Air Canada – Risk Management – Case Solution

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Air Canada - Risk Management Case Answers

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Chapter 1 – Introduction – Air Canada – Risk Management

1.1 About the company: Air Canada

Air Canada is Canada’s largest airline and the largest provider of scheduled passenger services in the Canadian market, the Canada-US Trans border market, and in the international market to and from Canada.

In 2010, Air Canada, together with its Air Canada Express regional partners, carried close to 45 million passengers, offering direct passenger service to more than 200 destinations on six continents. Air Canada is a founding member of Star Alliance™, providing the world’s most comprehensive air transportation network.

Air Canada’s predecessor, Trans-Canada Air Lines (TCA), inaugurated its first flight on September 1, 1937. The 50-minute flight aboard a Lockheed L-10A carried two passengers and mail between Vancouver and Seattle.

By 1964, TCA had grown to become Canada’s national airline and changed its name to Air Canada. The airline became fully privatized in 1989.

Air Canada’s shares are traded on the Toronto Stock Exchange (TSX: AC), and effective July 29, 2010, Class A variable voting shares and Class B voting shares began trading on OTCQX International Premier in the US under the single ticker symbol “ACDVF.”

Air Canada is among the 20 largest airlines in the world and employs 30,000 people. Its corporate headquarters are located in Montreal.

1.2 Services of Air Canada

The main services of Air Canada include passenger travel service, cargo-carrying service, and air ambulance service.

1.3 Specialized Services

Air Canada Vacations is a leading Canadian tour operator, offering inclusive packages featuring accommodation, roundtrip airfare onboard Air Canada, Air Canada Rouge, and its Star Alliance partners, Aero plan flight rewards, as well as a wide assortment of cruises, tours, and excursions.

A repeat recipient of the Travel Media Agents’ “Choice Award for Favorite Tour Operator,” Air Canada Vacations offers hundreds of destinations in the Caribbean, Mexico, Central & South America, Asia, Europe, and the U.S.

Air Canada Cargo provides direct cargo service worldwide. Air Canada Cargo’s team of industry-leading experts offers customers a unique set of business solutions tailored to meet the shipping community’s needs efficiently and cost-effectively.

Air Canada Jetz, which is Air Canada’s specialty charter service, provides premium air travel featuring all-business-class seating comfort and personalized service to professional sports teams, corporate incentive travelers, and executive groups.

1.4 Corporate Policy and Guidelines on Business Conduct

Air Canada’s Corporate Policy and Guidelines on Business Conduct sets out guiding principles and ethical standards that apply to our corporate activities.

The Code addresses conflicts of interest, use of company assets, confidential information, compliance with laws, employment policies, fair dealing with other people and organizations, and computer policies.

Chapter Two – Analysis of the Economy

2.1 Overview

Gross domestic product (GDP) measures the economic performance of a country over a given period, typically a year or a quarter. For this reason, it is the most significant economic indicator to assess a country’s economy (see our GDP page for more information on this indicator).

Canada’s GDP figures (Canadian economic accounts) are calculated by Statistics Canada based on the Canadian System of Macroeconomic Accounts (CSMA). On Statistics Canada’s website, data from 1981 onward are available.

2.2 Canadian GDP Growth Performance

From 1999 to 2010, Canada posted strong economic growth, and GDP expanded by 2.9% annually on average. Due to its close economic ties to the United States, in the crisis year 2009, Canada’s economy contracted 2.7% over the previous year.

Canada did manage to recover quickly from the impact of the crisis, however, thanks to sound pre-crisis fiscal policy, a solid financial system, a relatively robust external sector, and the economic strength of its resource-rich western provinces.

Since 2010, growth has picked up again, and between 2008 and 2010, Canada’s economy expanded by 1.4% per year on average.

2.3 Structure of Canadian Gross Domestic Product

Domestic demand represents the lion’s share of Canada’s GDP, with private and government consumption together accounting for broadly three-fourths of total GDP. Fixed investment is another main component of GDP.

From 1980 to 2003, it represented broadly 19% of GDP on average, and during recent years, the share of total GDP improved slightly to reach broadly 24% in 2010. From 1981 to 2007, positive net exports of between 2% and 9% made modest positive contributions to Canada’s economic growth.

However, in recent years, the country tallied negative net exports of around 2% of GDP as import growth has outpaced export growth since 2010.

Canada’s economy is dominated by the services industry, which accounts for approximately 70% of total economic activity and is led by real estate services, public administration, health care, and social assistance, as well as finance and insurance.

Canada also has a relevant manufacturing sector that accounts for approximately 11% of GDP and is led by the fabrication of transport equipment and food production.

Unlike most developed countries, the primary sector remains important for Canada’s economy; the oil and logging industries are the two most important. Oil products constitute Canada’s biggest single export commodity.

2.4 Economic Recession in Canada

Canada was one of the last industrialized nations to enter into a downturn. GDP growth was negative in Q1 but positive in Q2 and Q3 of 2008. The recession officially started in Q4. The almost 1-year delay of the start of the recession in Canada relative to the U.S. is largely explained by two factors.

First, Canada has a strong banking sector that is not weighed down by the same degree of consumer-related debt issues that existed in the United States. The United States economy collapsed from within, while the Canadian economy was being hurt by its trade relationship with the United States.

Second, commodity prices continued to rise through June 2008, supporting a key component of the Canadian economy and delaying the start of the recession.

In early December 2008, the Bank of Canada, in announcing that it was lowering its central bank interest rate to the lowest level since 1958, also declared that Canada’s economy was entering a recession.

The Bank of Canada has since announced that it has two consecutive months of GDP decline (Oct -0.1% & Nov -0.7%). The country’s unemployment rate could rise to 7.5% in the next two years, according to the latest OECD report.

On July 23, 2009, the Bank of Canada officially declared the recession to be over in Canada. However, the true economic recovery did not begin until November 30, 2009.

The Canadian economy would expand at an annualized rate of 6.1% in the first quarter (January–April) of 2010, surpassing analyst expectations and marking the best growth rate since 1999. Economists had expected annualized GDP growth of 5.9% in the last quarter, up from 5% in last year’s fourth quarter (September–December 2009).

The growth in the first quarter is the third straight quarter of economic expansion in Canada, coming on the heels of three consecutive quarters of contraction. March growth came in at 0.6%, ahead of the 0.5% estimate.

215,900 new jobs were created in the winter and early spring months of 2010 alone – in the traditional period of time when the Canadian economy is at its most stagnant.

Chapter 3 – External Analysis

In this part of the report, I have investigated the hotel industry of the US through PESTEL analysis and Porter’s five forces model.

A PESTEL analysis is a framework or tool to analyze and monitor the macro-environmental factors that have an impact on an organization. PESTEL stands for Political, Economic, Social, Technical, Environment and Legislative.

The PESTEL methodology is a useful tool to analyze the current state of the US media industry. It is a strategic planning technique that provides a useful framework for analyzing the environmental pressures on a team or an organization.

Figure 1: PESTEL Analysis