Air Canada gets 6 week reprieve

On Mon, 12 Apr 2004 10:22:02 -0700, Maclock wrote:


As some other poster has noted, the hub-and-spoke model is falling out
of favour and direct, non-stop services are increasingly preferred. I
suppose that this will be particularly true in Canada where, despite
relatively small populations in the hinterlands, the vast distances
make other modes of transport simply impractical, effectively making
air travel the only realistic means of getting about. Air Canada is
trying to force people to wait needlessly in Toronto to fill its
planes, and that is not always welcomed by the travelling public.

Sounds like you are from Edmonton? :-)

Seriously, the hub and spoke system is more or less here to stay.
Whenever demand is increasing and to the extend that there is competition,
direct links will help. I suspect not too much until then.

Air travel in Canada, in any event, is scandalously expensive, whatever
the airline; something has to give. Cabotage, anyone?

Scandalously? I would not be so sure. If that were the case, airlines
would be making tons of money. Wetjet is making a profit, but how much,
and for how much longer?

The Canadian market is inherently more expensive than the US, because
population is sparser.

Also, simply comparing the lowest fares is very misleading. We should
look at the average paid, really.

On Mon, 12 Apr 2004 15:36:37 -0400, nobody wrote:


What is needed is a made-in-canada solution where priorities are different
than in the USA.

Conditions may be different to some extent, but I am not entirely
convinced there is all that much room for doing things in a hugely
different manner. Whether the solution is "made in Canada" or not should
not matter. What we need is a good solution, period. For a while we had
a "made in Canada" monopoly, which turned out to be a disaster. Actually,
as far as overseas travel, we still mostly do.


It would be a simple thing to simply remove excess capacity in the AC
network and focus on running an efficient airline instead of trying to
build an airline that is big enough that it will land Milton and his
predecessors CEO jobs at US airlines (which is what they really want)

I suspect AC does not have lots of "extra capacity" in the sense that they
actually filling their planes reasonably nicely. But possibly at too low
fares compared with their costs.

"devil" contents that large planes generate excess capacity. I contain
that too many frequencies generate excess capacity. And if you insist on
maintaining frequencies but reduce capacity, it means that you're
running flying skidoos every 15 minutes from Toronto to Vancouver. And
that is far less efficient than running running a single 767 hourly on
the same route, or a 747 every 2 hours.

There are at least two issues here. If you have a fleet of large planes,
you need to use them no matter what the demaind is, which may well vary
with day of the week, season etc.

Even if the bigger plane is more efficient when full, when empty it's
horribly inefficient.

It's typically cheaper to schedule one flight with a smaller plane in low
season or on sundays and add a second one on Mondays and in high season.

Don't take the airlines including AC for fools. They do understand their
costs.

If you know your passenger's needs, you can tailor your schedule such
that it meets their needs without requiring excess frequencies. Just
look at how Air Canada killed Vancouver as an asian hub by ensuring its
schedules (for all the frequencies they offered) didn't allow good
connections.

Not if you just have a few large planes.

Canadian Airlines, which relied on Vancouver to survive had worked very
hard to make its far fewer frequencies work far better than what AC
offers today.

Nonsense. They were at each other's throat and they both had too many
flights on most of their network. This is what killed CP. Predatory
competition by AC. Which ultimately also dorve AC into bankruptcy.

Look at it from a business point of view: if fewer frequencies allow far
greater efficiency and cost savings at AC, and a YYZ-YVR "business"
ticket costs $200 bucks less each way, then even busy execs can afford
to wait an extra hour or even two to catch a flight.

But it does not generate cost savings on an all year basis. Or if it
does, it's by rationing the service to such low levels that new entrants
in the market will appear and destroy the model anyway.

devil wrote:
not matter. What we need is a good solution, period. For a while we had
a "made in Canada" monopoly, which turned out to be a disaster. Actually,
as far as overseas travel, we still mostly do.

Actually, the monopoly wasn't that much of a disaster when ou look back in
hindsight. as a crown corporation, AC had some "social" responsabilities.

Had the government not wiped out AC's debts during provatisation, perhaps AC
would have been forced to act responsibly during the late 1980s and 1990s. But
it was given what amounts to a blank check to go and have fun in the canadian market.

Also, during one of the episodes of "As CP approaches bankrupcy", the canadian
government prmoised to do something to prevent the dumping of capacity. It did
NOTHING. 2 years later, CP ceased to exist, and with AC back as a de-facto
monopoly, only then did the government start to slap AC on the fingers.

I suspect AC does not have lots of "extra capacity" in the sense that they
actually filling their planes reasonably nicely. But possibly at too low
fares compared with their costs.

If a flight is not profitable due to AC having to offer too many low fares,
then it is dumping of capacity. AC needs to cut back on capacity so that its
flights are operated on a profit basis (cost of operation vs average revenus
per pax).


There are at least two issues here. If you have a fleet of large planes,
you need to use them no matter what the demaind is, which may well vary
with day of the week, season etc.

And if you have a large fleet of small planes, you still need to make lease
payments even if they are parked during low season.

Even if the bigger plane is more efficient when full, when empty it's
horribly inefficient.

But if you carry lots of cargo, then it may not be so inefficient even if not
fully packed with pax, especially if you need to factor in lease payments of
the smalkkler planes iddle during low season.

Don't take the airlines including AC for fools. They do understand their
costs.

Yes, but they have their priorities wrong. Look at AA and UA. How many decades
did it take before they finally admitted that their schedules at hubs was
highly inefficinet, require twice as many gates, staff and forcing planes to
stay twice as long on the ground because they wanted all the planes to land
and departt at the same time so that their schedules would appear "neat" on
the CRS. Neatness of schedule was more important than operation efficiency.

Nonsense. They were at each other's throat and they both had too many
flights on most of their network. This is what killed CP. Predatory
competition by AC. Which ultimately also dorve AC into bankruptcy.

Yes, but back then, CP had asia/sopac to itself more or less and it was able
to run its Vancouver hub efficiently without having to have excessive
frequencies (except later on Vancouver-Calgary where it competed against AC
with more frequencies than AC had between YUL-YYZ.)

But it does not generate cost savings on an all year basis. Or if it
does, it's by rationing the service to such low levels that new entrants
in the market will appear and destroy the model anyway.

Not necessarily. Your new entrants will get the icing on the cake that you
can't take, but you still get the large portion of the market. If getting both
means you end up losing money (which is what happened to AC), then one should
ficus on doing something very well where your competitor doesn't do well.

AC's advantage is that it has smaller planes to serve cities that Westjet
can't serve, and it has larger jets would would allow AC to be more efficient
on major routes than Westjet.

On Mon, 12 Apr 2004 19:44:33 -0400, nobody wrote:

devil wrote:
not matter. What we need is a good solution, period. For a while we had
a "made in Canada" monopoly, which turned out to be a disaster. Actually,
as far as overseas travel, we still mostly do.

Actually, the monopoly wasn't that much of a disaster when ou look back in
hindsight. as a crown corporation, AC had some "social" responsabilities.

I was referring to the post-merger period.

Had the government not wiped out AC's debts during provatisation, perhaps AC
would have been forced to act responsibly during the late 1980s and 1990s. But
it was given what amounts to a blank check to go and have fun in the canadian market.

Who knows. The government may have paid their debt. But then they got
cash from the privatization. Zero sum game, you would think.

I suspect AC does not have lots of "extra capacity" in the sense that
they actually filling their planes reasonably nicely. But possibly at
too low fares compared with their costs.

If a flight is not profitable due to AC having to offer too many low
fares, then it is dumping of capacity. AC needs to cut back on capacity
so that its flights are operated on a profit basis (cost of operation vs
average revenus per pax).

You don't seem to understand this. The low fares are a reflection of them
using planes *too big* for the market, at least for the day in question.
Yet you seem to advocate even bigger planes.

Point is (1) they are stuck with using the planes that they have. (2)
they must be able to provide enough capacity on high demand days. (3) on
low demand days, there is extra capacity. It's then better to fill the
seats at whatever price (trying to maximize though) than having the seats
go empty.

Call it dumping if you wish, but it's really cutting their losses,
maximizing cash flow.

Now if they have too many of these, what can they do? Exchange their
fleet for smaller planes during winter? I don't think so. So you see, in
the end, it's planes that are too big that are a problem, not the opposite.

There are at least two issues here. If you have a fleet of large
planes, you need to use them no matter what the demaind is, which may
well vary with day of the week, season etc.

And if you have a large fleet of small planes, you still need to make
lease payments even if they are parked during low season.

Sure. But then you can try taking Quebecers to Florida, or whatever.
It's still better than burning way too much fuel, paying for more
expensive crews and for lots of FAs doing nothing.

Even if the bigger plane is more efficient when full, when empty it's
horribly inefficient.

But if you carry lots of cargo, then it may not be so inefficient even
if not fully packed with pax, especially if you need to factor in lease
payments of the smalkkler planes iddle during low season.

That works on YUL-FRA these days, best route to get upgrades on AC at the
moment, because they run empty 747-400Cs. But in the larger scheme of
things, this is quite marginal. Only works on a couple of routes.

Don't take the airlines including AC for fools. They do understand
their costs.

Yes, but they have their priorities wrong. Look at AA and UA. How many
decades did it take before they finally admitted that their schedules at
hubs was highly inefficinet, require twice as many gates, staff and
forcing planes to stay twice as long on the ground because they wanted
all the planes to land and departt at the same time so that their
schedules would appear "neat" on the CRS. Neatness of schedule was more
important than operation efficiency.

That's just not true. Hubs are efficient. Passengers don't like the
idea, bad marketing etc. And in the haydays of high traffic, before the
recession came, the hubs were saturated.

Nonsense. They were at each other's throat and they both had too many
flights on most of their network. This is what killed CP. Predatory
competition by AC. Which ultimately also dorve AC into bankruptcy.

Yes, but back then, CP had asia/sopac to itself more or less and it was
able to run its Vancouver hub efficiently without having to have
excessive frequencies (except later on Vancouver-Calgary where it
competed against AC with more frequencies than AC had between YUL-YYZ.)

Not quite true. AC invaded that market too and quite aggressively.

But it does not generate cost savings on an all year basis. Or if it
does, it's by rationing the service to such low levels that new
entrants in the market will appear and destroy the model anyway.

Not necessarily. Your new entrants will get the icing on the cake that
you can't take, but you still get the large portion of the market. If
getting both means you end up losing money (which is what happened to
AC), then one should ficus on doing something very well where your
competitor doesn't do well.

Focus on the money losing routes? Actually they need most domestic
routes if only to feed into their international network.

AC's advantage is that it has smaller planes to serve cities that
Westjet can't serve, and it has larger jets would would allow AC to be
more efficient on major routes than Westjet.

True. But it may not be good enough.

I think a workable business plan would be to attack the US market
aggressively while building a top reputation servicewise, a la
Swissair/Singapore. May be too late though.

devil wrote:
Who knows. The government may have paid their debt. But then they got
cash from the privatization. Zero sum game, you would think.

Nop. Imagine if you had been a shareholder of Air Canada (which the fed govt
was). Ifyou sell you shares, you expect the proceeds of the sale to come to
you as a return on investment. And since you are no longer a shareholder, you
have no business "donating" that money back to a provatised corporation
especially since the cash you just received belongs to taxpayers.

You don't seem to understand this. The low fares are a reflection of them
using planes *too big* for the market, at least for the day in question.
Yet you seem to advocate even bigger planes.

Size of an aircraft isn't the thing. It is the number of seats available
daily/weekly on a route.

If you run an single 400 seat 747 from Toronto-Vancouver per day, it has less
capacity than running 5 120-pax A320s on the same route.

If that route supports only 300 profitable-fare passengers, then you end up
making more profit running a single 747 (one crew, one aircaft, one landing
fee etc), compared to running 5 aircraft with a total of 600 seats or twice
the capacity of the "real" passengers, forcing you to sell some 140 seats at
discounted fare to get a 72% load factor.


Point is (1) they are stuck with using the planes that they have.

Why then are they placing an order of one hundred baby jets ?????? Talk to
David Neeleman (Jetblue) and you'll hear his opinions on the baby jets. He has
said publically that those jets cost more and are less efficient than the
A320s, but that they allow him to open up smaller routes that could not operate.

But Air Canada will be using 100 of those baby jets on mainline routes just to
keep frequencies.
And unless AC had also announced major downsizing of its mainline fleet, it
means added capacity at AC. During restructuring, AC has disposed of the pesky
F28s (which were already parked) and some of the 737s which came from CP and
not "native" to Air Canada.

they must be able to provide enough capacity on high demand days. (3) on
low demand days, there is extra capacity. It's then better to fill the
seats at whatever price (trying to maximize though) than having the seats
go empty.

If the difference between low demand and high demand is big, it is better to
refuse passengers on high demand days so that the rest of the year you don't
have such high number of non-profit generating seats.

Call it dumping if you wish, but it's really cutting their losses,
maximizing cash flow.

Cutting losses. Exactly their problem.

Air Canada shouldn't aim to reduce losses, they should aim to be profitable.
And that means that their schedule/fleet should be sized to meet the real demand.

If you want to grow the number of pax, you can't lower your fares unless you
also lower your costs.

Air Canada was forced to lower its fares and never worked to lower its costs.
So it is bankrupt.

Sure. But then you can try taking Quebecers to Florida, or whatever.
It's still better than burning way too much fuel, paying for more
expensive crews and for lots of FAs doing nothing.

But the real solution is to have an airline whose size is realistic for the
market. Again, it isn't a question of reducing your losses by operating a
whole bunch of idle equipment that would otherwise remain unused, it is a
question of planning your fleet and schedule to be profitable and not hiring
excess staff or buying excess planes.

If you plan your fleet to handle the busy 2 month schedule, you then spend 10
other months trying to find some way to reduce the losses on that excessively
large fleet.

Again, Air Canada should have allowed CP to go belly up, and then just fit the
demand in its then current fleet through much more efficient use of its planes.

On Mon, 12 Apr 2004 19:44:33 -0400, nobody wrote:

devil wrote:
not matter. What we need is a good solution, period. For a while we had
a "made in Canada" monopoly, which turned out to be a disaster. Actually,
as far as overseas travel, we still mostly do.

Actually, the monopoly wasn't that much of a disaster when ou look back in
hindsight. as a crown corporation, AC had some "social" responsabilities.

Had the government not wiped out AC's debts during provatisation, perhaps AC
would have been forced to act responsibly during the late 1980s and 1990s. But
it was given what amounts to a blank check to go and have fun in the canadian market.

FYI, AC was one of the only Crown Corporations that actually returned
a profit to the Canadian taxpayers. And yes, AC had to provide a
service to the Canadian public. They could not pick and choose the
profitable routes. When AC was privatized, the Canadian Government
saw a huge gain in revenues from the sale.

Lest we forget the Alberta's governments involvement with PWA. Maybe
that's were PWA was able to accumulate the over 300 million dollars to
purchase CP Air. That is where the downward spiral started.

Also, during one of the episodes of "As CP approaches bankrupcy", the canadian
government prmoised to do something to prevent the dumping of capacity. It did
NOTHING. 2 years later, CP ceased to exist, and with AC back as a de-facto
monopoly, only then did the government start to slap AC on the fingers.


CP had every opportunity to reduce it's capacity voluntarily. It did
not do that. It counted on the Government to mandate AC to do it. CP
wanted to remain all things to all people as well. And wanted to be
the major player in the game.

I suspect AC does not have lots of "extra capacity" in the sense that they
actually filling their planes reasonably nicely. But possibly at too low
fares compared with their costs.

If a flight is not profitable due to AC having to offer too many low fares,
then it is dumping of capacity. AC needs to cut back on capacity so that its
flights are operated on a profit basis (cost of operation vs average revenus
per pax).

Again your memory is a little skewed, but that seems to be the case
with most people that came from Canadian Airlines International. It
was CP not AC that initiated 90 % of the seat sales in the 90's. AC
was there to match the fares dollar for dollar.


There are at least two issues here. If you have a fleet of large planes,
you need to use them no matter what the demaind is, which may well vary
with day of the week, season etc.

And if you have a large fleet of small planes, you still need to make lease
payments even if they are parked during low season.

Even if the bigger plane is more efficient when full, when empty it's
horribly inefficient.

But if you carry lots of cargo, then it may not be so inefficient even if not
fully packed with pax, especially if you need to factor in lease payments of
the smalkkler planes iddle during low season.

Don't take the airlines including AC for fools. They do understand their
costs.

Yes, but they have their priorities wrong. Look at AA and UA. How many decades
did it take before they finally admitted that their schedules at hubs was
highly inefficinet, require twice as many gates, staff and forcing planes to
stay twice as long on the ground because they wanted all the planes to land
and departt at the same time so that their schedules would appear "neat" on
the CRS. Neatness of schedule was more important than operation efficiency.

Nonsense. They were at each other's throat and they both had too many
flights on most of their network. This is what killed CP. Predatory
competition by AC. Which ultimately also dorve AC into bankruptcy.

Yes, but back then, CP had asia/sopac to itself more or less and it was able
to run its Vancouver hub efficiently without having to have excessive
frequencies (except later on Vancouver-Calgary where it competed against AC
with more frequencies than AC had between YUL-YYZ.)

So CP was only able to do a decent job if there was not competition.
WOW, what a breakthrough.

But it does not generate cost savings on an all year basis. Or if it
does, it's by rationing the service to such low levels that new entrants
in the market will appear and destroy the model anyway.

Not necessarily. Your new entrants will get the icing on the cake that you
can't take, but you still get the large portion of the market. If getting both
means you end up losing money (which is what happened to AC), then one should
ficus on doing something very well where your competitor doesn't do well.

AC's advantage is that it has smaller planes to serve cities that Westjet
can't serve, and it has larger jets would would allow AC to be more efficient
on major routes than Westjet.

There is a bottom line to all of this. AC would have faired just fine
with all of this BS if it was not forced to take on over $4 Billion of
CAIL debt and 14,000 employees/salaries, aircraft that were
inefficient.

The cancer that was at CP has gone over to AC and we will see a
similar outcome for AC. If the feds stayed out of this and CP and
it's debt was left to just go away, AC and all the others would have
to fight it out amongst themselves. And AC would not have a 10 Ton
weight around it's neck in the process.

FWIW, let AC liquidate, start fresh and then see where it leads.