Air Canada meets recession with increased capacity in Whitehorse

Air Canada, in the midst of clawing its way back to profitability through cutbacks, has announced that it will start dispatching another jet into Whitehorse’s already-saturated summer market.

Air Canada, in the midst of clawing its way back to profitability through cutbacks, has announced that it will start dispatching another jet into Whitehorse’s already-saturated summer market.

Increasing passenger numbers in a strained economic climate is “reckless,” said Air North president Joe Sparling, who expects that both Air Canada and Air North will be hurt by the move.

Starting June 1st, Air Canada will supplement its three daily Vancouver flights with a noon flight from Calgary.

The added flight comes coupled with drastically reduced ticket prices. During the summer, Air Canada flights to Vancouver and Calgary will drop as low as $138.

“When they flood the market with seats, both of our loads are diluted, and when they price below cost, we must match them,” said Sparling. “So our yields become diluted and our profitability is impacted, as well.”

Sparling estimated that flying to Whitehorse costs Air Canada 20 cents-per-seat mile, which means that even at full capacity, it costs the airline $200 a seat.

If Air Canada pushes too many flights into the market, planes will likely be flying at only 60 per cent capacity, driving per seat costs up to $330, said Sparling.

Air Canada refused to provide details of its per-seat-mile operating costs.

“The combination of undisciplined capacity management and below-cost pricing cannot sustain itself,” wrote Sparling in a letter to shareholders.

Air Canada has posted a loss of $298 million in the first three quarters of 2008, and when fourth quarter results are announced on Friday, a further loss in expected. Less than six years ago, the airline filed for bankruptcy protection.

Air North has remained profitable throughout 2008, said Sparling.

As the worldwide economic crisis tightens its grip, airline-passenger rates have steadily dropped worldwide.

“Air travel is always the first to be hit when there are difficult economic times,” airline industry expert Joseph D’Cruz told the Canadian Press in January.

Air traffic has declined by 15 per cent, said D’Cruz.

Cutbacks have been Air Canada’s primary response to the recession — if passengers don’t fill the seats, the company just offers less seats.

It’s “disciplined capacity management,” said Air Canada CEO Montie Brewer in a letter to shareholders.

But with every cutback made by Air Canada, WestJet has been right on its heels, snapping up a larger piece of the pie.

In December, Air Canada squeezed operations by more than 10 per cent. By compressing more passengers into fewer flights, the company’s aircraft showed a record number of filled seats, or “load capacity,” as the industry calls it.

WestJet also had a record load capacity for December, but did it with more seats.

The Calgary-based airline carried 13 per cent more passengers in December 2008 than in December 2007.

Every cutback brings Air Canada closer to profitability, but it does so at the expense of enriching the coffers of its greatest competitor.

“Frustration,” may have prompted the Montreal-based airline to finally explode onto the offensive, said Sparling.

Along with the new Whitehorse route, Air Canada announced three more Calgary-based flights, striking directly at the city that WestJet calls home.

“Maybe what happened within Air Canada is that they never even considered reallocating some capacity, they just thought, ‘We’re going to start this route,’” said Sparling.

Routing a flight through Calgary makes sense since it cuts down on connection times for eastern passengers travelling to the Yukon, said Air Canada spokesperson Angela Mah.

Partially through the efforts of WestJet, Calgary has emerged as a prominent Canadian hub. The Calgary International Airport has made no secret of its attempts to move in on

Vancouver’s northern-bound connector flights.

Logically, Air Canada should have simply reallocated one of its Vancouver flights, said Sparling.

With a new Canadair 705 hitting the tarmac everyday during the summer, Air Canada will need to fill 150 extra seats a day.

However, air travel is not expected to suddenly increase by 150 people per day, even if they do have shorter connection times.

“We were very pleased with the results from the Vancouver-Whitehorse route last year,” said Mah.

“Obviously we would not contemplate adding additional flights if that were not the case,” she said.

She could not provide the carrier’s load capacity for the 2008 season.

In July, the busiest month of the year for the Eric Nielsen International Airport, an average of 870 passengers a day passed through its gates.

With Air North and Air Canada together running a total of six daily flights into Whitehorse, the combined capacity would be 1,080 seats, not including the Condor flight to Hamburg.

Even at these peak numbers, average load capacity would still be only 80 per cent for the two competitors.

A saturated market will no doubt chip at Air North’s existing passenger numbers.

“We’ve got a fair bit of loyalty in the local market, but loyalty only goes so far — we understand that if our fares are more expensive a lot of loyalty evaporates,” said Sparling.

Crowding out the regional airline doesn’t appear to be Air Canada’s goal, he added.

“I think it’s predatory, but I don’t think that what they had in mind was sinking Air North,” he said.

Even if Air Canada could bankrupt the Yukon airline with below-cost pricing and unhinged capacity, WestJet would fill the void within months.

Contact Tristin Hopper at

tristinh@yukon-news.com

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