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AIR CANADA STRUGGLES FOR SUCCESS

The strike by pilots, the first in the company's 61 year history, brought flights to a complete standstill of 13 days in September 1998. The consequences were a millions of dollars loss and angry customers who were expelled. At the beginning of 1999 the airline received important awards from Air Transport World and the Official Airline Guide, amongst these for being the best domestic company in North America. These awards recognised the company's service on the ground and on board. In February 1999 the Board of Directors had to publicise the first negative annual results since 1993. Air Canada, the country's biggest airline with 152 aircraft and a 61 per cent share of the Canadian aviation market currently caused a stir with a lot of negative, but also positive news.

The pilot strike in the late summer of '98 was especially bad for the German market, since September is still peak season, in which there were hardly any spare seats available to Canada. Since Northwest Airlines were on strike at the same time, the detour via the USA was more difficult than it could have been, many holidaymakers had to cancel their journeys. This was not a good advertisement for Air Canada's image. "The strike has cost us $290 million Canadian", complained Danielle Poudrette, "however, the market recovered quickly afterwards." Capacities in October and November were better used than in the previous year. Though the loadfactor in October and November was even better than in the previous year, falling revenues were the price Air Canada had to pay. "We had to come up with special promotions, to boost business again," the manageress admits. Even today special offers, e.g. last winter's flights for DM669 departing from all German airports to the East Coast, were proof of the efforts the company made to attract customers. However, the impact of these actions on the balance sheet was unimpressive. In 1998 Air Canada was in the red for the first time in five years and had to suffer a slight loss of $16 million Canadian. In 1997 the Canadians made profits of almost $395,77 million Canadian.

The time after the strike went smoothly into the winter season, for Canadian airlines traditionally the least busy time despite growing business with winter sport fans. Two years ago there were threats for Canadian Airlines, Air Canada's main competitor, that this company would not survive the winter financially. Up to now Canadian Airlines has managed to keep its head above water, but at the beginning of 1997 the route net was reduced. Frankfurt, too, was one of the destinations to go. This fact and the founding of Star Alliance gave the destination Frankfurt a real boost for Air Canada which shortly before had only provided a daily flight to Toronto. Nowadays Toronto, Montreal and Calgary are daily destinations. Lufthansa services Vancouver through Code Sharing. Danielle Poudrette explained, "We are experiencing a two figure growth in Frankfurt, mainly due to the many customers, who are changing planes."

Customers flying from Canada to Northern or Southern Europe or Africa will go via Frankfurt in most cases and then change to Lufthansa or SAS. "The Star Alliance is extremely positive for us and helps us to grow on both sides of the Atlantic" Mrs. Poudrette informed us. Air Canada is one of the smallest members of the Alliance, the company only makes 8.5 per cent of the overall turnover, while Lufthansa (32.9 per cent), and United Airlines (38.8 per cent) are dominant. We only have 20,000 employees, while United employs as many cabin crew alone", Jean-Jacques Bourgeault, member of the Air Canada Board of Directors, let us know. "We simply need to make our voices heard." So far this did not seem to be a problem, since the Star Alliance cares much about consensus. "The more partners there are the more democratic alliances become and the more the influence of giants is evened out", claimed Bourgeault.

The last few years have been very successful for Air Canada, because of liberalising aviation by ist big neighbour USA. It be paradox, but until the beginning of 1997 flights crossing borders in North America was only possible under restrictive political circumstances. However, Air Canada had adjusted early and cleverly to the new foreseeable situation and had ordered new short haul aircraft, when there hardly seemed a market for them and they were extremely cheap. There is no other airline in the world, which uses so many small Airbus Jets A319 built in Hamburg, like Air Canada. This company has 35 in its fleet and also uses 24 50-seater Bombardier Regional Jets. After signing the Open-Sky-Treaty with the USA the strategy was very simple: One chose US towns, which might interest Canadians who, besides, make up 70 per cent of border crossing traffic. After this the route in question was flown using a 50-seater aircraft. As soon as there was plenty of demand, the Airbus came into action and targeted new destinations with the Regional Jet. Numbers after two years speak for themselves: Air Canada's US destinations rose from 14 to 42, the weekly flights to the neighbouring country from 650 to more than 1,300. This resulted in the fact that flights to US destinations as well as domestic flights became the most profitable sector with a turnover of $ one billion Canadian. Almost a third of Air Canada's entire turnover is made in this area, the market share of the company is around 45 per cent. However, not all attempted expansions across the border were successful. Danielle Poudrette, "The flights from Montreal to Atlanta and from Toronto to Cincinnati and Dallas had to be given up again. The fortresses built up by Delta Air Lines and American could simply not be taken down." But those were only small flaws. The Canadians tried to apply the basic recipe for their success to intercontinental routes. They were successful with the non-stop flight Toronto - Tel Aviv. Today 60 per cent of passengers are American, a second connection from Montreal to Israel followed.

The Canadians displayed almost clairvoyant abilities in deciding as soon as 1993 to offer only two classes. They combined the First and Business Class into a premium class they called Executive First. Air Canada is not stinting on legroom, (this company is at the top with 1.4 meters to 1.47 meters in the Airbus), and the service is also most generous. Demands for seats in the front part of the cabin are so huge, that Air Canada is now increasing the number of these seats. There will be 44 instead of 32 comfortable seats available in the Airbus A340 this applies during the winter season only. In the Boeing 747-400 the Premium part was increased to 63 seats all year round. Although seats and service have basically not changed since they were introduced, they still rake in a lot of fame. Air Canada does indeed stand out when compared with the big US companies, who will, even in the top classes, give their passengers a very impersonal mass service.

Despite these fantastic achievements the Montreal based airline is still faced with tough problems: Costs for staff of the company, which was fully privatised ten years ago, are too high. They are about 20 per cent higher than those of the other big US carriers, this year 1,725 of the 22,900 posts will be cut either through retirements or redundancies. The varied fleet warrants high maintenance costs. The airline is trying to combat this as well. 18 Boeing 747-100 and -200 and DC-9 veterans will leave the fleet this year. However, the introduction of further long distance Airbus models has been postponed. This is not so much a result of the Asia crisis, since only three per cent of Air Canada's turnover derives from business with Asia. 22 per cent of the turnover comes from flights to and from Europe.

The Canadian Government's aviation policies and the general economic lull are to blame for this. Only one of the two airlines is permitted to fly international routes, unless more than 300,000 passengers are travelling a certain route per year. According to this clause Air Canada was able to start its service to Hong Kong. This destination like almost all other Asian destinations had been the domain of Canadian Airlines. According to Air Canada there is also hope for Taipeh, however, up to now the Canadian Ministry of Transport has not changed its ruling. The same still applies to the destinations Amsterdam and Milan.

Air Canada is keen to fly to these European destinations, however, Canadian is insisting on its priority without even servicing these destinations. Aviation policies lead to the grotesque situation that Air Canada is not able to service all Star Alliance partner countries. The company does not have the right to fly to Brazil, where Canadian passenger would be able to change to partner Varig for further transport to other South American countries. That is why Air Canada has to be content to leave passengers bound for South America in Miami, where they are taken on board by Alliance Partner United. Despite these hindrances Air Canada Boss Lamar Durett sees a positive future: "I do not believe that we will one day be one of the big airlines. However, I am convinced that in ten years we will have a key position in one of the biggest, most successful alliances in global aviation."