Thursday, September 22, 2011

 

TOO CHEAP TO FLY

Everyone is looking for a $99 fare, if they don't get it - they don't fly. How would you like to be an investor in a business that has rarely turned a profit in 80 years?

That's the crazy airline business and Air Canada shares with too many others the dubious distinction of its poster child. The Montreal based International Air Transport Association (IATA) notes that the airline industry has lost a total of $50-Billion since the business took a direct hit in the aftermath of the September 2001 terrorist attacks.

Because of the progressive rise in the cost of jet-fuel even some of the traditional "discount" airlines have found it more difficult to continue to offer low prices. For instance to shave costs, SouthWest in the U.S. has merged with Air Tran, and Ryanair in the United-Kingdom and Europe has grounded about 80 aircraft of its fleet.

Anyone remember "Tango" and "Zip"? A decade ago they were Air Canada's frontline effort to create 'airlines within the airline' to replicate and mimic the look and the feel of its upstart competitors; at that time primarily Calgary based WestJet which copied the successful SouthWest model from the United-States.

Air Canada Express (Sky Regional Airlines) Bombardier DHC-8-402 (Q400) N505LX (msn 4174) YYZ (TMK Photography) (new airline) by Airliners Gallery
Air Canada Express (Sky Regional Airlines) Bombardier DHC-8-402 (Q400) N505LX (msn 4174) YYZ (TMK Photography) (new airline), a photo by Airliners Gallery on Flickr.

Despite the gloomy outlook, or perhaps because of it Canada's legacy flag-carrier claims to be positioning itself to buck the trend. Air Canada announced last spring that it would launch a discount airline that will provide cheap fares to holiday destinations. The surprise announcement seems to figure prominently in the company's labour turmoil which so far has involved customer service agents, flight attendants and which will likely soon also involve the company's pilots.

Speculating about forming a new company may have had more to do with pensions and work rules than lower ticket prices for customers. Which leads some pundits to speculate that the announcement was part of a scheme to advance the corporate agenda to negotiate different work rules, as it has since with the customer service agents where the salary scale for new hires was reduced by 20%; while the Federal Government's back-to-work legislation (which ended their June strike in less than 3 days) sent pension roll-back issues to binding arbitration.

Deep in the throes of its financial agony and bankruptcy reorganization in 2001 Air Canada split-off and downloaded regional operations by creating JAZZ, a company based in Halifax whose 5000 employees are represented by different unions and less lucrative wage scales. JAZZ has just started rebranding itself as "Air Canada Express" (see photo) to streamline operations with Sky Regional Airlines. Sky Regional is a non-unionized operator contracted to compete with Porter Airlines on the lucrative Toronto, Ottawa, Montreal routes operated from Toronto's downtown island airport. Lest I digress...Porter's response has been to open a new crew hub in Halifax leading to speculation that it will increase flights into Atlantic Canada and into the United-States through Boston, New York and Newark.

Following the threat of more back-to-work legislation from the Harper Government, this week's last minute agreement reached with Air Canada's 6000 flight attendants likely involves terms similar to those ordered in June for the customer service reps. It may force (at least strongly encourage) the company's pilots to follow the lead when their turn comes-up most any day now.

With a willing government and back-to-work orders at the ready: If Air Canada can achieve what it wants on labour and pension costs, then you may pretty well forget about their plan to create another discount airline altogether.

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