With pilots calling a strike vote, disappointing earnings, and a competitor launching a regional airline, Air Canada is getting battered from all directions.
As the airline reported lower than expected fourth-quarter earnings due to higher fuel and maintenance costs on Thursday, the pilots' union asked members for a strike mandate.
It's the latest labour uncertainty for the airline, which faced repeated strike threats last year including a brief three-day walkout by its customer-service agents.
Air Canada's president and CEO Calin Rovinescu told analysts on a conference call Thursday that the company is prepared to negotiate beyond the 12:01 a.m. Tuesday deadline, and it won't impose any contract in the "short term."
The union has fired back that it offered to push back the deadline until April 2 - and not hold any strike vote until late March - but it was rejected.
The news came one day after its main competitor WestJet Airlines reported strong fourth-quarter earnings, topping analysts' expectations. It also announced plans to start regional service next year, directly aimed at Air Canada.
WestJet's president and CEO Gregg Saretsky called it the next logical step in the discount carrier's evolution, but emphasized its focus would also be on keeping costs down.
While Air Canada was able to pay down debt and boost its liquidity in 2011, it still faces challenges from slowing economy, rising fuel costs, high labour costs due to unionized and significant pension payments looming. To remain competitive, Rovinescu has touted the idea of starting a discount airline, catering to leisure travellers heading down south or to Europe, but needs lower labour costs to do it.
While pilots had reached a tentative deal a year ago with this possible provision, rank-and-file members voted it down, prompting negotiations to restart again in late November. Air Canada is now saying it is looking at different models for the low-cost airline, though it won't specify which one it may want to adopt.
"This is an environment where we have to be open-minded to all kinds of different business models to effect this transformation," Rovinescu said. "I don't want to, at this stage, speculate."
Australia's Qantas started a discount subsidiary called Jetstar and Malaysia-based Air AsiaX has also been successful. Competitors worry they might expand operations to North America.
Other legacy carriers including Singapore and Japan Airlines are all considering their own discount versions. Ryanair, based in Europe, is keen to cross the Atlantic.
York University economics professor Fred Lazar said Air Canada has been trying to boost its international business to both Asia and Europe, and as U.S. carriers have managed to reduce their labour costs significantly through Chapter 11 bankruptcy, they can offer competitive pricing.
"Those are the problems that I think keep Calin (Rovinescu) awake at night," Lazar said. "People may take inconveniences to save money."
Rovinescu told analysts the airline believes participation in this sector is crucial. "However, we will only proceed with a low-cost initiative on the basis that it allows us to remain profitable in this market," he said, adding Air Canada won't go forward if costs creep up.
Lazar added the airline would also like to target the pilots' scope clause, which restricts the type of aircraft flown. If Air Canada had more flexibility, it could outsource some flying to smaller airline partners on certain regional routes during non-peak times.
Despite all the sabre-rattling, he doesn't believe Air Canada would impose a contract, because it would become tied up at the labour board, and rank-and-file pilots could wreak havoc with work-to-rule campaigns or random protest walkouts. The airline does not want the negotiations to drag on because labour uncertainty has a negative impact on bookings, and March break is fast approaching.
Air Canada spokesman Peter Fitzpatrick said the company is committed to negotiations, expressing confidence it can get a deal. "It is business as usual, and customers can continue to make their travel plans and book with confidence," he said.
Not to miss an opportunity, WestJet is launching a new campaign called 'it's not business as usual at WestJet.'
"To travellers, this is an invitation. To our competition, this is a challenge," WestJet said, offering travellers who join its frequent flyer program and take a flight before March 31 extra WestJet dollars.
Air Canada's pilots, who have insisted they don't want to strike, worry any provocative action could prompt Labour Minister Lisa Raitt to intervene as she did in the case of Air Canada's flight attendants last fall. She blocked any walkout by using ministerial power - sending the dispute to the Canada Industrial Relations Board, citing concerns about the nation's health and safety.
The two sides eventually agreed to binding arbitration - and the arbitrator gave the flight attendants the same contract that they had rejected earlier.
Copyright 2012 Toronto Star Newspapers Limited
