Air Canada 2006 Annual Report Download - page 5

number of purchase transactions. Our passes, unique for their breadth, lock in savings and lock out the competition. Ninety per
cent of customers who buy a pass buy at least one more. Our pass sales grew by 225 per cent last year.
Experience has shown that our revenue model both raises yields and lowers costs:
• last year, our advertising, commissions and global distribution system costs were equal
to 4.5 per cent of passenger revenue, down from 5.0 per cent in 2005;
• since being introduced, our fare structure has helped stimulate record load factors
and consistent quarter-to-quarter yield growth;
• people buy up; last year, 46 per cent of all domestic sales were at higher fares than Tango,
our lowest-priced, most restrictive fare.
Starting this year, Air Canada will be phasing in Polaris. Polaris will give us considerable additional functionality, such as the
ability to customize the online booking process for each customer. Eventually, each one could have a subscription that’s unique
to him or her. With millions of customers, that means millions of different fare relationships. Our job will be to ensure that what
is meaningful to each customer is presented in a simple and transparent manner. I don’t know of another airline that is thinking
through a reservations system like we are. Polaris will have powerful capabilities. It’s being designed with added functionality
to launch revenue generating initiatives while improving labour productivity, reducing accounting and administration expense
and causing even more booking activity to shift to aircanada.com.
Air Canada is shaking up the airline business. By using our new corporate passes, large customers like TELUS® not only
save on fares but are slashing their administration costs. At our instigation, travel agent reservations systems are altering their
displays to accommodate our new à la carte fare options. Those options give consumers “the freedom to y your way”. Tango
passengers can pay a fee to pre-select a seat. For additional discounts, Tango passengers can waive their right to change their
itinerary and all passengers can decline the right to check luggage. In January, Air Transport World awarded Air Canada its
Market Leadership Award, declaring that the airline’s development of branded fares, passes and à la carte options “mark it as a
Market Leader in reversing the commoditization of air travel and reestablishing a positive price/value equation for the customer.”
Ultimately our message to consumers will be: we’ll give you a great fare customized the way you like and put you on
the newest aircraft and y you non-stop to more places than any other airline by far. So why even shop elsewhere? Since
October 2004, Air Canada has added frequency on 80 routes and added 17 new domestic and nine transborder point-to-point
services. With the consolidation of all Air Canada ights in Toronto at Terminal 1, Air Canada will pursue a bigger share of the
U.S./overseas market. We now provide an attractive option of ying via Canada (rather than a U.S. hub where U.S. transit
visas may be required) to more people travelling between the Caribbean or Latin America and either Europe or Asia.
Within North America, passengers are giving us positive feedback on our new 93-seat Embraer E-190s with their spacious
cabin and extra legroom. In situations where 93 seats are enough, the E-190s carry the same revenue but cost 18 per cent
less to operate than our next largest aircraft. With 27 more 190s coming this year and in 2008 for a total of 45, the E-190 eet
is allowing us to strengthen the network and replace some A319s and A320s as part of eet renewal and rightsizing capacity
to our needs to improve our operating margins. Our approach to cost reduction also sets us apart from most airlines.
Our preference is to focus on achieving a holistic understanding of total expenditures – how much it costs to offer services
like telephone reservations, meals, checked baggage and carrying pets or sporting equipment and to recover those costs
by altering the service or charging more for it.
Being a separate company will challenge us to make consistent prots carrying passengers and freight. Our new situation
affords us opportunities that weren’t available previously. Air Canada has negotiated competitive service contracts with other
entities in the ACE Aviation fold. These agreements ensure ACE companies will keep delivering a high standard of service
at a competitive price otherwise they risk losing our business.
While it pursues greater protability, Air Canada is rmly committed to long-standing conservative values that dene what
this airline is about. There is no comprising the safety and security of our passengers and employees – this remains our top
priority. Air Canada has over $2 billion in cash and, as of mid-February, a 44 per cent fuel hedge for 2007. We’re rm believers in
doing more of what is already highly protable with plans this summer to operate up to 15 non-stops a day to London-Heathrow
and 12 to Asia, and using bigger aircraft like the 777-300ER on some ights. That being said, our inclination is to be masters of
change rather than slaves to it. In our commercial approach, that means more innovating and rening our innovations based
on feedback from our customers and employees. The latter, with their dedication and professionalism are a major reason why
Air Canada keeps winning awards as the North American airline people rate the highest. Employees are an airline’s most
effective advocates. With new aircraft, new routes, new products and leading edge strategies, we are creating an Air Canada
of which our employees can be especially proud and which I am condent will be increasingly successful – and protable.
Montie Brewer
President & Chief Executive Ofcer
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