Pacific turnaround

CANADA doesn’t have much in the way of a founding myth. The completion in 1885 of the Canadian Pacific railway—which the colony of British Columbia made a condition for joining Canada instead of the United States—is about as good as it gets.

So when Pershing Square Capital, a hedge fund from New York, took control of the iconic railway last May and installed an American boss, it brought public attention to the feeblest of the six big North American railways. Sceptics feared that William Ackman, the fund’s brash principal, would ruin a piece of Canadiana by extracting as much profit as possible while failing to invest for the long term. The deal’s proponents, including many of the country’s biggest pension funds, retorted that Canada’s sleepy, clubby business elite could use a shake-up.

In January the railway released its financial results for 2012, giving new ammunition to both sides. The best news was that freight revenue had increased sharply. The growth of new forms of energy (such as shale gas) has boosted railways, which are needed to bring in pipes, timber and drilling sand. They are also used to ship out crude oil from areas like the Bakken Shale and from Alberta’s tar sands (see map).

Hunter Harrison, the former head of the larger Canadian National railway whom Mr Ackman lured back from retirement, is fulfilling his mandate to cut costs. He plans to trim an eighth of the company’s staff by the end of the first quarter this year—half the total job losses he had projected over a four-year period. Together, these moves reduced the firm’s operating ratio, a measure of costs per dollar earned, from 78.5% in the fourth quarter of 2011 to 74.8% this year. But it is still higher than the 63.6% posted by Canadian National, the industry leader.

Mr Harrison has had free rein so far. The decision that might arouse public ire, though, would be a sale to an American rival—perhaps the most attractive financial exit strategy for Pershing Square. In 2010 nationalist heckles led the generally business-friendly Conservative government to quash a $40 billion bid by BHP Billiton, an Anglo-Australian mining giant, for the Potash Corporation of Saskatchewan, a company far less dear to Canadian hearts than the modern rump of Canadian Pacific. Mr Ackman has had an easy ride getting into Canadian business. Getting out may prove harder.