Cover

Air Rage

After months of chaos, Air Canada’s tough-guy boss insists the worst is over

Katherine Macklem November 6 2000
Cover

Air Rage

After months of chaos, Air Canada’s tough-guy boss insists the worst is over

Katherine Macklem November 6 2000

Robert Milton is showing off. He is trying to recall the phone number of Doug Green, an old friend from high school who now lives in East Sussex on England’s south coast. First, Milton throws out the easy part, the country and city codes, and then in bits—you can tell he’s working at this—he gives out the full number. There’s a 38, which he explains is the Boeing code for Qantas Airways, and a 707, which was Boeing’s first jet airliner. There’s another number, and Milton says his friend’s phone number could mean Qantas has that many 707s. Milton laughs, happy the phone number has come to mind. “I’m good with numbers,” he says. Milton, though, has made a tiny mistake. The president and chief executive of Air Canada has delivered off the top of his head the correct numbers, but he’s omitted a digit, a T ’ that is part of the city code. He’s good, all right, but he’s not perfect.


Milton is the fellow who just 12 months ago wrestled with Gerry Schwartz of Onex Corp. for control of Canada’s airline industry, and won. He’d been named CEO only 18 days before Schwartz’s surprise bid for both Air Canada and Canadian Airlines International Ltd. hit, like a shocking cold shower. Milton, who was chief operating officer prior to being named to Air Canada’s top post, had proven himself as a superior systems manager. But he was an unknown quantity when it came to strategic corporate leadership. As the smart money placed bets on the experienced and adept Schwartz, the then-39-year-old Milton spearheaded a multi-pronged campaign to ward off his rival. He made a bid for Canadian and launched a legal challenge against Schwartz. A Quebec court eventually sided with Milton and Air Canada, leading Schwartz to bow out. The intense battle between Milton and Schwartz, fought so dramatically in full public view, was over. But for Milton, the Schwartz chapter was just the prelude. Now, the challenge is no longer to win control of the industry, but to get that industry back under control.

Milton—personable, self-assured, quick and still just 40— is confident the new Air Canada will emerge as an international success story. That’s why on Aug. 3, he made his famous 180-day promise that he would complete the takeover of Canadian by the end of January—and then just last week, upped the ante by pulling the deadline for customer service to the end of November. American-born but raised on three continents, Milton became a Canadian citizen this year and is eager to make the Montreal-based carrier a major global player. With the takeover of Canadian, the combined company is now the world’s 10th-largest airline. In recent months, it has added a dozen new destinations and has bought or leased 32 new aircraft, with plans for 100 more in the next five to seven years. The company’s third-quarter results, for the first time including Air Canada and Canadian numbers together, last week showed a stronger performance than either could have achieved separately. “This airline is growing in leaps and bounds,” Milton says. “The world has been unlocked.”

Unlocked, too, have been unprecedented levels of chaos— and intense passenger rage—on the domestic front. Cancelled flights, delayed departures, lost luggage, ill-informed agents and unruly passengers have all made flying in Canada a miserable experience, especially this summer. But Milton, who neatly sums up his management style in three small words—smart, tough and fast—is still very positive about his company. “Air Canada, despite the criticisms we’ve received this year, is an admired world airline.”

True, both Air Canada and Canadian have won international awards in the past. And on some fronts, Milton is winning. A key initial move was to merge the flight schedules of the two airlines, and while that contributed to the mass confusion at airports, Milton says it was necessary to stem the crippling losses at Canadian. Air Canada’s pilots and its ticket and reservations agents have both ratified labor agreements with the airline. On Oct. 22, Air Canada successfully transferred a million passenger reservation files to Air Canada’s computer system from Canadian’s, a true technological feat that is expected to go a long way towards easing pressure on passengers. There are more technical changes due, including the merging of the two airlines’ frequent flyer plans. But the tougher, more human challenges facing Milton are his thousands of disgruntled employees—labor agreements notwithstanding—and a flying public that must be convinced Air Canada is not the airborne disaster it is perceived to be.

After all, passenger horror stories seem as plentiful as lost luggage. Consider the case of Sue Brisk, a New Yorker who flew Air Canada to Ottawa on Thanksgiving weekend. She made a reservation two weeks ahead of her flight, which had to be confirmed and paid for within 24 hours of the booking. But when she called, the line was constantly busy—for three hours. Brisk tried to confirm the ticket online, but her submissions were repeatedly rejected. Appeals to Air Canada’s tech-support people were to no avail. Approaching desperation—her 24-hour window was rapidly closing— Brisk called long-distance to a Montreal phone number for Air Canada. She finally reached an agent who confirmed the flight. But Brisk’s problems weren’t over.

The day before departure, she called Air Canada. She got through, but the agent, curt and abrupt, informed Brisk there were four tickets booked on the same flight under her name. Despite the online rejection notices, the Web site apparently had accepted her confirmation—three times. The agent reversed the extra charges, but not before telling Brisk she was lucky—on some travel Web sites, she would not be refunded. “The system was so inefficient it was astounding,” says Brisk. “It was like trying to get a front-row seat to a Rolling Stones concert through Ticketmaster. Impossible.”

And there was one more sting. Brisks aircraft for the return trip to New York had already taxied out to the runway in Ottawa when, sure enough, the flight was cancelled. She managed to catch another plane, but her luggage didn’t. It only turned up 12 hours later. “I don’t know how Air Canada is going to be able to keep loyal customers,” Brisk says. “I’m just completely pissed off.”

Milton won’t deny there has been trouble—lots of it. Some critics say he moved too fast to merge the flight schedules of the two airlines. In many cases, both were flying half-empty airplanes. The idea was to keep one on the ground and fill up the other, thereby saving money right from the start. The technicalities of the move caused massive confusion, but Milton says he didn’t have the luxury of doing this merger slowly, “to get it just perfect.” Because Canadian was losing so much money—$2 million a day, a surprise to Milton and his team when they opened their former rivals books in January—the decision was made to move as quickly as possible.

Milton says he is game to accept responsibility for the mess, as long as his critics understand that some factors took the whole industry across North America by surprise. Such as the weather. Around Toronto, Air Canada’s hub, and throughout the eastern seaboard, lightning storms hit on a regular basis, grounding planes for up to four hours. As well, Canadians decided this was the year to travel by plane—in record numbers, according to Milton. A third problem emerged from south of the border, where Air Canada’s partner United Airlines was hit with highly disruptive labor conflicts and ran into an operational meltdown. “We had these issues that were absolutely out of our control, which exacerbated what we already knew would be incredibly complicated,” Milton says. “It was absolute murder.”

Numbers released to Maclean's by Air Canada bear him out. June, the first full month of the integrated schedules, was the worst. Passenger traffic on Air Canada that month was up 15.5 per cent over the same month a year earlier, while it was down about the same amount on Canadian’s flights, as travelers fled the airline they thought might not respect their frequent flyer points. Air Canada lost the luggage of 30 per cent more people in June than in January, already a tough month. The carrier was forced to cancel more than twice as many flights in June, July and August—1,486 out of 52,000, 664 due to bad weather—as it did in those months in 1999. All amid a travel boom. Says Milton: “It would have been a lot easier to do this in the depths of a depression.”

But if many of those problems were unpredictable, Milton’s Air Canada has stumbled on a few blocks of its own making. In early October, investors and media commentators blasted the airline for placing phone calls to airline stock analysts about its financial picture and not releasing the same information more broadly. After the calls, Air Canada’s stock price fell by 12 per cent in one day. “We make tons of judgments every day—the absolute vast majority of these things we get right,” Milton says. Was this one a mistake? Milton doesn’t want to answer directly. “We’d be happy if going forward there’s greater clarity as to what the rules are. That said, I never want Air Canada to bear the brunt of that kind of coverage.” Milton, repeating the company’s argument at the time, says the information in the calls was already in the public domain. Still, the Ontario Securities Commission is looking into the affair and Air Canada, Milton says, is co-operating.

Also in October, the federal competition bureau issued a temporary “cease and desist” order against Air Canada over alleged predatory pricing. In early September, CanJet, a Halifax-based upstart carrier aiming at the low-cost market, complained to the bureau that Air Canada had drastically lowered rates on flights serving similar destinations at similar time slots in Atlantic Canada to squeeze out the newcomer. “We are challenging the competition bureau,” says Milton. “We think it is right that we be able to compete, but when you look at what we did, we never matched them price for price.

In fact, Milton welcomes the new competition that has sprouted or expanded in the wake of the merger. Canada 3000. Westjet. Royal Airlines. Canjet. Soon, Roots Air. He’s ready for them all. His only fear is that Air Canada will be held responsible for an inevitable shakeout in this new discount market. “When that happens,” he says, “I know well get blamed.”

So far, Air Canada’s bottom line isn’t really suffering. Its third-quarter results showed a lower profit—$107 million—than the previous year’s $115 million, due to a series of one-time costs involving labor and extra integration expenses, plus higher fuel prices. Still, the airline is on track to achieve its goal of saving $650 million to $800 million a year by putting Air Canada and Canadian together, Milton told analysts. And its $191-million profit for the first nine months of this year is $18 million better than what the two airlines made a year earlier.

Milton, clearly pleased, likes the numbers side of his business. But just as much, he likes the logistics: he’s been an airline nut his whole life. Born in Boston, he grew up in Hong Kong, Brussels, London and Singapore as his father pursued a career as an international executive. Traveling by plane was a regular part of Milton’s upbringing and he loved it. Later, he found he was even more enthralled by the whole matrix of flight schedules—“I just studied these things,” he says with a grin—and even as a teen, he fixed his sights on running an airline. His career path was linear. Milton spent his university years in Atlanta, attending the Georgia Institute of Technology. Upon graduation, he used the $15,000 (U.S.) his father had given him for a car to lease a small plane and start an overnight package service. In 1991, he was a founder of Air Eagle Holdings Inc., an aviation consulting firm. Among the partners was Hollis Harris, who was hired by Air Canada the following year as CEO. Shortly afterwards, Milton followed. Harris later left, but Milton stayed, and rose to the top job.

With others, Milton can be blunt and to the point—a characteristic liked by his friends and loathed by his detractors. When he was a teenager living in Singapore, he and Doug Green were avid plane spotters. After school and on weekends, they would walk a mile through the jungle to sit under a blazing sun at the edge of Singapore’s old Paya Lebar airport, with logbooks, binoculars and bulky cameras to record the aircraft. One humid afternoon, two Singapore policemen approached by car. “Of course, in Singapore, the authorities looked on a lot of things with suspicion—for example, two white guys sitting outside the fence watching airplanes,” Green says. “I mean, we looked like a couple of spies.”

After some heated discussion, the pair were brought to the police station, where Milton forcefully told the commanding officer he and his friend had been in a public area and had done nothing wrong. “As this conversation was proceeding,” recounts Green, “Robert was getting more and more animated, more and more irritated, and I was sort of standing with my mouth open, thinking, ‘How far is he going to push this guy?’ ” Eventually, Milton and Green were let go, and Green was impressed: “He demonstrated his characteristic confidence and occasionally dominant personality.”

Labor leader Buzz Hargrove has encountered that same strong will, but he characterizes it in very different terms. Hargrove, president of the Canadian Auto Workers, ran directly into the wall that is Milton last year while he was still fighting it out with Gerry Schwartz. As president of the union representing 8,800 ticket and reservations agents at Air Canada and Canadian, Hargrove wanted to extract job-security promises from both combatants. While Schwartz sat down with Hargrove and made a deal, Milton froze Hargrove out, refusing to negotiate. “Milton,” says Hargrove, “is arrogant beyond belief.”

Many CAW employees of Air Canada agree with their union leader—even though they were dead set against him a year ago when, labor agreement in hand, he backed Schwartz's bid over Milton's for the airlines. Then, they were deeply loyal to Milton. They had believed, because Milton told them so, that Air Canada would operate Canadian as a separate company. They also thought they would come out on top if the companies were eventually put together.

Instead, the company fast-tracked the integration of Canadian, putting the workers side by side. The key issue for the Air Canada staff is seniority. Individuals who have worked the longest have first dibs on vacation time and the best working schedules, crucial in an industry that peaks during the summer and holiday seasons and operates around the clock. Essentially, the Air Canada workers want their Canadian confreres to be added to the bottom of the Air Canada seniority list, not blended according to individual length of service. The recently signed agreements left the seniority issue unresolved, referring it to an arbitrator. Air Canada workers feel angry and betrayed. “Robert Milton has done nothing—he off-loaded the seniority problem to the union quite craftily,” says Leslie Dias, who chairs the CAW unit for Air Canada ticket agents at Toronto’s Pearson International Airport. “We get nothing but lip service.”

Dias, who worked for 15 years as a ticket agent, says she’s never seen anything quite like it—frontline employees who feel abandoned by their leader while having to serve, day in, day out, rude and angry customers. The pressure is taking its toll. Among people in her unit on disability leave, normally about 15 per cent cite stress. Now, it’s 35 per cent, Dias says. “It’s almost like a systematic form of torture,” she says. “I’ve had grown men down here crying.”

Milton sounds pained when asked about the unhappy Air Canada ticket agents. “Last year, during Onex, the Air Canada employees had never had a bigger supporter than Robert Milton,” he says. “They rallied to the defense of this company, just like I did, in their own self-interest. Just as they supported me, I supported them.” He argues that management kept its side of the bargain, except perhaps Air Canada's turnaround on Canadian staying separate. He is choosing his words carefully, as though he has repeated this story to a recalcitrant child and it is not getting through. “When it became clear that Canadian Airlines was losing $2 million a day, we had to get on with the integration. But I still absolutely lived up to what I said to the employees.”

There’s an edge in Milton’s voice—the only point in the interview when he appears angry. He squints and sits at the very front of his chair. There’s also a sense of betrayal in what he is saying, which is surprising given that employees share a similar feeling. “You know, I feel like the dad,” says the father of a four-year-old girl and a boy nearly 2. “It’s no different from any family anywhere—Dad’s got to make the calls and sometimes the family just doesn’t understand where he is coming from.” Milton says he knows he can’t please all his more than 40,000 employees at once. “A lot of those people who are complaining, frankly, will take packages and leave,” he declares. “If that’s what they want at this stage in their lives, that’s best for them and unquestionably best for the company.” Harsh words, coming from the father figure.

Milton doesn’t dwell long on the negatives. He tells employees “this deal with Canadian is going to be the biggest, greatest, most exciting thing that has ever happened in their careers.” He might just be talking about himself. Milton knows he’s landed Air Canada’s top job at one of the most critical junctures in its history. “I’m here at a unique time,” he says. “I think back to being a kid and living in Brussels and seeing Air Canada’s DC8s, or in London’s Heathrow and the 747s, and now I’m the CEO of that airline. There’s something magnificent about that for me, because I can relate to seeing the maple leaf all over the place.”

Milton is open to risks—and he’ll take them, just as he did when he made a little mistake with his friend’s phone number. But he’s not going to let himself flub big time— even if some of his customers think he already has. He’s too smart, too tough, too fast.

To have your say on Air Canada www. macleans.ca



Ascent and descent

Air Canada

Headquarters: Montreal

Chairman: Jack Fraser

President and CEO: Robert Miton

1999 operating revenues: $6.5 billion

Air Canada stock, closing price: $15.40 - Oct. 27,2000