When discussing the situation surrounding Air Canada, it’s difficult to know which aphorism is more apt – the one about pride going before a fall, or the one about patriotism being the last refuge of the scoundrel. There has been a suspicion on the part of some dissatisfied customers of the Maple Leaf airline that it has been hiding behind its emblem for years, riding (flying?) on its reputation, which is why the beleaguered carrier, whose stock for the time being trades on the Toronto Stock Exchange under the symbol AC.B, could find itself shut down, mothballed like Howard Hughes’ Spruce Goose.
Emerging from an era when commercial flight was still a novelty for many people, the former Trans-Canada Airlines first left the ground in 1937, and within five years, had a government-mandated monopoly in Canada on transcontinental flights. By the early 1950s, new contraptions called computers enabled TCA to book passengers on flights almost as fast as the planes would fly them. With the swinging 60s came status as the national airline, and a re-christening as Air Canada.
The 1980s saw new turbulence in the airline industry, what with Air Canada’s privatization from its former incarnation as Crown Corporation (allowing shareholders to buy into it), and increased competition among carriers. Anyone who still clung to the belief that airline ownership equaled a license to print money should take heed of what happened next.
Increased competition in the skies led to smaller carriers like WestJet Airlines Ltd. (TSX: T.WJA, Stock Forum) to eat into Air Canada’s market share, the former airline placing a greater emphasis on customer satisfaction where AC.B may have been resting on its success.
In 2006, WestJet placed first in customer service among Canada's Most Respected Corporations. The survey measured such items as long-term investment value, innovation and product/service development, financial performance, corporate social responsibility, and, oh yes, customer service.
(To be fair, a customer service survey released in 2008 by J.D. Power and Associates monitored a spate of North American carriers, concluding that overall satisfaction with airlines was down in recent years. The survey also named Air Canada among those few carriers making strides in its degree of customer service. The survey found that satisfaction with “people” factors — including knowledge, courtesy and helpfulness of reservation and gate agents, check-in staff and flight crew — has declined dramatically through the industry since 2007, and is the leading contributing factor to the overall decline in customer satisfaction with airlines in 2008. The decrease in satisfaction with people factors is more than twice as large as the decline in satisfaction with price factors.)
Another difference lies in perception; WestJet employees, its advertising insists, are also its owners. The Calgary-based carrier has remained a rarity in the rarefied world of airlines by staying non-union, solving the problem with a profit-sharing plan involving some 6,000 employees.
In any event, perhaps Air Canada (TSX: T.AC.B, Stock Forum) was too busy gloating over its status as the world’s 12th largest airline - having devoured rival Canadian Airlines in 2001 – to recognize what was happening on the ground. Whatever the factors behind it, Air Canada found itself in bankruptcy court in 2003, proceedings from which it emerged within 18 months under new management in ACE Aviation Holdings. As if the company hadn’t learned their previous lessons, the end of March, 09 brought jitters among analysts and investors that Canada's biggest air carrier may be preparing to file for bankruptcy protection from creditors for the second time in six years. Just like last time, investors were the only ones left high and dry from the bankruptcy protection, watching their shares turn worthless as Air Canada paid off its creditors. Hopefully investors will realize that if bankruptcy protection is the case again, their shares may become worthless again.
This whole scenario is not surprising. As Westjet continues to make strides and takes away market share predominantly in Canada, Air Canada had its sights set on the world and is trying to compete with dominant world carriers like Lufthansa, United Airlines and British Airways. Seeing as though Air Canada may be on the verge of bankruptcy protection, again, their worldwide expansion plans don’t seem to be working.
Lost luggage, discourteous customer service and much more are some of the complaints that come from business and personal travelers in chat boards around the Web and in conversation. While it does contradict the above J.D. Power and Associates survey, it does raise the case for how quickly Westjet has emerged and taken market share away from Air Canada, even during the tough decade that all airlines have had. With pricing on most routes comparable for both airlines, one must wonder how one airline attracted so many new fliers over the years, and it’s not the bits and bites, although that snack is definitely a bonus.
Air Canada started to present itself as lighter and faster, with commuter service under the Air Canada Jazz heading, within Canada and the U.S. In total, Air Canada and Jazz fly to 160 destinations. One marketing tool which may help bail it out is a reconstituting last month of its “Europe Pass”, enabling single travelers three round trips to European destinations in a year, or four round trips for couples.
The move comes not a minute too soon. Many high rollers in the business world came out with disappointing - in some cases, distraught - earnings news early in New Year 2009, and even a revamped, revived Air Canada was no exception. Fiscal 2008 saw a billion dollars worth of red ink flowing from AC.B ledgers (all figures in Canadian dollars unless specified otherwise), due in part to the summer spike in fuel costs, fluctuation in the Canadian dollar, and the growing uncertainty in the economy in general. The loss was all the more jarring in light of the whopping profit the airline showed the year before: $429 million, or $4.27 per share, in 2007. At the risk of sounding desperate, now former CEO Montie Brewer said Air Canada would look to cut $120 million worth of costs this coming year via supplier concessions and better fuel efficiencies. As this article was preparing for press, on March 30, the carrier announced that Montie Brewer has resigned as chief executive and named Calin Rovinescu, a former Air Canada executive who played a key role in the airline's court-supervised restructuring, as his replacement.
WestJet has also indicated it was bracing for lower revenues as ticket prices moved earthward just to stay competitive. The Calgary carrier said it expected its revenue per available seat mile [RASM] to fall between 10% and 12% in the first quarter compared to last year primarily due to lower ticket prices. WestJet stock traded the last week of March at around $11.70, in the lower regions of a 52-week price range of $19.11 at its highest, $8.34 in its gulch.
Air Canada’s B-class shares have wavered over the past 12 months from a price summit of $9.84 to a low of 77 cents. It traded the last week of March at under a dollar.
If there is any good news for Air Canada, it’s that they now have a change at the top of their hierarchy. This transition of power will hopefully bring profound changes to the airline, let it focus more on customer service, re-group its operations and if need be, go to the bankruptcy court again, but hopefully this time will come out a different company. In the meantime, as the turbulence continues at Air Canada, we will continue to fly the relatively smoother skies offered at Westjet.