In 1999 Air Canada's materials cost share was the highest of all major North American carriers.
In terms of labour productivity, Air Canada and US Airways have consistently been the lower performers throughout the 1990s.
Air Canada’s labour productivity level was the lowest of our sample carriers for the 1993-98 period.
AC’s labour productivity was about 14% lower than that of CAI for 1998.
US Airways and Air Canada had the lowest capital input productivity throughout the 1990s.
Air Canada and US Airways had the lowest TFP (Total Factor Productivity) levels for the entire period. Air Canada’s TFP level in 1998 and 1999, became 14% lower than that of US Airways, the worst TFP performer among the US carriers. During the entire 1990-99 period, CAI’s TFP levels were consistently higher than those of AC. From 1994 to 1999, the CAI’s TFP level was at least 20% higher than that of Air Canada. Air Canada’s TFP level in 1999 was back to about the same level as that of 1990.
Northwest appears to be the most efficient carrier among the group, whereas Air Canada is the least efficient carrier among this sample in North America. AC’s residual TFP levels are consistently lower than those of US Airways, the worst performer among all U.S. carriers in our sample.
Air Canada performed poorly, and was among the lowest
performers in almost all the performance measures used in this section. The only aspect Air Canada achieved an above-average performance was fuel productivity. On the other hand,
Canadian Airlines made significant improvement in its productivity, and achieved above-average performance among our sample carriers during the second half of the period.
CAI’s efficiency levels were consistently higher than those of AC throughout the period.
From 1994, CAI’s unit cost came down dramatically, and from 1996, became the lowest among all of our sample carriers. From 1994, the average unit cost of CAI was at least 10% lower than that of AC. From 1998, the difference became
nearly 20%. The high inefficiency (low residual TFP) is at least partly to blame for AC’s high unit costs.
Air Canada appears to deviate from the general trend with a higher unit cost even when its input price level is low.
AC’s unit cost disadvantages due to its lower productive efficiency than all U.S. carriers became magnified in 1998: for example, 23.7% unit cost advantage for American and 32% for Northwest. In sum, while the unit cost advantages of AC and CAI over the U.S. carriers due to lower input prices have increased substantially between 1990 and 1999, the unit cost disadvantages of AC because of the relatively reduced productive efficiency of AC relative to the U.S. carriers and CAI have become alarmingly expanded during the same time period.
CAI had an average cost competitive position at the beginning of the period, and became the most cost competitive carrier towards the end of the period.
Air Canada remained one of the poorest performers in terms of ROA (Return on Assets) for the rest of the decade.
It is possible to make the following summary statements concerning cost competitiveness of Canadian carriers and individual carriers:
- In 1990, most of the major U.S. carriers were more cost competitive than Air Canada, mainly because AC’s productive efficiency was much lower than its U.S. counterparts.
- In 1990, CAI had about 16% unit cost competitiveness relative to Air Canada mainly due to the fact than CAI had much higher productive efficiency than AC. CAI’s cost competitiveness level was similar to the average major U.S. carriers.
- By 1998, CAI became the most cost competitive airline in North America, and its unit cost advantage over AC was about 21% because of CAI’s productive efficiency which was fairly high even relative to some of the major U.S. carriers.
- Despite the fact that CAI had 15.8% higher cost competitiveness than AC in 1990, CAI faces near bankruptcy in 1992. Similarly, America West was the most cost competitive
carrier in the U.S. in 1990, it still had to face Chapter 11 bankruptcy reorganization during the early 1990 economic recession. Also, in 1998 CAI became the most cost competitive
carrier among all North American carriers, but still it folded financially and had to sell itself to Air Canada. In addition, although Air Canada has been among the most inefficient carrier from 1990, and in fact, became the most inefficient carrier in 1998, AC was able to survive
financially, and was able to acquire CAI at the end of 1999. This implies that productive efficiency and cost competitiveness alone does not decide success or failure of an airline.
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-----------------------------------------------------------------------------------Debt Comparison (in millions):
(excluding aircraft leases)
Air Canada 1990 - $2,194.0
Air Canada 1998 - $2,997.0
Canadi>n 1990 - $1,552.4
Canadi>n 1998 - $1,239.6