Having dodged the bankruptcy bullet, Air Canada needs to get its planes moving

Are you a current or former Air Canada or WestJet employee? What are your thoughts about the state of these companies and of the industry in general? Leave a comment below, or e-mail theviewfromseven@gmail.com

There’s a sneering old joke that’s familiar to many of us aviation enthusiasts: What’s the fastest way to become a millionaire? Become a billionaire first, and then invest all of your money in the airline industry.

It’s true that the airline industry is a tough one to make money in. Since deregulation arrived in Canada in the mid-’80s, many airlines have been launched with the hope of handsome profits, only to go bankrupt later: Canada 3000, Greyhound Air, Vista Jet, Harmony, Zoom and Jetsgo to name just a few.

Transair, Winnipegs hometown airline until its merger with Pacific Western Airlines was finalized in 1979, was one of many Canadian airlines to disappear into history over the past 30 years. (© Caribb; from Flickr)

Transair, Winnipeg's hometown airline until its merger with Pacific Western Airlines was finalized in 1979, was one of many Canadian airlines to disappear into history over the past 30 years. (© Caribb; from Flickr)

Air Canada often had the commercial muscle to see off its rivals by matching them on price while offering the wider choice of flights and onboard amenities that its rivals could not.

Despite a constant advantage in market share, however, Air Canada has struggled to make money. The airline was forced into a year and a half long bankruptcy in 2003-04, and was recently looking at the possibility of a second bankruptcy.

This week, the airline received some good news: A $1 billion loan secured with the assistance of the federal government, combined with concessions from its workforce, has eliminated bankruptcy as a short-term threat.

Still, some might wonder why Air Canada — with its large market share, reliable and fuel-efficient fleet, and plum international routes to the world’s financial capitals — can’t make money the way WestJet does.

WestJet, for the record, enjoyed a seven-percent net profit margin in 2008, while Air Canada suffered a nine-percent net loss.

Some of the more commonly mentioned reasons for the difference:

  • Air Canada has costly pension obligations dating back before deregulation; WestJet does not
  • Air Canada is heavily unionized (but so is consistently profitable Southwest Airlines); WestJet is not unionized
  • Air Canada has a motley fleet of Airbus, Boeing and Embraer jets, which translates into higher training and maintenance costs; WestJet only flies one type of aircraft — the Boeing 737

While each of those factors might have some bearing on why Air Canada struggles  to avoid bankruptcy while WestJet makes money, there’s another factor that’s often overlooked.

Both Air Canada and WestJet regularly publish their operating statistics. One common statistic is called fleet utilization. Basically, that refers to how much time each aircraft spends in operation each day.

This is an important statistic because airlines make their money keeping their planes on the move, not parked at the gate.

Another key statistic is called stage length. That refers to the average distance each flight traveled. This is also a useful stat, because a longer flight generally uses fuel and crew time more efficiently than a shorter flight.

What these stats tell us is that WestJet has been getting more productive over the past two years, while Air Canada has been getting less productive.

For example, WestJet’s Boeing 737s spent 12 hours per day on the move in the first three months of 2007, increasing slightly to 12.2 hours in the first three months of 2009. The average WestJet flight increased by 80 miles during that period (from 858 to 938 miles).

By comparison, Air Canada’s fleet spent a lot more time sitting on the ground. In the first quarter of 2007, each Air Canada jet spent 10.8 hours per day on the move (more than an hour less than WestJet’s), but flew an average of 875 miles per flight, 18 miles further than their Calgary-based rival’s.

An early start and late finish with minimum down time in between helps profitable airlines stay that way. (© Wee in YYC; from Flickr)

An early start and late finish with minimum down time in between helps profitable airlines like WestJet stay that way. (© Wee in YYC; from Flickr)

By the first quarter of 2009, the efficiency gap between Air Canada and WestJet turned into a chasm. Not only was each Air Canada jet doing more than an hour and a half less traveling per day than it did in 2007 — dropping to 9.1 hours per day in Q1 2009 — it was also spending three fewer hours in the air per day than the average WestJet aircraft.

In spite of Air Canada’s numerous long-haul flights across both the Atlantic and Pacific, WestJet could claim by early 2009 that it was Canada’s long-distance champion, with the average WestJet flight (938 miles) being 97 miles longer than the average Air Canada flight (841 miles).

Air Canada needs to keep its fleet in the air later. (© fermata.daily, from Flickr)

Air Canada needs to keep its fleet in the air later. (© fermata.daily, from Flickr)

Now that it has a lifeline, thanks to the assistance of the federal government, Air Canada needs to get its fleet moving so that it’s using fuel and employee time as efficiently as possible.

I’ll leave the question of how to do that to the folks at head office in Montreal — maybe AC just needs to get rid of surplus aircraft, worry less about timing connections so that people can get from North Bay to Halifax without a long connection, I don’t know.

But having a fleet that only flies nine hours a day is not a ticket to profitability when profitable airlines like WestJet and Southwest keep their planes in the air 12 hours per day, spreading their costs across more trips and more passengers.

Advertisements

About theviewfromseven
A lone wolf and a bit of a contrarian who sometimes has something to share.

2 Responses to Having dodged the bankruptcy bullet, Air Canada needs to get its planes moving

  1. Fat Arse says:

    Analysis of fleet utilization is all fine & good. But, bottom line – AC has a fundamental flaw, its Achilles heel if you will, its customer relations department has lost all credibility with the public over the past 20 years. I know not what the two companies respective figures are for % of seats sold per flight … but I know that, given the opportunity, I will each and every time opt to buy my ticket from Westjet.

  2. theviewfromseven says:

    That’s a good point/question you raise, Fat Arse. To answer your question about passenger loads, Air Canada mainline had a load factor of 81 percent (79.5 percent if Jazz is included), while WestJet had a load factor of 74.1 percent.

    But there’s a big difference in culture between the two airlines: WestJet is egalitarian while Air Canada is heirarchical.

    Also, if there’s one thing that WestJet and Air Canada employees agree upon, it’s that the people who run Air Canada are the enemy. Looking in on a publicly available Air Canada employees forum periodically, I noticed that they had almost nothing bad to say about WestJet, but had lots of nasty things to say about each other: Jazz is a threat to mainline, mainline is a threat to Jazz, one crew base is taking trips away from another, Rovinescu/Milton/the union is a threat to everybody, etc.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: