Sign of the Times

Air Canada flies toward change
Old styles don’t work, Milton says Low costs key since Sept. 11

AMY CARMICHAEL
CANADIAN PRESS

VANCOUVER—Air Canada won’t use old-style airline management in the face of dismal results but will transform itself into the kind of low-cost carrier that is winning in the post-Sept. 11 market, the carrier’s president says.

“This time, we are not looking at planes and schedules and seats,” Robert Milton, who is also chief executive officer, said yesterday. “We are looking at the new realities of the marketplace.”

Air Canada has traditionally catered to full-fare and business travellers, who used to make up the majority of its business, said Sam Barone, an independent airline analyst. Now, however, upward of 80 per cent of passengers are chasing seat sales and deals.

“Market psychology is the deciding factor,” he said. “People want discount fares and nothing else, and in order to provide that, Air Canada has a massive restructuring job ahead ….”

Milton told members of the Vancouver Board of Trade the airline can succeed in the new market with a more flexible workforce and lower staff costs.

“Air Canada’s salaries and benefits represent over 30 per cent of our operating costs — over $3 billion annually — and we must do things differently,” he said.

The company is meeting with unions but faces a formidable challenge in negotiating a new deal, he said.

“If we had our main low-cost competitor’s work rules, pay scales and so on, we would drop $1.3 billion to our bottom line,” he added. Air Canada has cut costs by shifting to online bookings and reorganizing planes to add more seats at relatively low cost.

“The carrier is also selling stakes in parts of its business that have been successful, such as Aeroplan.

Milton said the sale of a significant interest in Air Canada Technical Services is being investigated; so is the creation of an airport ground handling services subsidiary.

Barone said Air Canada is up to the challenge.

“They’re doing a lot better than a lot of the U.S. carriers that are really being battered,” he said.

U.S. Airways and United Airlines are already under bankruptcy protection, and speculation is constant about when American Airlines will make its trip to bankruptcy court.

These carriers, and Air Canada, were built on an old business model of being all things to all people, Barone said.

Milton said it’s painfully obvious that model is now obsolete.

“It makes for an inflexible cost structure, a mammoth distribution infrastructure, which relies heavily on computer-reservation systems and a vast airline network, which is unnecessary for the price-conscious traveller.”

Barone said there’s no reason Air Canada won’t succeed once it reorganizes, but it’s a massive job.