Interview

Interview

With Claude Taylor

May 31 1976
Interview

Interview

With Claude Taylor

May 31 1976

Interview

With Claude Taylor

After suffering through a year of steady criticism in the House of Commons, a public inquiry that concluded its executives have displayed a “cavalier disregard of the ordinary rules of business," and the resignation of its chief executive officer Yves Pratte, Air Canada has begun to settle down again under a new leader. Claude Taylor, 51, the airline’s new president and chief executive officer, is a career man who began as a ticket agent in Moncton in 1949—when the people’s airline was known as Trans-Canada Airlines—and worked his way up to the position of vice-president for public affairs. His appointment to the top job in February was acclaimed by the airline’s employees, competitors, suppliers, even Conservative MPs, who had been Air Canada’s most vociferous critics. Environment Minister Jean Marchand (formerly transport minister) was reportedly pushing Pierre Des Marais, Mayor of Outremont and head of a Montreal printing firm, for the job. Des Marais (no relation to Power Corp. president Paul Desmarais) is a director of Air Canada but has no experience running an airline. That had been Pratte’s problem (he was a Quebec City lawyer), so the government opted for Taylor and his 28 years of experience instead. Born in Salisbury, New Brunswick, and educated at McGill University, Taylor now must set about the task of restoring the airline’s internal morale and public prestige, both badly damaged during its year of troubles, and return Air Canada, one of the world’s 10 biggest airlines, to a profit position (it suffered a record loss, estimated at $12.5 million, last year). It will be a formidable task, but Taylor, an open, friendly man, is starting with a reservoir of goodwill inside and outside the company. As a symbol of his new style of leadership he always leaves his office door open. (Mr. Justice Willard Estey, head of the commission of inquiry into Air Canada, had criticized the airline for “a serious lack of communication’’ at the top.) In a recent interview with Maclean’s Ottawa correspondent Ian Urquhart, Taylor freely discussed a wide range of subjects, from escalating air fares to the future of air travel to the unauthorized payment of $100,000 to Montreal travel agent Robert McGregor which touched off the Estey inquiry.

Maclean’s: What do you see as your major challenge in taking over Air Canada? Taylor: Number one. of course, because of the period that we’ve been through, is the

internal, human resource factor of the airline. I think this has to be of paramount concern. This can be described as morale, communication, whatever you wish, but I'll be putting a lot of emphasis on trying to give the people in the airline a feeling of identity. So that is a very high priority. The second one, of course, is that we have come out of two years of deficits, the largest deficit the corporation has ever had, and the

CANADIANS, BEING WHAT THEY ARE, LIKE TO BE CRITICAL OF ANYTHING CANADIAN priority will be to try and see the company at least break even, or turn black, in 1976, if this is at all possible. I think part of that relates to the first one. I think the 20,000 employees in the company want to feel a sense of accomplishment, of working for an airline that’s going in the right direction. Maclean’s: Is it possible for any airline to make money this year?

Taylor: Oh, there will be airlines that make money. The U.S. carriers have bottomed out, and they appear to be turning around. There are exceptions. Two or three of them are in really serious trouble. In Canada, we had a AVi% increase in ’74 in terms of airline traffic growth. In ’75, we had a minus growth. We think we bot-

tomed out in ’75. We’re looking, at the moment, for about 5% growth in ’76. But we will not make substantial returns on investment. There’s no question about that. Maclean’s: As far as morale is concerned, the other priority you mentioned, it’s often said that Yves Pratte was appointed because he was a francophone. It is said, in addition, that your appointment was opposed by some francophones in Ottawa because you’re a unilingual anglophone. Do you think that the fact that you are a unilingual anglophone will affect morale at all among the. francophone employees at Air Canada? Taylor: I have had no indication of this. I’ve been moving around in the last few weeks, particularly in the Quebec region, and I have no indication that that would be a factor.

Maclean’s: Are you taking French

courses?

Taylor: I have in the past, but I’m not at the moment.

Maclean’s: You don’t think that linguistic differences matter to your employees that much?

Taylor: Oh, there’s no question. I would wish very much that I was fluently bilingual, or trilingual, for that matter. If I had my life to live over again, and someone said, “What would you do differently?” I would say: “Nothing, really, except learn more languages.”

Maclean’s: Is Air Canada’s public image not a priority for you as well? It seems pretty tarnished.

Taylor: Yes, it is, and I could have gone on to a number of other priorities. But I think the main reason why Air Canada’s public image is tarnished is largely because of some misconceptions. We have a better communication job to do. But the first thing we have to do is to build confidence in our employees. So much of what the public thinks of us results from the attitude that our employees display to the customers. And if the employee is positive, if he’s feeling good about his corporation, whether it’s Air Canada or some other, if he’s aggressive in terms of his corporation, wanting to give service, then, of course, this helps build confidence in the customer as well. We have to start with our employees, and by starting with our employees we will build confidence with our customers. Maclean’s: Are you saying that in the recent past your employees have not dealt properly with your customers?

Taylor: In the past year our employees have been under severe attack, along with the company, and I don’t think there’s any question—people being human—this has translated itself on occasion into perhaps less than desirable service. Having said that, I have absolute confidence that we’ve got some of the best people in the world working for this airline. There’s one thing that I’m sure of, and that is that we have good people.

Maclean’s: Is it not a fact that A ir Canada is often attacked because, as a governmentowned corporation, it’s used as a whipping boy?

Taylor: Oh yes, we have that cross to bear. There’s no question about it. It’s the people’s airline. And Canadians, being what they are, like to be critical of anything Canadian. I wish we all had more pride in things Canadian. Being a Crown corporation, we are everybody’s favorite whipping boy. We get thousands and thousands of letters every year which a private corporation would never get, sirnply because every time something happens to a customer he feels quite entitled, as a shareholder, to write and suggest to us what we ought to be doing. That’s a cross that we will always have to bear. But it’s just another challenge. If you’re going to work for an airline like this, you’ve got to be prepared to accept that.

Maclean’s: Would you like to see some shares ofA ir Canada sold by the government to the public?

Taylor: Yes, I would. There’s no question about it. First of all, I would like to see a provision in legislation to permit this. Of course, that’s step one. Step two is to get the airline on a sufficiently profitable basis, because people generally are not going to buy shares in a company that’s losing money. Maclean’s: Is step one a long way off? Taylor: We understand there’s going to be new legislation in this year, and we would hope that the provision will be there for the sale of some shares to the public. Maclean’s: Let’s get back to the internal workings of the company. You ’re said to be a people-oriented person, in favor of decentralization of decision making, delegation of authority. Is that correct?

Taylor: I would find myself on the side of those who say that each job, each position in the company, should be as whole as possible. In other words, if you can delegate the responsibility, you should do it. In an airline there’s much that has to be centralized simply because the product is centralized. You can’t let everybody across the system design his own schedule. But if you have confidence in your people, then I think you should give them as much authority as absolutely possible, providing you’ve got the proper controls to determine when things are getting off track. Maclean’s: Surely one of the problems with the payment of $100,000 to Bob McGregor was that there was not enough centralization, not enough control. What would you do to make sure that someth in g like that doesn’t happen again?

Taylor: If you’re talking about a billiondollar corporation, which is what we are, with 20,000 employees, there’s no way that

you are ever going to have all the controls that will prohibit, in advance, every bad decision from being made. I would be totally against any system of controls that would stop in advance every possible bad decision from being made. You’ve got to accept, in a corporation of this size, some decisions that are going to be made that aren’t going to be right.

Maclean’s: Mr. Estey pointed to a serious lack of communication at the top, and he singled out you, among others, as being at fault. How do you feel about it? Taylor: I will obviously have a different style of management than anybody else. No two people have the same style of management. My own particular style of management is to have a fairly informal form of communication. I don’t think you can

I HAVE NO APOLOGIES FOR RAISING FARES, WE’VE HELD THEM TOO LOW FOR TOO LONG

structure communication in a large corporation. You can to a degree: there are formal board of directors meetings;, there are formal executive committee meetings. But I would hope that we can build up a very informal, relaxed kind of communication between branches, where people will walk in and out of each other’s offices, including mine, and discuss issues as they are being formulated.

Maclean’s: Do you feel Mr. Pratte was unfairly treated?

Taylor: I think that Air Canada was under an unfair total attack last year. Issues were blown totally out of proportion. After all the Estey commission’s 55 witnesses and three months of inquiry, there was absolutely no evidence that any of the corpora-

tion’s funds had been misappropriated, that anyone had personally or privately benefited in any way. In fact, the judge said in his summation that, for a corporation of its size,it was a well-run enterprise. I think the Estey inquiry was one of the prices that you pay when you are in the public arena, particularly in a Crown corporation or in a political ring. Certainly no private corporation would ever have to go through it. So, if you compare it to a private company, it was unjust and unfair. Maclean’s: Let me depart from the past and talk about the present. Why has Air Canada raised its fares now?

Taylor: Because costs are going up at a rate that the airline can’t control in terms of fuel and in terms of labor contracts. We have just run out of productivity improvements in terms of our equipment. This is what we lived on for many years in this industry, and we are having to play catch-up, really, in this respect. The two main-line Canadian airlines both lost money last year because we weren’t recovering our costs in the prices of our product. The other thing that I think must be said is that airline prices are a favorite whipping boy in the whole consumer price issue. But the price of an airline fare in Canada today is a very good bargain, just half what they are in Europe. Ten or 12 years ago, it took an average secretary a month’s salary to buy a ticket from Vancouver to Montreal and back. Today she can buy it on a week’s salary. So I make no apologies for putting up airline prices, simply because 1 think we have held them down far too long. We’re not gouging the public in any way, and the prices that we’re proposing now are under the anti-inflation guidelines.

Maclean’s: Aren’t fare increases self-defeating, in a sense? If you increase fares, surely fewer people are going to fly and you’re going to lose money again.

Taylor: That has not been the history of this industry. If we don’t put fares up, we’re going to lose more money. You have to start off with that premise, because we lost money last year. Costs aregoingup 10%to 12% this year. So if we don’t put fares up, we are going to lose more money. We’re only forecasting a 5% increase in volume, and we’re still operating at load factors higher than the American industry, generally. If we were operating at a 30% load factor or something like that, I think that there might be a point to your comment. There is a point where you can price yourself out of the market, there’s no question about it, and we worry about this very much, particularly on the short haul.

Maclean’s: You’ve lost a lot of money on the short hauls, particularly the TorontoMontreal run, which should be a golden run for you. The fare hikes that you’ve filed would impose a proportionately greater increase on the Toronto-M ont real run than on other runs across the country. Will TorontoMontreal still lose money?

Taylor: I wish I could answer that question at this point in time. I’m almost convinced that last year we lost money on almost every route that we operated. We traditionally lose more money on the shorterhaul routes. I’m satisfied that, on the services that just operate Toronto-Montreal, we are probably recovering our costs. But because we operate so much capacity through Montreal, both east and west, this is what brings the total route down. On the so-called Rapidair service, under the new fares, we should certainly recover our costs. Maclean’s: Let me turn to your trans A t ¡antic fares. You and British Airways fought hard to arrange an agreement with the International Air Transport Association (IATA) to charge a cheaper transA tlantic fare. Why does A ir Canada stay in IA TA if IT’S SO hard to get such an agreement? Why not just charge the rates you figure will compensate for the costs?

Taylor: Very simple: because you can’t. Fares in Canada are controlled by the Canadian Transport Commission. But once you decide to become an international operator, you do not have sovereign control over what you do. If you’re going to fly into Europe or the United Kingdom, the other country has to agree to allow you to fly and has to agree to the fares that are going to be charged. In other words, IATA is merely a vehicle, delegated by the governments of all the free world to carry out negotiations. You are dealing in an international situation over which you don’t have control. Therefore, you must have compromise. We can’t just back out of IATA and decide to charge any fare we like.

Maclean’s: So you wouldn’t call IATA an international cartel?

Taylor: No, I wouldn’t call it an international cartel, because an international cartel is when you and your partners in the cartel control the situation. All the airlines do is get together and try to make sense out of all these complexities. And then they submit it all to governments, which very often turn down an IATA agreement. So it’s still under the control of individual governments. IATA is nothing but machinery. Maclean’s: Let’s return to the domestic scene. Ian Gray, the new president of CP Air, says that the present agreement holding CP to a maximum of 25% of total capacity in transcontinental traffic should be raised to a figure of 45%. What do you think of that? Taylor: I think that’s a totally predictable position for CP to take. If I were in their position, I would probably take it, too. I would just look at the routes that you can make money on, the ones where you can really make money without any dispute. T oronto-V ancouver, V ancouver-Mont-

real, Calgary-Edmonton-Toronto: CP provided over half of the capacity on these routes. In other words, they put all their 25% on those big routes so that we were doing the Montreal-Torontos, the Toronto-Winnipegs, the Winnipeg-Reginas, the Calgary-Edmonton-Vancouvers. So Mr. Gray had some pretty profitable routes on the transcontinental. I think when the industry is in a trough, or in a de-

clining position, it’s the wrong time for any of us to be talking about changing shares. Maclean’s: You’re not averse to more competition per se?

Taylor: We’ve never been afraid of competition. Anyplace that we’ve had to compete, whether it’s Los Angeles or Miami or the Atlantic, we’ve more than held our own. So I’m not the least bit afraid of competition. But in this country, let’s face it, there are 20 million people. That’s all there are, and there’s only so much travel to be generated. And the U.S.carriers, over the last four or five years, have shown the great fallacy of over-competition. Where we’ve been chalking up $ 12-million deficits, they’ve been chalking up $80-, $90and $100-million deficits, and largely because of overcapacity and over-competition and

I’M CONVINCED THAT LAST YEAR WE LOST MONEY ON ALMOST EVERY ROUTE WE RAN

duplication. I think that we have to move very carefully in this whole question of Air Canada and CP Air and the regional carriers and the main-line competition across Canada. All I’m suggesting is that I’m willing to talk to anybody at any time about it, but my position is going to be one of treading with caution.

Maclean’s: What about the future of the airplane in this country and in the world? The years ofphenomenal growth are behind us now. This year you are projecting just a 5% growth in traffic. Do you foresee that air traffic growth will level off entirely, or even start to decline in thefuture, or will it pick up again at some point?

Taylor: I think we’re all fairly optimistic that it will pick up again. You can go back

into history in this industry and we’ve hit these sorts of flat periods. We’re in a flat period now, technology-wise. We’re sort of in the middle of technology at the moment, but there will be developments at both ends of technology. There will be developments beyond the 10-1 Is and the 747s, both into more efficient airplanes and into faster airplanes. At the lower end there will be developments in STOL. So I don’t see the mode depreciating at all. I don’t think what happened to the railways in terms of passenger travel will happen to the airlines because I think the mode has got expansive possibilities in terms of technology. I think there will be some shifts, especially in the short-haul, as highways and as other forms of transport take over from air on the short haul. STOL will serve high-density markets, but it won’t serve the lower-density markets. These will have to be served by buses and perhaps even high-speed rail, or something like that. But in the high-density markets—I’m talking now in the MontrealToronto corridor—air will always play a part.

Maclean’s: Even if we can develop a train that can do it in three hours?

Taylor: If you get a train that can do it in three hours, it depends on what the frequency of the train is. The thing that causes people to fly to Toronto and to Ottawa by Air Canada is the fact that the trains only go about twice a day, even though they can do it in four hours and so many minutes. It’s the frequency that most business people in high-density markets are buying today, and they’ll pay a premium for it. In terms of long-distance travel, I don’t think there’s any question but that air will continue to be the dominant mode in long-distance passenger travel. There’s just nothing else on the horizon.

Maclean’s: Isn’t there a problem, though, with fuel? The world is running out of oil. Taylor: This is true, but if you’re going to move over a distance, the amount of energy that you consume in an efficient airplane is less than you get in your big Oldsmobile. Per person, energy-wise, air is one of the most efficient ways to move people. Maclean’s: I think you picked the one mode that air can beat, the private automobile, which is truly the least efficient way to move people between cities. But surely a train is more efficient than a plane between cities.

Taylor: A train, in terms of time between here and Vancouver, is still not an efficient mode. And if you take the amount of energy that the world airlines consume relative to total energy consumed, I’m not sure, but it’s less than 5%. So the airlines are not big energy users by comparison to private automobiles and all the other ways and uses that energy is put to.

Maclean’s: So we ’re a long way from seeing the death of the airplane?

Taylor: I hope that it doesn’t die before I retire. No, I think we’re a long way. I can’t see the death of the airplane, frankly, in my perspective down the tunnel.