Air Canada Strategy and Recommendations

To: Calin Rovinescu, President and Chief Executive Officer, Air Canada

From: FT54111

Subject: Strategy and Recommendations for Air Canada

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Date: 1 December 2011

Issues

Air Canada (“AC”) is facing the challenge of how it should adapt its strategy in response towards the Canadian government’s upcoming two agreements in June 2012. The two agreements include (1) a more liberal International Air Policy with more Open Skies agreements with several countries in the world; and (2) an ease of existing cabotage rules with United States, which will result in U.S. based airlines can operating more freely over Canada’s territories. These agreements both create opportunities for AC to operate and serve other international markets as well as expose AC to such increasing competition in Canadian domestic market.

Analysis

Strategy

According to Air Canada’s 2010 Annual Report, its main business strategies are (i) leveraging international network while maintaining disciplined approach to growth; (ii) improving cost structure and increasing revenue generation; (iii) focusing on premium passengers and products; and (iv) fostering positive organizational culture change. Air Canada enhances its global presence through the establishment of Star Alliances, the world’s largest airlines alliances, and several joint ventures to increase its penetration to Atlantic and Pacific markets. In addition, recently, AC has expressed its strategic vision to enter into low-cost business model, aiming to serve the leisure market worldwide. This strategy is viewed by the top management as critical to sustainable the company’s future growth.

Since the two agreements will liberalize both Canadian and International airlines industry by promoting fair competition. Although every parties should be better off from a liberalized market, high competition will definitely drive down the price and reduce the “monopoly” advantage that Air...