By Emphasizing Rail, Canadian Pacific Ltd. Returns to Its Roots

CANADIAN Pacific Ltd., which began its corporate life as the first trans-Canada railway at the end of the 19th century, is making money on the railway again.

The upturn reflects a boom in transportation across Canada. Though the rail line was built to link together the eastern part of Canada to the western, the new logo of CP Rail, now a subsidiary of a widely diversified conglomerate company, depicts not only the Canadian maple leaf but also the American stars and stripes. This symbolizes CP's embrace of free trade with the United States.

CP reported a huge increase in profits for the second quarter of 1994, with net income of $198.4 million (Canadian; US$143 million) for the three months ending June 30 on revenues of $1.9 billion; that compares with profits of just $12 million on revenues of $1.65 billion for the same period last year.

Rail traffic is up

CP Rail, has contributed $106 million to the company's overall profits this year. Traffic on the railway is up 8 percent. Only its oil and gas subsidiary did better.

CP has closed lines, cut back its work force, and rebuilt old engines to meet increased freight demand rather than spending money on new locomotives.

Analysts say CP, once Canada's largest holding company, has returned to its roots: the transportation business. The company is transforming itself into an operating company, says Peter von Ond, a research analyst at the Montreal office of Midland Walwyn, a brokerage house.

CP has a broad range of assets that have benefited from a changing economy. Hotels built to service the railway now serve tourists and business travelers in general. Tourism is booming as a result of a lower Canadian dollar, filling hotels such as one owned by CP in Banff Springs, Alberta. CP also has 13 container ships.

CP Rail is only small part

CP Rail represents only 11 percent of the company's total assets. Other principal assets include PanCanadian Petroleum, 35 percent; CP Forest, 7 percent; CP Hotels & Marathon Realty, 7 percent; and Laidlaw, a transportation and waste management firm, 6 percent. Other holdings include Unitel Communications Holdings Inc.

This year, PanCanadian Petroleum was the largest contributor to the firm's profits at $109.8 million for the quarter.

Unitel, a long-distance telephone company in which CP has a 48 percent stake, was a disappointment. Losses for CP's share of Unitel were $32 million, bringing total losses for the first six months to $60.3 million.

CP says it wants to make it's railway perform even better. The railway's profits come mainly from western Canada. The company wants to buy competitor Canadian National's rail lines in the east. The two lines often run side by side, according to a CP Rail policy paper, which calls for more efficient rail transportation. CP says it will continue to close or sell unprofitable lines.

Labor costs and union rules, some of which date back to the 19th century, are other areas CP is working on. Average railway labor costs are above those of the trucking industry, rail's main competitor, the company says.