Air Canada: From One Crisis to Another

Air Canada resorted to massive capacity cuts and job cuts to reduce its costs and survive the crisis. Under its capacity cut initiatives, it cut its flight schedules by 20% by removing 84 flights from its fleet and discontinued services on some unprofitable routes. In 2001, Air Canada laid off around 9,000 employees. In late October 2001, the company announced a complete restructuring plan that involved transformation of every facet of its operations viz. markets, services, costs, pricing and technology. The new restructuring plan was based on four principles: market segmentation and re-branding, technology and distribution, exploitation of ancillary businesses as profit centers, and process redesigns and cost cuts...

According to analysts, airlines in Canada were overburdened with the amount of tax they were required to pay to the government. As revenues fell after the US terrorist attacks, it had become nearly impossible for airlines in the country to remain viable business ventures after paying such high taxes.Many of the players went bankrupt, leaving Air Canada with 85% of the marketshare. WestJet was the second largest player (WestJet had managed to remain profitable on account of its small, low cost, regional operations). Being the largest player, Air Canada was hit the hardest by the unfavorable tax-regime. Air Canada's coverage and size of operations had expanded significantly after it launched its sub-brands in 2002...