Air Travel

Question:

During the Air Canada strike threath, they had a TV special about the state of airlines in Canada. Jacques Kavafian was not overly anti-CP. However, he did make one hell of a good argument: There are plenty of profitable airlines in canada (such as Transat, Canada3000, Royal) which would take up the slack should one of the 2 majors fold. So, the competition aspect is not really that important sicn AC would not be alone. Imagine how Wardair would have succeeded had CP not been there ? (BTW, when CP bought Wardair, how much did cancelling the order for 16 MD88s worth $300 million cost ?)

Response:

>There are plenty of profitable airlines in canada (such as Transat, >Canada3000, Royal) which would take up the slack should one of the 2 majors >fold. So, the competition aspect is not really that important sicn AC would >not be alone.

Royal lost $14-million or  73 cents a share in the year ended April 30 on revenue of $340.9-million.

Response:

> During the Air Canada strike threath, they had a TV special about the state of > airlines in Canada. > Jacques Kavafian was not overly anti-CP. However, he did make one hell of a > good argument: > There are plenty of profitable airlines in canada (such as Transat, > Canada3000, Royal) which would take up the slack should one of the 2 majors > fold. So, the competition aspect is not really that important sicn AC would > not be alone.

Sure they would.  What Kavafian and others like him don’t tell you is that the charters and WestJet COMBINED don’t even hold 5% of the domestic market share in Canada.  The fact is in the event of a collapse of CP while many of these carriers would attempt to increase the size of their operations, none of them would be able to obtain any sizable portion of the market.  Even if you were to merge all of their operations they would still require $4-5 billion in equity or debt in order to acquire the aircraft and infrastructure necessary to replace Canadian.  Look at WestJet for example.  They are very profitable and appear to be doing everything right so far in western Canada but they are still a tiny player when compared to Canadian.  They would need to buy over 200 airplanes to become equivalent in size to Canadian/Canadian Regional.  That’s not going to happen JF. The reason analysts like Jacques say Canadian is in trouble is because of the debt they took on through all the mergers and now he’s suggesting that in the event Canadian goes broke all the other carriers should do the same thing.  It’s hypocritical to say the least. In reality we would be back to where we were before deregulation.  One giant company called Air Canada controlling the vast majority of the market in Canada, plus a whole bunch of small time carriers in various niche markets in Canada which fail to provide a true national alternative.  That’s what Jacques wants because it would be good for his companies position in AC stock.  But that’s not progress.   In the event of Canadian’s failure (which is unlikely in the foreseeable future) the government would have no choice but to permit foreign airlines into Canada to compete and provide a true alternative. There are some who would suggest the foreign carriers be allowed in today and logically speaking why not?  We have foreign owned companies and competitors in almost every other sector of the Canadian economy, why not this one? Mike

Response:

>  The fact is in the event of a collapse of CP > while many of these carriers would attempt to increase the size of their > operations, none of them would be able to obtain any sizable portion of > the market.

Well, they would not be interested in money losing routes. So I am not sure that they would be interested in replacing all of CP’s routes. Also, some of CP would probably survive on its own (CP-North, Inter-Canadien come to mind). For the remainder of routes, AC might be able to fill the gap with its fleet of flying skidoos. > Even if you were to merge all of their operations they would > still require $4-5 billion in equity or debt in order to acquire the > aircraft and infrastructure necessary to replace Canadian.

Not sure. A bankrupcy of CP would result in banks owning aircraft and infrastructure. Perhaps "Royal Bank Airlines" ? My guess is that the banks would be easily convinced to sell such aircraft at low prices to the charters in exchange for that bank getting some of the banking business from that charter. The way I see it, they could rebuild CP from scratch by taking only the profitable pieces and not bound by any prior agreements (for instance, requirement that HQ be in Alberta, an I assume that CP is forced to continue some services in western canada which are unprofitable (legacy of PWA ?). > In reality we would be back to where we were before deregulation.  One > giant company called Air Canada controlling the vast majority of the market in > Canada, plus a whole bunch of small time carriers in various niche markets

However, the big difference being "alliances" which did not exist prior to deregulation. A whole bunch of tiny carriers could form a non-trivial entity to compete against AC. What do you think CP is these days ?  A Whole bunch of separate entities opetating under the same livery. What I would find interesting is what would happen to Oneworld in canada. Obviously, charters would fall below the oneworld standards so I am not sure they would be allowed in. But BA might code-share with them anyways. Woudl Canadien Regional survive on its own ? Is it profitable as a separate entity right now ? > In the event of Canadian’s failure (which is unlikely in the > foreseeable future) the government would have no choice but to permit > foreign airlines into Canada to compete and provide a true alternative.

No, this would result in the same set of small niche carriers and no national presence. Hey, why doesn’t Singapore airlines turn its eyes towards CP instead of AN ? ? ? ? ? > There are some who would suggest the foreign carriers be allowed in today > and logically speaking why not?  We have foreign owned companies and > competitors in almost every other sector of the Canadian economy, why not > this one?

To protect CP and Air Canada. As long as struggling CP continues to exist, there is no reason to allow foreigners for the sake of competition.

Response:

I’ll be flying on a B747..business class from Los Angeles to Beijing in August.. Can anyone comment of offer tips to make this flight real good ?