Canadian Contrast

Europe’s full-service airlines are not alone in their struggle with low-cost carriers (LCCs); a similar battle is playing out in Canada between Westjet and Air Canada and the maple leaf flag carrier is taking a beating.

First-quarter results show the different directions each airline is travelling in: Westjet’s net earnings were up by a third, to C$91m, its 32nd consecutive quarter of profit; Air Canada, meanwhile, suffered a net loss of C$260m in the period, only marginally less than a year earlier.

To narrow the gap with Westjet, Air Canada has launched its own budget carrier, Rouge, and is seeking to drive premium and international revenues – one area that it can truly differentiate itself from low-cost competition.

The airline also aims to “transform costs” – a vital step – and “foster positive changes to its culture” – a pretty vapid declaration of company strategy.

Yet the meaningful changes that Air Canada professes to want may also prove so much hot air. Its biggest problems are big debts and a bloated wage bill that contributes to operational costs almost a third higher than Westjet’s. Unlike US majors, Air Canada has appeared either unwilling or unable to take on its unions, whose various strikes and walk-outs have further tarnished the airline’s battered image.

Rouge is the planned solution to this, as it will allow Air Canada to impose fresh contracts, though pilot unions are putting up resistance.

Low-cost subsidiaries of network carriers also have a mixed record. Qantas’ Jetstar seems to be Air Canada’s model, but although that has been a huge success, it has also sparked some of the most hostile labour disputes anywhere in aviation, as Qantas unions rail against what they see as a mass offshoring of jobs.

Relations between Air Canada staff and management are not yet as rancorous as those in Australia, where death threats have been sent, but several commentators believe there has already been an irreparable breakdown in trust.

And even if Rouge does gain some early traction, the goalposts may have already shifted. Westjet is not sitting on its laurels: 10-new 737-800s will refresh its 103-aircraft fleet in 2014, a regional arm – Westjet Encore – launches in June, and the airline is embarking on a C$100m cost-cutting programme.

The news doesn’t get any better on the long-haul international front, where Air Canada is facing pressure from Gulf carriers, which are pushing for more access to the Canadian market. One study put Air Canada at a 50 per cent cost disadvantage to airlines such as Emirates, Etihad and Qatar Airways.

At least now there is only Westjet to worry about.

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