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Calin Rovinescu, President and CEO of Air Canada: “Remarks to the Canadian Club of Ottawa”

Date: March 16, 2017

Publication Type: Speeches

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Publications Archives: Speeches

Remarks for Calin Rovinescu
President and Chief Executive Officer, Air Canada
Canadian Club of Ottawa
March 14, 2017
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Good afternoon and thank you, Martin for that kind introduction. Bonjour tout le
monde et merci pour votre gentil accueil.

I am appreciative of the opportunity to speak to you today. I know the Canadian
Club of Ottawa is marking Canada’s 150th anniversary by focusing on Canadian
Success Stories and we take it as a high compliment that the Club has included Air
Canada as one of these stories.

People are increasingly curious about Canada and want to visit us. Influential
publications as The New York Times, the Lonely Planet and National Geographic
Traveler have all declared Canada a top global destination for 2017.
2017 is also a special year for our company, as we are celebrating our own 80th
anniversary. So, we are doubly pleased Air Canada’s success is being recognized.
But it has not always been this way.

Our team of 30,000 has worked hard to transform our culture over the last years to
one of success, international recognition and winning. In 2009, we faced the
proverbial burning platform, the perfect storm, the near-death experience.
Believe me nothing focuses the mind like a hanging in the morning, and in those
days the noose was tightening.

The global airline industry was in turmoil and we had just endured the two worst
years in commercial aviation. Jet fuel had spiked to over $140/barrel. We had
come off a net loss of over $1 billion. Our pension plan deficit exceeded $4 billion.
Our stock was under $1. Air Canada was retreating from many international
markets because it was not cost competitive.

Seeking creditor protection to restructure was not an option as Air Canada had
restructured only 5 years earlier. Another court supervised restructuring would not
only have wiped out those who had recently invested in us, it would also have
unsettled the workplace, compromised the pension plans of our employees and
retirees, and spooked customers.

The company might never have recovered.

We had seen how Canadian business had already lost many leading global icons
from all sorts of industries, widely ranging from steel to telecom to aluminum.
Sometimes through buy-outs by foreign companies. Sometimes through an
inability to transform and ultimately, bankruptcy.

There had been much debate about the “hollowing out” of corporate Canada. And
outside Canada, iconic global airlines like TWA, PanAm, Eastern, Sabena, Ansett
and many others had disappeared. There was also much hand-wringing over the
struggles of companies that couldn’t adapt quickly enough to changed paradigms,
to the inevitability of disruption. Companies such as Kodak, Polaroid, Blockbuster.

GLOBAL CHAMPION

So, we decided to take the theme of global leadership and build it into somewhat of
a corporate mantra – for our Board, our senior executives, our managers, and our
frontline employees. We sought to understand how highly successful international
champions in other industries – like Amazon, Microsoft, Apple, Google, – were
able to achieve what they had achieved.

Frankly, simply having everyone in our organization asking themselves this very
basic question was already half the battle.

So, as we scrambled like M*A*S*H* surgeons on the battlefield to stabilize the
patient in real time – finding new financing, negotiating long term contracts with
our employees, reversing our pension deficit – and the noose slightly loosened. We
then immodestly set as our corporate goal the transformation of Air Canada into
nothing less than a Global Champion.

We called this goal “aspirational”. Others had more descriptive expressions such as
“delusional”. Some in fact wondered what we were smoking – and those were the
very early days when only one backbench member of the third party was thinking
of legalizing marijuana.

However, for our team, winning was never a destination, but a mindset. And
success was not some static nirvana where we got to spike the ball in some creative
end-zone dance. It was, and still is, a continuous marathon relay race where at the
end of each 26-mile leg, we get to gingerly pass the baton.

As Canada’s national carrier, we get to play multi-dimensional chess in a fish bowl,
in full view of the public – of our customers, employees, suppliers, competitors,
government, opposition members and regulators, shareholders, analysts, unions,
media. Sometimes, full-contact multi-dimensional chess in a fishbowl.

Virtually everyone gets a peek at – and an opinion on — virtually everything that
we do. In good times and bad. From coast to coast. Certainly a challenge, but also
an enormous privilege.

We get to fly the Maple Leaf on our tail. We are the first sign of home when
someone boards our planes in Delhi, Shanghai or Sao Paulo. We get to show off
our world class fleet, our world class staff, our world class product. We get to
convey everything that is good about Canada. Especially now, when the world
does indeed need more Canada.

FIVE LESSONS: TAKE RISK

But, let me return to how we got here from the near-death experience. We learned
quickly that out of adversity can come strength and out of greater adversity, even
greater strength to effect fundamental change.

Moreover we learned a few very simple lessons.

  1. Invest in risk and be globally audacious. One cannot be risk averse when all is bleakest.
  2. Invest in brainpower.
  3. Invest in Diversity.
  4. Invest for the long-term, not for next Quarter’s reporting period.
  5. Leave the room better than when you entered.

Having set a goal, we next settled on a risky strategy involving growth and
transformation to become a leading global airline.

Since 2009 we have profitably grown our capacity outside Canada by 50 per cent.
Today, the number of passengers Air Canada carries each year has risen to
approximately 45 million from 33 million in 2009.

Or, put another way, in the last five years we grew half as much as we did in all of
the first 75 years of our existence.
I can only hope to be so spry at 80!
We took other risks too.

For example, it had long been received wisdom in our industry that so-called
“airlines within airlines” do not work. By this it is meant that full service carriers such as Air Canada can only compete with a single brand. They cannot diversify to appeal to different market segments like Marriot does with brands ranging from
Courtyard by Marriott to JW Marriott and Ritz Carlton.

For a long time, this truism has held. At Air Canada, we experimented with lowcost
divisions before our 2003-2004 restructuring. But just as early aviators learned
from experience, so too we gained insights from these that emboldened us to
provocatively challenge the status quo by launching Air Canada Rouge, our lower
cost leisure airline.

Rouge is doing precisely what it was said could not be done. From the start it has
contributed significantly to our profitability and is one reason in 2016 we reported
record EBITDAR, an expanded profit margin and our stock price outperformed our
peers and the TSX index. Rouge has enabled us to maintain or expand our leisure
routes and enter new international markets in Europe, Asia and sun destinations. It
gave us flexibility to move in and out of markets to meet seasonal demand and
allowed us to stay in the game and compete in markets we were losing.
Since it began flying in 2013 with four aircraft and 14 routes, Rouge has
blossomed. Last summer it operated 44 aircraft across a network of 100 routes,
touching five continents.

It also created 1,600 jobs that otherwise would not have existed.
Without taking this sort of risk and many others, it is quite doubtful Air Canada
would have survived. At least not in its present form.
It took all of our 30,000 employees to embrace risk and transformation. Especially
the many from our outstanding executive team, who shared that burning platform
and occasional rope burns around the neck – and who showed the determination
and energy to see our transformation through to today.

INVEST IN BRAIN POWER

Our second lesson was “Invest in Brain Power”. Look at the immense talent and
brainpower in this very room, professionals and leaders from many important
industries, advisory firms, regulators and government, all of whom drive our
country.

Brainpower is simply the most valuable natural resource we have. It is exportable,
importable, transferable, scalable and available to be richly mined without
damaging the environment. It’s the most basic and most abundant truly “natural”
resource.

We are proud Air Canada is a destination for so much of this talent. Among our
many recognitions in 2016 we were named one of Canada’s Top 100 employers for
the fourth year in a row, a national survey rated us one of the country’s top three
most attractive companies to work for, and Air Canada was named one of the Most
Engaged Workplaces in North America by an employee social recognition
company.

One indicator is the eagerness of people to join Air Canada. Our recruitment
website gets 110,000 visits each month and we average more than 290 applications
for every job filled.

But once you attract brainpower, you have to give people room to run and use it.
In our case, we knew Global Champions foster a culture of success – they feel like
and behave like winners. Being nimble and having both flexibility and results
orientation as part of your DNA. And this is what I consider perhaps one of our
most significant accomplishments since my appointment: changing the very culture
at Air Canada – as a corporate culture sets the tone for everything that you do.
In our business, a very complex service business, this entails giving employees
more discretion and empowering them to make decisions. To create a culture of
entrepreneurship and performance orientation – not easy for a company such as
ours, which has historically been rule-bound and process driven.
Basically, we needed to be a big company behaving more like a small company –
employing some very basic entrepreneurial drivers. Now, we are certainly not
perfect – but I can say that our workforce is more engaged than ever – and just last
week we were named one of Canada’s 10 Most Admired Corporate
Cultures……..a long way from those dark days of 2009.

DIVERSITY
Our third lesson was “Invest in Diversity”.

As you know, there is a lot of discourse right now on immigration as an unbeatable
strategy for economic growth, as the baby-boom generation exits the work force. It
is time for us to welcome even more immigrants – and take advantage of
intolerance flaring up elsewhere. Our country has been built by immigrants.

My own family immigrated from Romania when I was 5 years old with virtually
nothing. Immigration needs to be a key ingredient in our economic prosperity, and
our success as a nation.

We are proud that at Air Canada there are more than 60 different languages spoken
among our employees and that 20 per cent of them belong to visible minorities. In
fact, we were named One of Canada’s Best Diversity Employers for 2016.
To cite one instance of cultural diversity’s real-life impact, last year we operated
13 flights to bring Syrian refugees to Canada. We were able to crew our aircraft
with entirely Arabic speaking employees, easing a difficult journey for many.

We have also found success in promoting women throughout the company and we
didn’t need a quota system to do it. Nearly half of our employees are women and
they are found everywhere, from the airport ramp, to the flight decks of our
aircraft, to the C-suite offices. Forty-three per cent of managers are women and
women occupy amongst the most senior roles at our company, including Chief
Commercial Officer, Chief Information Officer, and Senior officers responsible for
Human Resources, Inflight Service, Cargo, Corporate Secretariat and Corporate
Communications.

Last week, in recognition of International Women’s Day, three flights in our global
network were operated with all-female pilots and flight attendants. They were also
supported by female ground crews providing customer boarding, as well as aircraft
servicing, loading, dispatch and pushback functions, all highlighting the range of
professional traditional and non-traditional roles women work in at our airline

Air Canada is also proud to be one of the most bilingual private sector companies
in the country. We offer services in English and in French throughout our network.
Almost 50% of our customer-facing employees are bilingual, exceeding by a
substantial margin the overall percentage of bilingual citizens in Canadaa.
Apart from being the right thing to do, promoting diversity is, for us, quite simply
a huge advantage. It helps us to compete globally and to develop a more engaged
and attractive workplace.

INVEST FOR THE LONG TERM

Another lesson learned was that it is important to “invest for the long term”.
Despite our constrained finances in the last decade we pressed ahead with a $10
billion fleet program. We acquired new Boeing 777s and Boeing 787 Dreamliners
to modernize our widebody fleet. And later this year the first of our new Boeing
737Max start arriving.

We also invested in our product onboard, we reconfigured our existing wide-body
fleet, improved our premier product in airports and refreshed our website and
mobile technologies. Among other things, this made us the first North American
legacy airline to offer fully lie-flat business class seats across our wide-body fleet.
This gave us a major edge on our competitors. To this day we remain the only 4-
Star network carrier in North America.

One other long term investment of which we are very proud, and which we are
certain will pay dividends long into the future, was our decision to become the first
large North American network carrier to buy the Bombardier CSeries. This is a
great aircraft and a testament to Canadian know-how and R & D. It is a perfect
example of how Canada can benefit from investing in brain power and why we as a
country should be willing to strategically develop and support long term projects
such as this.

LEAVE THE ROOM BETTER

Finally, global champions do “leave the room better”.
We did that in Haiti rescuing orphans after the devastating earthquake. By creating
the Air Canada Foundation committed to children’s causes. Through Dreams Take
Flight, bringing hundreds of sick and underprivileged children to Disney World.
With the Syrian Refugee Mission. By improving our carbon footprint by over 40%
with new aircraft and processes.

On this note of leaving the room better, I want to digress for a moment and turn to
the overall role of corporations and of business leaders in society. While private
enterprise typically employs more than 75% of all working people, there is a
troubling business-bashing trend going on in the world.

Surveys show that there is a global implosion in the level of trust in business
leaders (along with media and politicians). This makes for some great sound-bites
on the nightly news, in editorials or during elections. Or for the justification to
impose more constraints and more regulation on business.
The truth is, however, in Canada, our largest companies take much risk in
deploying billions in capital, employing millions of Canadians, accounting for
most of the value of Canadians’ investment portfolios, contributing the largest
share of corporate taxes, and are responsible for most of Canada’s exports, most
private-sector investments in research and development, and corporate
philanthropy.

As business leaders, we need to do a better job of explaining all this
to the public.

Government too has to play a role. We need a welcoming taxation, investment and
regulatory climate to operate in so we can compete with the best in the world and
expect to win.

To this end, Government must rise to the occasion and be more courageous and
innovative to make industries such as ours, which contribute disproportionately to
our economy, more competitive, especially when it comes to aviation taxes, rates
and charges. This is a refrain that I have repeated since my appointment in 2009
and will continue to do, despite government reluctance to change, largely because
of the tax dollars collected.

According to the 2015 World Economic Forum Tourism Competitiveness Report,
Canada placed a respectable 16th out of 140 countries surveyed for the quality of its
air transport infrastructure. However, Canada placed an extremely poor 130th
when it came to government rates and charges.
Simply stated, the federal government needs to reduce the infrastructure fees, taxes
and charges imposed on aviation that make segments of our business
uncompetitive, drive up airfares and send many travellers across the border to take
flights from aggressive U.S. border airports. And we are not alone in calling for
this. In 2012 the Canadian Senate bemoaned the “club sandwich of fees” and other
taxes that weigh heavily on the shoulders of the industry and unjustly curbs its
potential for growth. Likewise, the Conference Board and CD Howe Institute have
weighed in on this.

And just this week, the National Airlines Council of Canada – representing the
country’s largest carriers – launched a public awareness campaign to alert
Canadians to the urgency of this issue.
Air carriers in Canada face a combination of a “user-pay” models, infrastructure
charges and taxation structures not faced by airlines in other jurisdictions.
While Statistics Canada found Canadian carriers, including Air Canada, have
reduced domestic fares for six consecutive years to their lowest average prices yet,
Canadian travelers have not noticed any real savings due to government-imposed
taxes and third-party fees and charges rising over the same period. In many
instances, more than 60 per cent of the fare consists of government or regulatory
third party charges, rates and taxes.

Any form of airport privatization in Canada – and any imposition of a carbon tax
on domestic fuel emissions – would only worsen this problem. Infrastructure
investors are in the business of maximizing profits for their shareholders, which
will in turn mean higher costs passed onto users – i.e airlines and their customers.
This can be expected to result in higher user fees, possibly diminished services, or
both, as the new owners seek to expand margins.

Likewise, a new domestic carbon tax on aviation at a time when ICAO has recommended one global market based
measure, i.e. one international standard across all geographies, is a bad idea.
Any incremental fee, tax, surcharge or other imposition added to the already-high,
existing cost structure of aviation only weakens our industry and its contribution to
the economy. Despite the industry’s low margins, economists estimate that
aviation contributes between 5-7x in direct and indirect benefits for our country.

So if Air Canada spends $10 billion in Canada, our contribution is $50-70 billion.
As we continue to grow and contribute to the country’s economy, we ask the
federal government to find the courage to recognize that airport privatization,
carbon taxes and other “sin taxes” imposed on aviation (as if it was tobacco or
alcohol) has a disproportionately negative effect on our sector.

Especially as our neighbor to the south will be building on an “America First” economic platform.
We undoubtedly all have views on the new U.S. administration – and the
challenges and opportunities it will present for us.

However, one thing is certain: the U.S. aims to become much more competitive – in all industries. New anti “red
tape” task forces at each federal agency to take aim at taxation or regulation
deemed burdensome to the U.S. economy. We need to also recognize that
excessive regulation and taxation can kill jobs, drive companies out of the country,
make one less likely to invest – and ultimately less competitive.
Innovation is another topic that is front and center. Some experts have claimed
that innovation is not a prominent feature of Canada’s global brand and how every
Canadian government for over a century has failed at it. Well, it needs to become
a prominent feature over the next generation. Especially if we are to become, as a
country, less reliant on oil and natural resources. And that innovation has to
include and incentivize digital and other strategies within industries that truly drive
the economy.

At the end of the day, there is an onus on business to not only deliver financially
but to continue doing what really matters. And to tell our story repeatedly to
change any negative impression of business. So, here is part of the Air Canada
story that I am proudest of.
Besides our record financial results over the last few years, by taking measured
risks, we saved 27,000 jobs, created an additional 3,000, preserved pensions,
increased salaries, paid profit-sharing bonuses to unionized staff, built a powerful
new leisure carrier with many new opportunities for our employees and new routes
for our passengers, and grew our international capacity, directly connecting
Canada to the six continents of the world.

We have also created a Foundation focused on kids, participated in humanitarian efforts, and moved the needle on
diversity.

Air Canada is ideally suited to help Canada showcase our country and its
capabilities. We are a global player with 400 routes serving more than 200
destinations on six continents and our international reach is expanding. We make it
easy for people to visit our country from all over the world.
So yes, I am quite proud of the things we have done to leave the room better.
But just as important as celebrating such achievements, we must also carefully
consider what is needed to ensure the ongoing success of Canadian companies like
ours.

There is no doubt that on the whole, the country we have built together is the envy
of the world. And we at Air Canada are eager to share and celebrate the next 150
years of our country’s achievements and success stories.
Thank you.

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