It’s been quite a year in the Canadian business world.
While Canada’s unemployment rate sunk to record lows and the Bank of Canada continued to raise interest rates, an energy crisis was brewing – and it’s one that likely won’t go away anytime soon. Some companies had decent years (Shopify, for example, and Canada Goose until quite recently) while others had major stumbles (Bombardier comes to mind), and the Toronto Stock Exchange overall was in rough shape.
As we get ready for 2019, here’s a look at the good, bad and the just plain ugly stories of 2018.
NAFTA uncertainty is finally lifted
After more than a year of contentious negotiations (which included several moments where it looked like U.S. President Donald Trump would make good on his threat to “rip up” the agreement), a new NAFTA deal was finally reached. While not everyone was particularly pleased with the new trade deal, many investors across the three countries seemed to breathe a collective sigh of relief.
“For entrepreneurs, the new North American free trade deal represents stability, lifting a cloud of uncertainty that has hung over the Canadian economy for the past year,” wrote Pierre Cleroux, chief economist for the Business Development Bank of Canada.
“Renewed stability on the trade front and the prospect of higher interest rates are two good reasons for business owners not to delay in moving ahead with investment projects.”
Economy operating at capacity
The Canadian economy was on solid footing through 2018, prompting Bank of Canada Governor Stephen Poloz to hike interest rates three times over the year.
After the most recent hike in October, the BoC said “the Canadian economy continues to operate close to its potential and the composition of growth it more balanced.”
The economy also added a record 94,100 jobs in November on higher full-time hiring, while the unemployment rate dipped to a new all-time low of 5.6 per cent. That increase in the number of jobs created is the largest on record, eclipsing 94,000 in March 2012.
While Poloz says the outlook is still positive, there are new concerns about downward pressure, particularly in the Prairies, where the drop in oil prices has wreaked havoc.
Ultra low cost carriers finally takeoff
For a while, it seemed like Canada would never get an ultra low-cost carrier such as RyanAir in Europe. But more than a year after the federal government lifted the foreign ownership restrictions on airlines – from 25 per cent to 49 per cent – Canada is finally seeing a bit more competition in the skies.
Flair Airlines, which launched commercial operations in 2017, expanded its network in June from 90 flights per week from 90 to 188. That decision was a response to the long-awaited launch of Swoop, WestJet’s ultra low-cost carrier, which has also expanded to service U.S. and Caribbean destinations.
And they might not be the last ultra low-cost carriers to enter the market. Enerjet recently announced it would be launching next year, and Jetlines has been planning to launch since late 2016, when the foreign ownership rules were initially eased.
The Bad and the Ugly
The Energy Crisis
Hey, remember that time the government turned us all into owners of a yet-to-be-built, $4.5 billion pipeline?
Facing regulatory obstacles and opposition in British Columbia, Kinder Morgan gave notice in April that it planned on suspending all non-essential spending on the Trans Mountain Expansion Project. The move stunned the Canadian oil industry, and sent governments scrambling to come up with a plan that would provide certainty for the company ahead of its self-imposed May 31 deadline.
The federal government’s solution? Purchase the beleaguered pipeline project for $4.5 billion, with the hopes of finding a buyer down the road. But a few months later, that investment stalled again, when the Federal Court of Appeals overturning approval of the pipeline expansion,
Where the project will go from here – and whether the government will be able to find a buyer if it does get built – remains to be seen.
Now, speaking of pipelines, we need to talk about…
The oil price differential
This year proved to be a rough year for Western Canadian Select, with the price for a barrel of Alberta oil plummeting to $10, a steep discount from its American counterpart.
The oil price differential prompted Alberta Premier Rachel Notley to cut oil production in the province, a drastic intervention that hasn’t been seen since the 1980s.
The cuts don’t come into effect until 2019, but the differential has already shrunk. The price difference between a barrel of Western Canadian Select and West Texas Intermediate, the U.S. benchmark, was US$25 – a considerable improvement from the $50 different several weeks earlier.
Tim Hortons found itself at the centre of controversy at the start of 2018, when the children of the company’s billionaire co-founders reduced employee benefits in response to the Kathleen Wynne government’s minimum wage hike. Wynne said the cutting of employee benefits was a “clear act of bullying,” and Tim Hortons responded by blaming a “rogue group” of franchises that it said did not represent the brand’s values.
And who can forget the simmering conflict between the company and the Great White North Franchisee Association, a group representing more than half of Tim Hortons franchises. The good news is that, as of late, things seemed to have calmed down between the franchisee group and its parent company.
Bombardier’s really bad, no good year
After several years that featured delivery delays, cost overruns and controversial government loans, things had finally started looking up for Bombardier.
In January, the U.S. International Trade Commission voted that sales of the CSeries jet did not harm the Boeing Co., eliminating a 292 per cent tariff that threatened Bombardier’s survival. (Its chief executive Alain Bellemare was literally popping bottles of champagne shortly without hours of that decision). Bombardier’s deal to give Airbus full control of the CSeries program was finalized in August, breathing life and stability to a program that had been leaching capital for years.
For most of 2018, it looked like the worst was finally behind Bombardier. And then November happened.
After reporting quarterly results that featured a $600-million free cash flow shortfall, and than a review of its executive stock compensation plan from Quebec authorities, the company’s stock returned to levels not seen since the fight with Boeing first began. The company also announced it would be laying off 5,000 workers, prompting further backlash about government subsidies.
While analysts called the sell-off absurd and extreme, Bombardier’s still hasn’t bounced back.
With files from Reuters and the Canadian Press