Air Canada Risk Management: Financial Results, Recommendations

This document presents a comprehensive analysis of Air Canada's risk management program, focusing on its competitive position, strategies, and the risks it faces. The analysis examines Air Canada's standing relative to competitors, highlighting its safety policies and cost-cutting strategies. The document also reviews the airline's financial results from 2009 to 2010, evaluating revenue, expenses, and net income, along with an analysis of the balance sheet. Furthermore, the assignment provides recommendations to CEO Calin Rovinescu, suggesting the implementation of advanced technology, new policies, and improved financial management to enhance services, control expenses, and improve the airline's financial performance. The analysis draws upon the provided case study and supporting references to offer insights into Air Canada's challenges and opportunities within the airline industry.

Risk Management

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Questions-Answers
1. Competitive Analysis
According to the analysis of case study of Air Canada, it is observed that the
airline has a high threat of competitors in the market. The high competition in the
industry affects the business of airlines such as commercial airlines, US airlines, and
Canada Airlines.
In the airline industry, people are getting associated with commercial airlines
without thinking about their health and safety. US Airline industry also has 10 million
departures without a single fatality. But Air Canada always makes sure the safety of
passengers that is why; it provides the insurance facility to passengers for their safe
journey. It states that the airline stands for safety which is not a major factor for the other
airline that is why; it can be said that the airline stands for safety instead of increasing
departures. It is observed that airline companies implement various rules and regulation
in the airline for effective operation. The risk management policy of Air Canada makes it
different from its competitors as it can easily attain competitive advantage (Glendon,
Clarke, & McKenna, 2016)
As per the above analysis of competitors and Air Canada, it is observed that the
policies and strategies of Air Canada are different from competitors. The safety policies
enhance its brand image which is high as compare to its competitors. It provides the
services at low prices with high quality which makes it different from the other airline
weather the competitors of the US and Canada.

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2.
Strategies
 From the past two years, Air Canada focuses on the strategy of cost-cutting, reducing
capacity and managing the risk from the pension solvency deficit and pending labor
contract. These strategies help the company to gain a competitive advantage but due to
the fluctuation of the economy, the focus of Air Canada has been a change towards the
four key initiatives such as expanding international operations, fostering a culture of
change, generating incremental revenue and refocusing on customer services. The focus
of Air Canada helps it to attain an advantage in the market (Ivey, 2010).
 The consolidation of the large legacy carriers became the best strategy for the company
for survival. The consolidation strategy of the airline helps it to grow in the market by
merging with the small low cost of the carrier.
 The foreign exchange strategy of Air Canada helps the airline to reduce the expenses.
The majority of Air Canada’s revenues were on Canadian dollars but a large percentage
of the expenses are in US Dollars. Air Canada converted it’s all non-Canadian revenue
into US Dollars as this strategy covered 29 % of foreign exchange exposure (Ivey, 2010).
Risks
 The major risk that Air Canada faces is the attraction of people towards the commercial
airlines which was the catastrophic risk as the passengers have the risk of safety.
 The fluctuation of the economy directly affects the prices of fuels that directly affect the
airline industry for the operations. The financial situation of the airline has been affected
due to increasing the prices of fuel.

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 Competitors are also a threat for the airline as there are various airlines of Canada and US
flights gives the high competition to the Airline Canada. Similar services have been
provided by the other airlines due to which the passengers have many options to take the
services and the competition has been increased.
 Operational risk is also the other risk that the airline industry faces. The main operational
risk that the airline faces is the potential for the high frequency of volume of passengers
and flights. The volume of the passenger is the major part of the operations of the
company as it directly earns the revenue from this industry (Almeida, Hankins, &
Williams, 2017).
3.
The financial result of the Airline of Air Canada is highly encouraging as the revenue has
been increased from third quarters to the ninth quarters. The operating revenue of the airline is
3026 in 2010 which is increases by 8170 in the year 2010. The major difference between the
revenue of the third quarter to the ninth quarters is the increasing number of passengers from
2722 to 7131 (Ivey, 2010). The increasing operating income of the airline defines the improving
status of the financial performance of the airline.

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(Source: Ivey, 2010)
Operating revenue of the airline has been increases but apart from its amount of operating
expenses have been decreases. The financial position of Air Canada has been fluctuated due to
the fluctuating economy. There are a lot of risks that airline industries face and due to which its
financial position has been affected. But according to the case study, it has been found that Air
Canada implements the strategies to manage those risks so that its financial position has been
improved. According to the financial statements, it has been evaluated that the operating
expenses of 2010 at the end of three months are 2699 but at the end of nine months, it is 7894.
The operating expenses have been increases from the end of 3 months to the end of 9 months. It
is not beneficial for the airline to increase the operating expenses as its net profit has been
decreased. The increasing expenses also increase the risk of insolvency or reduce the chances of
long term survival. The net income of the airline is 261 at the end of three months of 2010. The

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net income of the airline at the end of 9 months is 27 in negative which means it suffers from
heavy losses (Ivey, 2010). It states the net income of airlines has been decreased with the high
margin due to which it suffers from the heavy loss.
(Source: Ivey, 2010)
According to the balance sheet statement of the airline, it has been found that the amount
of assets has been increases from 2009 to 2010 such as 10406 to 10686 respectively (Ivey, 2010).
The amount of assets has been increases with fewer margins. The amount of liability of the
airline is also increases but it increases with the low margin that does not affect the business.
4. Recommendations
From the above evaluation, the airline faces challenges due to high risks such as
decreasing passengers, financial crisis and many others. I would like to give suggestions to CEO
Callin Rovinescu, that Air Canada has to implement the advanced technology to enhance the
services. Advance technology not only improves the quality of services but it also makes the
delivery process easy for the airline which is beneficial for it. It also reduces the labor work

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which directly reduces the expenses of the airline. Advance technology also helps to attract the
passenger towards the services of the airline.
The other recommendation for the airline is to implement the new policies for effective
results. In the changing process, the policy should be changed from the entrance of passengers to
reaching them at their destinations. The airline has to appoint the new staff with a high
profession so that it provides a high quality of services to customers. The high quality of
servicers attracts passengers towards its services.
In the financial terms, I would like to suggest to the CEO of Air Canada to control its
expenses by developing the financial budget of the year before operating the business. It can also
eliminate its insurance services and the other facilities to control the financial expenditure that
directly improves financial performance. The financial status of the airline will improve by
controlling expenses and avoiding the extra services (Datafloq, 2019).

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References
Almeida, H., Hankins, K. W., & Williams, R. (2017). Risk management with supply contracts.
The Review of Financial Studies, 30(12), 4179-4215.
Datafloq. (2019). 7 Ways Airlines Use Artificial Intelligence and Data Science to Improve
Operations. Retrieved From: https://datafloq.com/read/ways-airlines-artificial-
intelligence-data-science/5309
Glendon, A. I., Clarke, S., & McKenna, E. (2016). Human safety and risk management. Crc
Press.
Ivey. (2010) Air Canada-Risk Management, Richard Ivey School of Business.
Robinson, T. R. (2020). International financial statement analysis. John Wiley & Sons.