By Julie Hawrishok
Air Canada has hit a major patch of turbulence, and there’s no emergency exit.
The airline filed for bankruptcy protection on April 1.
The federal government has agreed to help Air Canada become more cost-efficient and competitive but it will not offer a cash bail out.
Canada can’t afford to have its biggest airline go bankrupt, but it also can’t afford to pay for misguided business decisions.
It hasn’t been a Crown corporation since the late 1980s, and should not rely on federal funds to stay operational.
The airline industry has recently been plagued by crises. The terror attacks on September 11, 2001 hit air travel hard, the war in Iraq has dwindled travel plans and the recent outbreak of SARS has made people wary of traveling. Air Canada is $12 billion in debt and has estimated losing estimated millions of dollars daily over the past months.
The company has been trying to restructure for years, but is constantly losing money
It has not seen profits since 1999. In 2000, it had a yearly loss of $82 million and in 2001, it reported a loss of $1.25 billion.
As the largest airline in the country and one of the few to carry international flights, Air Canada holds a virtual monopoly on air travel.
Despite holding a large market share, it is having difficulties staying competitive. Its competitors are managing and are not using catastrophic events as excuses to failing business.
The same day Air Canada filed for bankruptcy protection, WestJet Airlines announced it was expanding its service to include more Canadian destinations.
WestJet now has service to 26 Canadian cities, including the newly added Windsor, St. John’s and Gander, Nfld. WestJet has flew through the same storms as Air Canada yet has reported a profit for the past 24 consecutive quarters.
Air Canada has tried to emulate successful airlines like WestJet and Southwest Airlines, one of the few successful American airlines, by creating spin-off companies like Tango, Jazz and Zip which cater to smaller markets and offer competition on the short-haul domestic flights.
These spin-off companies have not been very successful.
In February, Air Canada said they might sell Jazz, as the company had shown a loss of $428 million for 2002.
Air Canada is operating dangerously under the market dominance philosophy.
It believes the more planes it has, the more money it can make.
The market dominance philosophy does not work in this industry
Major restructuring is definitely needed, perhaps starting with changes to the cost structure. WestJet’s cost structure is 40 per cent lower than that of Air Canada.
Air Canada needs to change its tune quickly if it wants to remain a viable company for much longer.
It needs to improve relations with union members or find an alternative. It needs to cut down on costs associated with operating planes that are not filled to capacity. Some elements, like airport rent — which currently nets the government $250 million each year, and fuel prices cannot be helped, but they are standard and must be figured into restructuring costs.
Air Canada is the twentieth largest employer in the country, employing almost 40,000 people.
Restructuring will inevitably cause many to lose their jobs, which is indeed unfortunate.
But wouldn’t it be better for some to lose their jobs than for the country to lose its means of international travel?
Air Canada can’t look to the government for fund when other airlines are thriving
It must work this out internally and salvage what Canada has left of international travel options.