Can you tell us about your longer-terms plans as the new CEO?
Though COVID-19 set us back, it was indiscriminate and affected all carriers. Our relative position is therefore much the same, provided Canada catches up with other countries in reopening travel.
This gives us a great foundation to rebuild. In forcing us to strip back things like our network and onboard service to the bare bones, COVID-19 has let us rethink what we were doing and given us an opportunity to build anew, particularly through technology. You will see continued attention to traditional focus areas, such as cost control, but also heightened emphasis on customer service, our employees, and the environment.
To give some examples, at the height of COVID-19 we relaunched our Aeroplan loyalty program, but with so little flying the normal modes of earning and redemption were unavailable. Instead, to maintain loyalty, we developed new ways for members to earn and benefit from the program and this will continue.
Another focus and growth opportunity is cargo. While Air Canada has always carried cargo, air freight boomed with COVID-19 while belly capacity disappeared. We took full advantage of this, first by using passenger aircraft modified to carry more cargo and now we are retrofitting some older 767s to all-cargo configurations. We are also starting to introduce with partners an e-commerce business leveraging our international network and cargo capacity.
Do you see any of the changes to the passenger experience as permanent?
Though I would rather we had got there without COVID-19, the pandemic did provide us the opportunity to re-examine the customer journey and design more customer-friendly and relevant process improvements.
This is particularly true in airports, where airlines have long talked about contactless travel. But with COVID-19 we moved more quickly as part of our biosafety program. For example, in various airports we introduced virtual queuing in place of physical lineups, touchless check-in, and bag drop, touchless access, and food ordering at our lounges. And we also undertook a pilot with facial recognition for boarding in San Francisco.
These changes not only strengthen safety, they speed up and simplify processes for our customers. They are likely to be retained and further developed.
How important is the return of the 737 MAX to operations?
Fleet is another area where COVID-19 accelerated change. As part of our mitigation and recovery strategy, we removed 79 older aircraft from our fleet permanently, including less efficient Boeing 767, Airbus A319, and Embraer 190 aircraft. Their retirement will reduce Air Canada’s cost structure, simplify the fleet, and shrink our carbon footprint.
We are able to do this because we have new Boeing 737 MAX and Airbus A220 aircraft arriving. At the end of 2021, we expect to have 27 of a firm order of 40 737 MAX aircraft.
The MAX is attractive from an environmental and fuel cost perspective, offering an 11% CASM advantage over our mainline Airbus A320s. The capacity and range are optimal for us, as we can use them on long-haul North American and certain ETOPS routes, such as Hawaii from Calgary and Vancouver or London-Heathrow from Halifax and St. John’s. It is a versatile aircraft, and its capacity is well-suited for the early stages of a recovery, when loads might be lighter and bigger aircraft less profitable.
What regulatory changes do you need in Canada? And are there any industry-wide changes you would like to see?
Like all airlines, we have an ongoing dialogue with governments about a wide range of issues. In fact, it often seems every government policy somehow affects airlines because we are so integral to every part of society and the economy.
In Canada, a chief concern carriers have is the way air transport infrastructure is financed. We are one of the few countries where air transport is almost exclusively a user-pay model and the broader societal contributions of our industry appear not to be appreciated. There are security fees, airport improvement fees, navigation fees, and airport landing and terminal fees. And throughout the pandemic more costs were added as governments had airlines conduct health checks and implement other policies, which consumed valuable resources.
Before the pandemic, this made Canadian carriers less competitive and travel costs in Canada were higher than in many other countries. It is a situation exacerbated by Canada’s vast geography and relatively small population.
The weakness, frankly unsustainability, of this user-pay model was exposed by the pandemic. With traffic volumes falling 90%, revenues collapsed, not only for airlines but for airports and Canada’s air navigation service. This has led to higher charges and forced all of us to take on more debt that will have to be paid by future generations of travelers or reduced investments, adding costs and, to close the vicious circle, harming the industry’s competitiveness.
We need to continue to educate governments about the economic benefits airlines deliver so they will treat us as catalysts and accelerators.
You have committed to net zero emissions. Should the industry do more for the environment?
It is not a question of “should”. I would say even though the industry has already done a great deal it must do more. There are many reasons why, but the first is that it is the right thing to do. Climate change is humanity’s most urgent challenge, and we have no choice but to face up to it, accept our responsibilities and do our part to combat it.
If that is not enough, we should all remember it is also good business. Anything we do to reduce the burning of fuel and creating emissions goes to the bottom line. As well, customers want us to behave responsibly and will use their wallets to show disapproval if they believe an airline is being irresponsible.
Finally, there are tremendous outside pressures, including from environmental advocates, Environmental, Social and Governance (ESG) investors, and governments. Such demands will only grow, and we would do well to get ahead of them. At Air Canada we have done this by setting a goal of net-zero emissions by 2050 with fairly aggressive interim targets so people can see our progress.
Is technology the best or only answer to a more efficient business model, sustainability, and a better passenger experience?
Technology will play a central role in our business processes. It is the primary way to cost-effectively ensure consistency while staying flexible, and it has the virtue of scalability. It is only through technology that airlines can provide a satisfying, individualized experience to tens of millions of customers each year. This is why we are devoting considerable resources to such things as artificial intelligence, machine learning and analytics, as well as mobile and digital technologies.
That said, though customers like the convenience technology can provide, there will always be a need for positive human interaction. At the end of the day, airlines are in the customer service business. Nothing can replace the warm greeting, friendly smile or even the added assurance that comes from personal attention. For this reason, we are committed to enabling our people and encouraging them to create meaningful human connections through the customer experience. This will be supported by our continued innovation in technology, loyalty, and products.
Will diversity be forgotten about as airlines struggle to survive?
At Air Canada we take pride in the fact there are more than 60 languages spoken and we have repeatedly won awards for diversity and inclusion. Our experience is diversity gives us a competitive advantage serving a multicultural country like Canada and a leg up in the global markets where we compete for a diverse customer base.
But it runs more deeply. Workplace diversity is one of the most important elements for an organization’s success. It brings different talents and skillsets together to work toward common goals. It leads to more creative, innovative, and productive teams. We have also found that our reputation for diversity is a powerful recruiting tool, giving us access to the best and brightest from everywhere, vastly expanding the talent pool we can draw from.
All these key focus areas will be important as the industry rebuilds.
What’s your outlook for aviation? Do you see a fundamentally different industry?
The fact I agreed to take on the CEO role in the midst of the pandemic says a great deal about my outlook for Air Canada and the industry. I am very positive about the future and excited about the opportunities I see for our company in the post-pandemic world.
I do believe we will revert to many of the long-term trends we saw before the pandemic, for example people still want to travel and traffic will resume its growth globally.
Although COVID-19 is unprecedented, we have seen other major disruptions in the past, such as 9-11, where dire predictions were made, but the industry recovered and went on to better days than ever before.
Our industry has succeeded for more than 100 years because it continually evolves. It has done so in terms of safety, technology, and customer choice, convenience, and comfort. More recently, and where we will definitely see big changes, sustainability has become integral to decision-making.
One other result of the pandemic is that in its immediate aftermath there will be fewer, but stronger and leaner airlines, so competition will remain intense. But that too is a good thing because competition makes us all better.