Executive View: Calin Rovinescu of Air Canada

Calin Rovinescu, CEO of Air Canada, was interviewed by editor in chief Arnie Weissmann for his thoughts on what 2019 might bring:

We're going to see continued growth in the economy and gross domestic product generally in 2019. Our sense is that the Canadian economy is tracking close to potential, and generally speaking, financial conditions are favorable.

We're the largest foreign carrier into the United States, based on number of frequencies. For us, the U.S. is virtually as important as Canada. The U.S. economy may slow slightly, but the general sense is that we're looking for it to grow around 2.5% to 3% next year.

We operate into China from our main hubs: Toronto, Vancouver and Montreal. We continue to see very strong growth there, although we also see a lot of capacity. While China might not experience the double-digit growth it has seen in prior years, we certainly sense it will be north of 6%.

As far as the rest of Asia is concerned, I think you'll see numbers in places like Japan that are in or around 1% or slightly less. We're not expecting to see any negative growth or a recessionary environment in 2019. Our estimate for overall world growth is about 3.5%.

There are some overcapacity concerns, and protectionism remains a threat globally. The United States-Mexico-Canada Agreement is a positive signal for both the economy and, ultimately, tourism. Whether it's a good deal or an average deal, it's better to have a deal than no deal.

Aviation, generally, has seen good profitability overall. That's expected to continue. 2018 will be a little bit less than 2017, largely because of fuel. The level of fuel pricing volatility that we'll see in 2019 will influence how great a year it is. Fuel prices are basically back to where they were near the beginning of the year, but in the meantime, they went on a wild ride. The level of volatility has been a major headwind for the industry. We've seen the disappearance of several smaller European carriers, and several others are struggling in a very public way.

Analysts are predicting a stable fuel environment for 2019, but in 2018, some of the long-haul, low-cost carriers over the Atlantic had unrealistic pricing. Having fares that appear to be below cost makes it very difficult to sustain a business when fuel [prices rise] or another carrier enters the market. I don't think they'll go away, but I think this could lead to a more rational approach to pricing.

The [Boeing] 787 Dreamliner has enabled us to open new markets. In addition to Sydney, we now fly to Melbourne and Brisbane [in Australia]. In India, to Delhi and Mumbai. Montreal to Shanghai. We have relatively small growth in [domestic routes]. About 90% of our growth over these past several years has been to the U.S. and international markets. In the last five years, we've launched more than 120 routes, the largest growth in Air Canada's history. In 2018 alone, we added 29 routes. We've been able to grow capacity 40% systemwide in the last three years while improving profitability.

The aviation market has evolved into a competition among global hubs, and we're looking to build a global carrier that can compete with the best airlines in the world. All three of our main hubs -- Toronto, Vancouver and Montreal -- are now among the top 50 in the world in terms of connectivity. We're planning to add additional international cities in 2019.

We have a goal of having 20% of transactions going through New Distribution Capability (NDC) by 2020, and the reason that's so important is that, as we've been investing substantially in our network and in our product, it's unacceptable that we don't have the opportunity to properly market them. Old-style distribution structures need to be disrupted, and we think NDC is the first [step] to make sure that airlines get the opportunity to display their rich content in the way that they have designed it.

One [partnership] that will see enormous progress in 2019 is our recently signed revenue-sharing joint venture with Air China. It's the first joint venture between a North American carrier and a Chinese carrier. It was many years in the making, and our alliances team is very excited to put it into motion in 2019.

We'd like to do more over the Pacific beyond China, and we'll continue to look at opportunities for joint ventures in those markets. We have about 26 code-share relationships inside Star Alliance and several outside Star, including with Cathay Pacific. Over the Pacific is our next area of opportunity.

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