Reference no: EM133303314

Paraphrase each treat of Air Canada.

Threats

1. Increasing Labor Shortage in Canada

The company's operations may suffer as a result of labor shortage in Canada. According to the Canadian Chamber of Commerce, one of the biggest challenges to be faced by the Canadian economy, once the global recession eases, will be shortage of labor. The problem of shortage of labor is going to become more severe in the long-run, with birth rates declining and the population aging. According to The Conference Board of Canada, the country will witness a labor shortage of more than one million people by 2020. Quebec will face a shortage of 292,000 workers by 2025, which may increase to 363,000 by 2030. Alberta and Ontario may witness a shortage of 332,000 and 360,000 respectively by 2025. As a result, Canada is expected to face severe labor demand-supply imbalance in the coming years, and the government needs to take action to address this problem. Since the company operates in construction sector, which is highly labor intensive, its operations may face disruptions in operations as a result of labor shortage in the country.

2. WestJet's long-haul aspirations and its airline partnerships

WestJet?is adding?Glasgow?to its stop-over service to?Dublin?for the summer 2015 season. It launched seasonal flights from?Toronto?via St John's to?Dublin?in 2014, and now is adding?Glasgow?through a stop-over in?Halifax?to its trans-Atlantic seasonal roster. The airline is also acquiring four?Boeing?767-300ERs for new long-haul operations set to debut in late 2015.

Initially?WestJet?is operating the aircraft on flights from Alberta to Hawaii, but the one-stop trans-Atlantic flights have no doubt given?WestJet?insight into that particular market, and it is only a matter of time before?Air Canada?encounters?WestJet?on direct long-haul flights, something?Air Canada?has obviously anticipated, evidenced by management's aggressiveness with unions in creating?rouge.?Air Canada?has estimated that the?Airbus?A319s operated by?rouge?have a 21% lower unit costs than similar mainline jets.

The unit cost differential between?rouge's?767?and mainline 767s is 29%. But even with the strides?Air Canada?has made with its unit costs and the operation of?rouge,?WestJet?remains focussed on maintaining its long-held cost advantage over?Air Canada. Its unit costs excluding fuel and profit share fell 1.6% for the 9M ending 30-Sep-2015, but?WestJet?is working off a still lower cost base than its rival.

Similar to?US?hybrid airline?JetBlue,?WestJet?opts to leverage its strength as?Canada's second largest airline with numerous airline partners rather than becoming boxed in an alliance. It as roughly 11 airline codeshares and nearly 30 interline agreements. Its codeshare partners outside?North America?include?Air France,?British Airways,?Cathay Pacific,?China Eastern,?China Southern,?Japan Airlines?KLM,?Korean Air?and?Qantas. Once?WestJet?starts its long-haul international expansion in full force, those partnerships, particularly with Asian airlines, will allow the airline to offer passengers a level of network breadth that may not reach the level of?Air Canada, but will certainly create new competitive threats for?Canada's largest airlines.

3. Currency Fluctuations

Unfavorable changes in foreign currency exchange rates are likely to increase the company's expenses. Air Canada has operations in various countries in Asia Pacific, Europe and the US and recorded 70.3% of its sales from international customers during FY2020. The appreciation of non-reporting currencies such as Pound sterling, Euro, Japanese yen and Renminbi over Canadian dollar vice versa could incur increase costs to the company, and increase capital expenditure in Canadian dollar terms. The company also reported a loss of CAD48 due to foreign exchange effects.

4. Coronavirus (COVID19)

The impact of Covid-19 on airline industry is expected to be very severe due to the curtailment of international and domestic air travel in 2020. Country-specific regulations on international flights, longdistance travel bans, and cancellation of trips affected the global airline industry and resulted in huge losses to the aviation industry. Governments in various countries imposed several restrictions to contain the spread of the virus such as US-Canada border closure for non-essential traffic, EU's 30-day ban on non-essential travel to about 26 countries in Europe from the rest of the world, the US's 30-day ban on Schengen travellers, and lockdown in Italy, the UK, Australia, India and other countries. As a result of these travel restrictions, the global air traffic declined in the short-term.

5. New upstart ULCCs may rattle the currently stable domestic market

Two aspiring ULCCs -?Jetlines?and?Jet Naked?- have declared their intent to operate an ultra low cost model within the Canadian market place.?Jetlines?seems further along in the process, making a splash in late 2014 with an order for?Boeing?737?Max aircraft. Until deliveries begin in 2012 the airline plans to operate leased?Boeing?narrowbodies.

The airline through its merger partner Inovent Capital has filed paperwork to raise funding for launch, which is targeted for some time in 2015.?Jetlines' debut will not result in a flooding of capacity in the market, but it could create some price disruption for both?Air Canada?and?WestJet?in certain markets.