Air Canada 2014 Annual Report Download - page 5

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well above our target minimum liquidity level
of $1.7 billion. Adjusted net debt grew in 2014 to
$5.1 billion, primarily as a result of the financing of
new aircraft purchases; however, our adjusted net
debt to trailing 12 month EBITDAR ratio as at year
end was 3.1 times, which is well within our objective
of maintaining it below 3.5 times.
As for our pension plan exposure, which previously
presented a huge challenge to the company given
the size of the deficit in prior years, our Canadian
plans ended the year with an estimated $780 million
surplus, which dramatically improves our financial
flexibility and lowers the airline’s overall risk profile.
For our investors, the most significant financial
measure is our share price. Our stock price increased
60 per cent in 2014, far in excess of the S&P/TSX
Composite’s 10.5 per cent total return for the year, and
over two years it has returned almost 600 per cent.
Our progress in 2014 was not only financial in nature.
We also showed strong operational results as we
continued to improve our on-time performance, and
seamlessly introduced the Boeing 787 Dreamliner into
our fleet. But state-of-the-art aircraft alone cannot
secure customer loyalty; loyalty demands superior
service, which our frontline employees delivered, as
evidenced by our winning the Skytrax Award for Best
Airline North America for the fifth consecutive year
and we also remain the only Skytrax Four-Star North
American network carrier. Our cachet among business
travellers in Canada rose even further in 2014, as
the Ipsos Reid Canadian Business Traveller Survey
found we were the preferred carrier of 83 per cent
among this all-important group, an improvement of
14 percentage points in six years.
Safety first and last is our mantra and I am pleased to
report that in 2014 Air Canada was awarded a gold
medal in Canada’s Safest Employers Awards in the
transportation category. To be eligible, an employer
must not have experienced a fatality or serious injury
in the previous five years, nor any occupational health
and safety act charges. In another sign of the primacy
accorded safety at Air Canada, the company passed
its sixth biennial IATA Operational Safety Audit in
2014 with “no findings; three observations”. This is our
third “zero finding” audit and puts us in the top 2 per
cent of the industry.
Our results for 2014 are the culmination of a great
deal of hard work and unwavering commitment
and determination. However, we are building
this company not for one year but for long-term
sustainable and profitable growth – and to achieve
that long-term success, it requires more than just
enthusiasm. It demands a well-thought-out plan that
includes carefully selected goals and strategies, which
in our case have been established as our four key
corporate priorities. It also requires consistency,
focus and communication of those priorities for
maximum effectiveness.
The first of these priorities is Revenue Enhancement
and Cost Transformation, which entails both lowering
costs and enhancing revenue. A major driver of this
priority in 2014 was the introduction of our new
Boeing 787s with lower operating costs than the
aircraft they replace. We are also reconfiguring the
cabins of current wide-body aircraft to reduce unit
operating costs through greater seating density
while at the same time introducing a new Premium
Economy cabin across the wide-body fleet beginning
in 2015.
In addition, our lower-cost Air Canada rouge® leisure
carrier achieved a critical mass of 28 aircraft by the
end of 2014 as we expanded its network during the
year – including the announcement that it will serve
select domestic leisure markets in 2015.
We remain focused on ancillary revenue generation
through retail and other à la carte services, such
as those related to ticket changes, baggage, seat
selection, upgrades and preferred seating. This
includes a number of onboard initiatives such as food
services, duty free shopping, in-flight entertainment
and onboard Wi-Fi, which we began to roll out across
the narrow-body fleet during 2014. Moreover, the
airline is generating other revenue from its tripartite
credit card agreements and loyalty partnerships.
During the year, ancillary revenue per passenger
increased 10 per cent over 2013, with an 18 per
cent per passenger jump in the fourth quarter alone,
largely attributable to an adjustment to the airline’s
baggage fee policy in late 2014.
We determined several years ago that accessing
global traffic flows would offer a very strong
opportunity for meaningful profitable growth, which
in turn leads to our second priority of International
Expansion. Capturing international connecting traffic
and channelling it through our major hubs is central
to this strategy and our early success is witnessed by
a 23 per cent increase in such traffic during the year.
The ongoing expansion of our international network
in 2014 saw the introduction of mainline service to
Milan, Tokyo-Haneda, Rio de Janeiro and Panama
City as well as new Air Canada rouge service to Nice,
Lisbon and Manchester. We also announced new
mainline services commencing in 2015 to Amsterdam,
Dubai and Delhi and, on Air Canada rouge, to Osaka.
We augmented these new destinations with such
schedule enhancements as additional routings,
increased frequencies and equipment upgauges to
certain existing destinations.