Business

Unfriendly Skies

Politicians and passengers assail Air Canada and its hard-driving boss as tales of merger-related turmoil mount

John Nicol May 22 2000
Business

Unfriendly Skies

Politicians and passengers assail Air Canada and its hard-driving boss as tales of merger-related turmoil mount

John Nicol May 22 2000

The task for dog breeder Hal Perry was supposed to be simple: a pet food company had reserved a seat for him to fly Air Canada from Charlottetown to Toronto with his small black schipperke and a German shepherd. When Perry went to check in, he discovered the plane did not have a climate-controlled hold, as promised. A debate ensued over who would be liable if the shepherd was harmed (the small dog could fly in the cabin). Then Air Canada told Perry the flight was overbooked, he had no seat and he would have to drive more than 100 km to the Moncton, N.B., airport to catch a plane. Perry was furious, especially when he found out an off-duty Air Canada employee managed to find space on the flight as they spoke. “They had no compassion whatsoever,” says Perry. “This never happened with Canadian Airlines.”

A few days later, on April 3, Canadian wasn’t doing much better. It had cancelled a return flight from Mexico City, but failed to notify all its passengers, including Paul Cloutier, an 81-year-old retired commercial artist from Buffalo Pound, Sask. After a month of sunshine and a visit to the village of a boy he sponsors through a charity, Cloutier was flabbergasted. “The thing that bothered me the most,” says Cloutier, who was traveling with his wife, “was that nobody was there to tell us they weren’t flying. Nobody knew what was going on.”

The reputations of Canada’s two main carriers, which were each named top airline in North America in the past two years, have suffered dramatically in the first six weeks of their new merged schedule. The airlines argue they have been in a goldfish bowl because of the merger that was approved in principle on Dec. 21, and that much of the criticism is based on anecdotes blown out of proportion. Even so, there has been a cascade of reports of cancelled flights, long lineups, lost luggage and chronic over-bookings. As recently as last month, many of the critics were willing to overlook glitches amid what one called “a horrifically difficult merger.” But now, that grace period is clearly over.

To its detractors—including many politicians, travel agents, corporate passengers and competitors—the new monolith is already acting like a monopoly. Critics have lobbied to toughen up Bill C-26, the federal legislation that will permit the merger and govern the future of the air travel industry. Among the only people happy with Montreal-based Air Canada’s performance are shareholders (the carrier’s stock price has risen 118 per cent in the past year). But even that leads consumer advocates, such as Michael Janigan, spokesman of the Canadian Association of Airline Passengers, to contend: “In the thousands of decisions being made on how to do this, the decisions have favored shareholders over customers. The passengers will be discontented, but they have nowhere to go.”

The fate of Canada’s airlines was not supposed to turn out like this. On Feb. 9, Air Canada announced 30 new routes, 11 new destinations and the end of the often wasteful competition that pushed Canadian Airlines International Ltd. to the brink of bankruptcy. Under the firm hand of Air Canada CEO Robert Milton—who has a reputation for bold and precise corporate streamlining—right-sized planes would fly the right routes at the right times; older and inefficient aircraft would be parked. By merging with Calgary-based Canadian Airlines, the 26th-largest airline in the world, Air Canada would jump from No. 18 to No. 11 (the top three: United Airlines, American Airlines and Delta Air Lines Inc.) The Canadian carrier would burnish its solid reputation and take on the aura of a British Airways (the world’s No. 4), a dominant domestic carrier with routes around the world. Passengers could even use air-plan points on either airline, although officials still haven’t worked out a system by which customers can combine their points.

But to reach the Shangri-La of efficiency, the company had the massive task of melding two work cultures and two computer systems, getting unions to agree on seniority, and getting passengers to the right planes. To make matters even more confusing, officials established June 3 as the day the merged airline’s hub would be reorganized at Toronto’s sprawling Pearson International Airport, which is undergoing redevelopment. Canadian Airlines will move out of Terminal 3 to take over Terminals 1 and 2 with Air Canada. A disused tunnel between the two will even be reopened.

So far, the dream has not unfolded according to plan. When the new schedule was announced, cities that lost seating capacity complained loudly, arguing that smaller planes would impede trade. Stories of over-bookings and the cancellation of flights became rampant. An agreement among the agent unions fell apart in early April—mostly because the seniority issue was not resolved—thus scuppering Air Canada's flexibility in intermingling agents to handle shifting passenger flows. The uncertainties of the merger-to-be created lengthening exchanges between passengers and agents, which lengthened lineups at airports and the wait time on reservation and points-plan phone lines. The X-Acto knife Milton had hoped to use in his streamlining began to look like a machete, and Milton himself seemed part of the problem.

On May 4, when the CEO finally spoke to the parliamentary committee reviewing Bill C-26, he lobbied against further restrictions and stressed that the alternative to the Air Canada takeover was the collapse of Canadian, the loss of 17,000 jobs and disarray in communities served by Canadian. But members of the Commons transport committee admit to being irritated by Milton’s approach. Traits that Air Canada spokesman Doug Port considers “forthright,” several of the MPs deemed “arrogant.” Besides being magnets for passenger complaints, the MPs were frequent flyers themselves, seeing firsthand the problems facing the traveling public.

Right after grilling Milton that day, Conservative transport critic Bill Casey tried to return home to Amherst, N.S. He was nearly bumped from a Montreal flight because it was overbooked, then was kept off a connecting flight when a mechanical problem meant only half the passengers could go on. He even lost out on getting meal and money vouchers. Eventually he had to fly to Fredericton, then Moncton, a circuitous odyssey that got him home six hours late. “In the seven lineups I was in, I kept thinking about the seven times Milton said ‘I care’ that day,” says Casey. “I was looking for the care, but I couldn’t find any.”

It only got worse the next day for Casey’s fellow transport critics, Val Meredith of the Canadian Alliance and Bev Desjarlais of the NDP They faced an Ottawa airport in tumult because of queues. All Meredith could think of was bringing the house committee to the terminal lobby: “There were moms with babies and little kids crying and screaming,” she says, “because they had been in the lineup such a long time.” Adds Desjarlais, whose 3 p.m. flight to Toronto was cancelled because of technical problems: “People were literally fed up. It was so tense that some woman came over the intercom and said, ‘This is embarrassing, someone should be calling Bob Milton.’ ”

The May 5 mayhem in Ottawa may have been more than happenstance. That day, the local union for agents sent out a news release predicting chaos because the check-in desks were insufficiently staffed. Air Canada anticipated 2,200 passengers that day, 700 more than normal, but with six agents already off, four of them sick, the airline failed to meet the demand. Tom Freeman, president of Local 2213 of the Canadian Auto Workers union, which includes 4,200 Air Canada check-in, boarding and call-center agents, says: “They’re pushing our members too far. When you hear of agents going home crying after a day at work, it’s time to say enough is enough. Milton has to start paying attention to the welfare of his employees and his customers.”

Milton declined requests for print interviews last week, but Port, vice-president of corporate affairs for Air Canada, said the airline’s cancellation record has improved slightly over last year, and that complaints are up only marginally, probably because of the heightened awareness of the merger. He says the biggest schedule change in Canadian aviation history was bound to elicit complaints. The most confusion, he maintains, is caused by shared flight numbers and passengers joining the wrong check-in lines. Queues are longer than anticipated because more people have abandoned Canadian in favor of Air Canada, perhaps because of the misguided belief they can only collect flyer points on Air Canada, he says. As well, flight timetables have been lopsided in favor of one airline or the other. “We have to depeak some of the peaks we’ve created with our scheduling,” says Port. www.macleans.ca for links

Almost everybody, it seems, has jumped on the bash-Air-Canada bandwagon. British Airways complained of price gouging for feeder flights in Canada after the preferential treatment it enjoyed as a partner in the Oneworld alliance ended with Canadian’s withdrawal; Air Canada insists BA is now simply being treated like every other competitor. And when Prime Minister Jean Chrétien and the Atlantic premiers met in Boston last week, the premiers claimed their provinces were poorly served by Air Canada. That criticism surprised an airline that had just added flights to Halifax and St. John’s, Nfld., and had dramatically lowered fares in its fight for New Brunswick against Calgary-based Westjet Airlines Inc. Even Stephen Smith, president and CEO of Westjet, Air Canada’s fledgling competition, observed to Maclean’s. “It’s probably a little unfair to blame everything on the merger.”

Westjet is at the heart of claims Air Canada is already acting like a monopoly. On Feb. 29, Westjet announced that by April 19 it would be flying once a day from Hamilton to Moncton for a walk-up fare of $299. In early April, Air Canada announced fares of $249 from nearby Toronto to Moncton, and increased capacity by 67 per cent. To accusations that his move was undermining Westjet, Milton told the Commons committee that “it’s not going to be like the good old fun days of kicking Canadian Airlines around. Westjet now is going to have to compete, but we will not behave in a predatory fashion.” Air Canada’s response in Moncton, he said, was “what Wal-Mart does to Kmart—that’s the way the world works.” Westjet’s Smith, though, believes Air Canada’s motive “is to limit our growth or knock us out of the marketplace.” He notes that Air Canada cut the fare much further than simply matching the Westjet price. “Air Canada is 45 times our size,” said Smith. “What they’ve done is the definition of predatory behavior.” The issue is now before the Competition Bureau.

Yet some of the criticism of Air Canada may be unfounded, especially when it comes to suspicions that since the merger prices have risen and seat sales have declined. The airline has not raised domestic prices since the takeover announcement in December, although prices jumped an average nine per cent in 1999. A third of that was due to fuel price increases, the airline says. Fares on U.S. flights rose 14 per cent in 1999, mirroring increases by American carriers, and by another three per cent in January due to fuel hikes. As for seat sales, more passengers than ever have taken advantage of them this year, with almost 200,000 more seats sold than for the corresponding period in 1999.

Travel agents and corporate clients often blame the merger for policies that started earlier—not that this lessens their anger against Air Canada. “Our remuneration has dropped 35 to 40 per cent, even though we did more business than last year,” says Chester Scott, owner of an agency called Travel Options Inc. in Kenora, Ont. On Oct. 15, he notes, “Air Canada cut commissions from nine per cent to five per cent, and there’s talk of them dropping to zero.” Michele Ferrari, vice-president of client management at Rider-BTI Travel Group in Toronto, is in the midst of renegotiating deals for her corporate clients. For those who fly mainly within Canada, she says, “they’re not seeing the same type of discounts they previously enjoyed. Air Canada is only offering big deals where they still have competition—on American and international flights.” And under a policy announced last fall, frequent flyers are finding more restrictions on the upgrade certificates that allow them to buy an economy seat and sit in business class.

Critics hope Bill C-26 will restrain Air Canada. The transport committee added an amendment last week calling for an independent ombudsman working out of the Canadian Transportation Association Agency, a little-known independent organization that is supposed to handle customer complaints. After formerly opposing the idea, Air Canada responded by saying it will create its own ombudsman to handle complaints and to work with the federal appointee. Transport Minister David Collenette, meanwhile, reiterated that Ottawa would allow foreign airlines on Canadian routes within two years if no serious domestic competition emerges.

Amid the merger turbulence, all sides obviously hope the foofaraw does not affect the safety of operations. “You can’t pull a merger off like this seamlessly,” says Michael Murphy, chairman of the Ottawa-based Air Passenger Safety Group, “but I’m just worried that some of the upset is going to translate into some key safety function either not being done or being done poorly, or that the rage in the terminals will easily translate into air rage.” Continued unease, says Murphy, “could take the romance right out of flying.” To many frustrated passengers, though, the romance has already been lost.


Flying on points

After Air Canada announced its merger with Canadian Airlines, flyer point-plans went into a tizzy. Air Miles made a new deal, American Express didn’t. The new alignment of airlines and affinity plans:

Air Canada’s Aeroplan:

Canadian Airlines: yes

Air Canada: yes

Air Canada partners: yes


Canadian Plus:

Canadian Airlines: yes

Air Canada: yes

Air Canada partners: no

Air Miles:

Canadian Airlines: yes

Air Canada: yes

Air Canada partners: no


American Express:

Canadian Airlines: no

Air Canada: no

Air Canada partners: no


Diners Club:

Canadian Airlines: no

Air Canada: yes

Air Canada partners: yes



How the other half flies

While Canadians traveling in economy class say they are getting squeezed and abused, those lucky enough to land a seat in first class have never had it so good. Internationally, there are comfy beds, good booze and haute cuisine. Yet not too long ago, first-class air travel was almost extinct. “By the mid-1990s, business class offered plenty of luxury-passengers were asking themselves why they should pay more to fly in first class,” says industry analyst George Hamlin of Global Aviation Associates in Washington. “The airlines had to come up with some way to differentiate the services.”

Salvation arrived in 1996 when British Airways decided to put 14 six-foot, six-inch beds complete with duvets, pyjamas and fluffy pillows-in its first-class cabins. It revolutionized high-end air travel. The airline threw in top cuisine, personal TV monitors with VCRs and access to 45 videos and eight in-flight channels. At its first-class lounge in London’s Heathrow airport, passengers can work out at a gym, get a facial or massage, shower and have their clothes pressed. “You are waited on hand and foot,” says British Airways spokeswoman Honor Verrier in Toronto. The cost: $5,460 return from Toronto to London.

BA’s horizontal innovation is sparking the battle of the bed, with Cathay Pacific, Japan Airlines, Singapore Airlines, United Airlines and Swissair all offering sleeper chairs. Virgin Atlantic Airways, which flies from the United States, offers an in-flight bar on its top service rung. While Air Canada does not have a first class, its business-class passengers receive free alcohol, a high-end menu, access to the Maple Leaf Lounge, fast check-in and larger seats (but no in-flight beds).

For those in the back, there is some relief in sight. Next January, British Airways will add beds to business class. It will also introduce World Traveler Plus, a new level one step above economy. United has similar plans. BA’s version will boast bigger seats and computer links. Says Verrier: “This will appeal to business travelers and vacationers who need that little bit extra.” And are willing to pay for it. Andrew Clark