Air Canada: From One Crisis to Another

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Case Details:

Case Code : BSTR069
Case Length : 17 Pages
Period : 2003
Organization : Air Canada
Pub Date : 2003
Teaching Note :Not Available
Countries : Canada
Industry : Aviation

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Troubles, Troubles Everywhere! Contd...

However, these stakeholders were reluctant to give their consent unless the employees too agreed to share the losses. Air Canada had already announced plans to cut down its fleet capacity by 15% and lay-off 3,600 employees in March 2003. When rumors of further possible job cuts spread, the company became embroiled in a tussle with its labor unions as well. As uncertainty about the company's future continued, industry observers commented that it would indeed be a shame if the once mighty Air Canada that had survived many earlier crises, were to fail to reorganize itself and become profitable once again.

Background Note

Air Canada's history dates back to the 1930s, when Canada's airline industry was still in its infancy and only a few regional airlines operated across the country (Refer Exhibit I for a brief note on the Canadian airline industry). During this period, the major player in the airline industry was Western Canadian Airways (WCA), which through the 1920s acquired many regional airways. These regional companies were merged to form Canadian Airways in 1930. However, there still was no national carrier in Canada. The Canadian government realized the need for a national airline. Consequently, Trans-Canada Airlines (TCA) was legislated as a government owned national airline in April 1936. With a start-up capital of US$5 million and three airplanes, TCA began operations as a subsidiary of the Canadian National Railways (CNR).

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By 1942, TCA had established a transcontinental route system. In 1942, Canadian Pacific Railways bought ten small regional airlines and merged them to form Canadian Pacific Airlines (CPA).

Though it was primarily a regional player, it plied one transcontinental route as well.

In 1945, another new player, Pacific Western Airlines (PWA), began operations in the regional markets. During this period, CPA proposed a merger with TCA.

However, the Canadian government rejected the offer, as it did not want to share its control over TCA. Subsequently, the government monopolized international air routes from Canada and declared TCA as Canada's sole transcontinental and international airline. Over the next two decades, TCA expanded its operations, adding new routes across Asia, Europe and the US...

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