Analysis of Canadian Airline

Analysis of Canadian Airline

Introduction:

Nowadays, it is very difficult to run a profitable scheduled in the airline industry, and for some small airline companies, it becomes tougher to survive in this industry. It seems not the only problem for the airline companies in Canada, but also the intense competition in airline industry are spread to everywhere around the world. Passengers in Canada have more choices to travel within Canada or around world since the deregulation in 1987. And commercial air travel in Canada still is the one of most popular method to travel for Canadians. Meanwhile, the increasing fuel costs and the financial crisis these years “have brought down more than a few of North America’s smaller airlines and have hobbled the big players.” The passengers have been benefiting from the intense competition between the several main air carriers. After the deregulation, labor negotiations became the cause of many labor strikes in North America . The several main air carriers tried to cut costs, but the strong unions always fight back and followed by an increase in fare which causes significant losses of passengers and improvement of welfare of labors. Considering the several crucial competitive forces, which are influencing the airline companies’ competitive strategy. The profit margin of the airline industry is diminishing all the time. To survive or to be successful in the airline industry, companies should “build defense against the competitive forces or finding a position in the industry where the forces are weakest”, so that they can distinguish themselves from other carriers by taking advantage of their superior to run profitably.

Industry Description:

The market of airline industry in Canada is shared by two major air carriers: Air Canada and Westjet. At the end of 2009, Air Canada captured 55% domestic market share. And Westjet got around 40% of market share. “Fringe competitors offer primarily services with some limited scheduled services.” Since, the harsh weather of Canada in winter, the demand of the peak month in one year is about twice that of the trough month. And also, since the airline industry is “characterized by high overhead and capital cost, so that small traffic increases or decreases can result in dramatic increase in profits or losses.” As mentioned in the last paragraph, many factors can affect the airline industry’s cost, such as the fuel cost, labor cost, overhead cost, etc. The unit cost of per customer varies regarding to the size of the aircraft, the flight distances, and the number of seats sold. Since the cost of capital: aircraft is fixed, the average cost per customer will be lower if the number of passengers increase. And “the average cost per kilometer declines as the flight distance increases. Also, the more the seat sold, the lower the cost