AC should have 100 aircraft

[jkavafian]

I said that...

[Guest A330]

"I'm good enough, smart enough and....gosh darnit....people respect me".

jkavafian

[Guest Patrick Bergen]

Your analysis does seem crude.

You advocate removing AC from routes that currently have competition from other LCC's. For example most of the domestic market except for the longer haul routes where the costs are mitigated over a longer distance. Everyone is aware that Air Canada's cost structure along with every other large carrier is higher because it is more complex. In other words, a guy on the ramp needs to be able to load a 747 as well as a CRJ.

The problem with this analysis is that it is just waiting for competition to come in and push us out of more routes.

What is your opinion of the profit centres currently set up such as ACTS? If run properly these could generate a good volume of profit. Luftansia is a good example of this in just their IT department.

Your suggestion of just shrinking to market size doesn't work. It does not address the complexities of the international carrier. Rethink your position and submit a new idea or quit offering opinions.

[rudder]

Please continue......

Your opinion on the medium and long term prospects/business plans of:

- UAL

- USAirways

- DAL

- AA

[Guest GDR]

Jacques

If you are going to run a large international operation then you need to be able to connect those people to a myriad of other points. There is money to be made by operating the flights that can do that. Those flights can be operated more cost effectively with a variety of aircraft.

For example a flight HKG/YVR. The connections from that go all over. As a result you migt run 330 or a 767 to YYZ, a 320 to ORD or YYC, a 319 to YUL or Mia, a EMB to YEG or DEN, a RJ to YQR or SLC and a Dash 8 to YKW or GEG. Westjet can't do that, and there is money to be made in doing it.

TTI believed in the plan as does GECAS, as does Cerberous and TPG. There were 16 bidders initially wanting to buy into the future of AC. These people know something about the airline business as well.

Sure AC has to bring its costs down and that is happening. It does not have, nor does it have to have unit costs as low as WJ because it operates largely in a different arena. To use your argument Westjet is dead as well because Jetsgo has lower operating costs.

AC has about the lowest costs in aircraft leasing around. It has set revenue targets which it is meeting in spite of the domestic competition from WJ etc. In many ways the restructuring is going very well.

I believe that with Rovenscu leaving and with the new sprit and co-operation that now exists between all parties that AC has a very bright future.

At any rate Jacques I sincerely hope that you are wrong in your assessments, and actually, I sincerely believe that you are.

Here's hoping for a bright future for all on this forum and Happy Easter.

Greg Robinson

[jkavafian]

The competition is pushing AC out anyway. AC went from 92% market share in the domestic market when it acquired Canadian Airlines to 58% last month. I don't have fresh statistics on transborder but I think it is under 40% after having been 45% three years ago.

ACTS is not a competitive enterprise because of the onerous labour agreements. I don't believe it could compete on its own against independent maitenance operations.

I am sorry that you don't feel shrinking to market size will work, which is why I think AC is dead.

[jkavafian]

Greg, that's the whole point. You should give up on feed traffic. Connecting traffic is low margin to begin with and yet it is very costly to obtain. I believe 80% of YVR-HKG traffic is O&D with the bulk of the rest going to YYZ. Same thing with YVR-Tokyo, YYZ-Heathrow and YUL-Paris and many others.

[jkavafian]

The only one that I am sure of is that US Airways is dead. Their cost is way too high against the competition and the RJ strategy is the wrong one.

United has never been a great airline with lousy passenger service. But they are so big in Chicago that they may survive. I have no opinion of Delta as they operate the only true hubb in the US so they may survive and the same goes for AA.

[Mitch Cronin]

"I was the first one to suggest that union bosses were disconnected from their membership and that they are running you into bankruptcy. Since then a movement has developed in an effort to override the union leaders. I was also the first to mention that labour cuts were not sufficient and more was needed. Now AC says they need more cuts. I was the first one to say that Victor Li would walk away from the deal and he did. And I am the first one to have said AC is dead, and it will die."

That's beginning to sound eerily familiar... There was another fellow posting here who claimed to be an analyst who often sounded just like that. [Gawd I hate arrogance.]

BTW.. I don't believe you were "first" in any of the above at all... Not here, in any case.

Happy Easter.

[Guest Patrick Bergen]

"Connecting traffic is low marging to begin with and yet it is very costly to obtain."

So, your suggestion is to operate YVR HKG and let WJ fly all of the connection passengers (guests) in from the connecting points. How long do you think it will take before WJ just connects to a LCC international carrier?

This is why AC is using smaller aircraft with lower operating costs to operate more frequencies.

[Guest GDR]

The point is Jacques that it may be low yield on the connectiing portion, but you make it up on the international leg. If we don't have the connecting legs we don't get the international portion of the trip either.

The competition to fly a passenger from HKG to Den for example is with the American carriers through their gateways. If we don't have those connections we aren't even in the game.

Even domestically if we were to have an agreement with WJ then they are going to have to have an agreement that gives them a profit on the route which would have to come out of AC's profit on the international leg. From the AC perspective, if you can fill 30% of the seats from connecting international flights it makes it a lot easier to make money with the remaing 70%.

I also go back to what I said before. Sure unit costs are important but you have to compare oranges to oranges. If it was all about costs, how is WJ going to be able to compete with Jetsgo over an extended period of time?

[Guest Patrick Bergen]

I think you have been working in the media too long as your opinions are just simplistic and designed for sound bites.

To use the same genre:

"Wow Jacques, so if AC doesn't have many passengers on routes it should fly less. What a revelation."

ACTS can be profitable at the current wages by getting contracted work. This work is usually at a premium and IMHO, the wage reduction you propose would be more than offset by the experience that would more effieciently complete the work.

AC was named the safest airline in the world with many of these same employees as well as a number of other awards. The key is to make the best use of these excellent employees, not to slash them out of the company.

Yes, I do believe AC will survive. Happy Easter.

[Guest Patrick Bergen]

Greg, you are 100% right. You are describing the theory of contribution. This is a fundamental accounting principle that Jacques should know. Seems to also be common sense which is probably a better way to analyze.

Happy Easter

[Guest manwest]

Nobody likes to hear negative talk or stories about who they work for. Some posters here are interviewed by the media for their thoughts and expertise on the subject of Air Canada, its unions, it management, and yes the likelyhood of its survival. Whenever someone posts or is quoted from a tv or newspaper interview I guess its human nature to get your back up. Many have said their piece on Air Canada's survival and possibility of its demise, I in fact suggested it almost two years ago, making similar comparisons that AC had to change or it may go the same way as Eastern, Braniff, Pan Am etc. I took a lot of flax on that statement, I was called names by some here, buggy whip comes to mind, but what has anyone at Air canada done in the past two years to try and turn things around, what have you done to save your jobs, employer money, or any other positive action? What I have heard here in those two years is employees complaining how slack different employee groups work, taking time at turn around, releasing brakes, calling in sick, etc etc. I think its time some of you took responsibility for your actions, stop the inhouse bickering between pilot groups, jazz pilots, and others. If someone walks in to rescue you, it won't last too long unless you all change your atitudes. Your all too quick to shoot the messenger than try to understand the message they bring to your attention.

[Guest M. McRae]

What about the feed traffic from YEG, YYC, YWG, YOW, YHZ to name a few. Who would move this traffic to AC to carry overseas?????

[B75/76]

I know most of you don't like what JK has to say. I have not very often either over the years. I certainly don't know specifically what AC has to become to survive either. Is 100 a/c the correct #/size? Can't really say.

As an outsider looking in, and after discussing things with friends working at AC, it seems to me the way the airline does business has not changed substantially enough, if really at all.

As with CAI, AC appears to be taking a real beating domestically. Even Milton said he was not going to concern himself so much with that market.

That, combined with the fact wages in most cases are not the problem, points to AC having to drastically change its' structure and focus. Less concern with the domestic and doing more of what it is designed and built to do best; long haul international. The tinkering that seems to be going on will not do it, IMHO.

AC is in an ugly position right now, the cure needs to be innovative and drastic. Wage cuts and a handful of layoffs are not enough.

I want AC to survive. I want it to go forward with a future that does not involve CCAA again. Let's hope it happens.

[Guest Patrick Bergen]

"I took a lot of flax on that statement"

I hope that fixed the problem. Happens when you get older.

[LongTimer V]

The next time your doing a interview please mention that the government can do their part for the survival of Air Canda,,ie Air Canada Act,French in the air,you know so all of Canada' airlines are on the same footing.What do you think??Right now every little bit helps,thats of course you care if Air Canada survives.

[B75/76]

"The point is Jacques that it may be low yield on the connectiing portion, but you make it up on the international leg. If we don't have the connecting legs we don't get the international portion of the trip either."

That assumes the make or break for someone going overseas from say, YKA or YPG, is whether AC flies them to YVR or not.

If one has/wants to take a trip overseas they will get to the departure point. I think, perhaps the feed is less of an issue without another Canadian international carrier.

They would be faced with the same situation if they book BA or CX or...

[dagger]

If Enron taught us anything, Jacques, it's that analysts shouldn't be playing both sides of the street like you are. Octagon is no doubt shilling for Jetsgo work and future Westjet work. There is no doubt a Cornucopia of profit to be made off LCCs if AC goes under. Therefore your commentary, whether accurate or not, is both unseemingly and unethical. Even with a disclosure.

I note that several other analysts have a high opinion of the LCCs and give AC little chance (at least until it exits CCAA), but they aren't self-promoting 24 hours a day like you.

It's also true - and I checked this on Thursday - that you have burned your bridges with AC to the point where you will never, ever get a hearing from them. In fact, you have no decent sources of new information because nobody at AC is talking to you.

Your self-interest is so compelling here, that it takes an awful lot of nerve to post here and pretend that your opinion is unaffected by your involvement with AC's competitors.

As for your analysis, there are elements of validity, but also a lot that is a crock. AC needs some domestic net to move its large aircraft around. You certainly need to move some international flights over Toronto-Vancouver, and Montreal-Toronto. You need the ability to cycle large aircraft through the Montreal maintenance base. Cities like Edmonton, Quebec City, Regina that don't have international flights certainly provide feed for international flights. We're not talking Corner Brook or Goose Bay, here.

Yes, it does have to do a lot of O&D in international hub cities like YUL, YYZ, and YVR, but this isn't the Netherlands where all international traffic moves in and out of one airport. Nor is it Germany with a population of 85 million in a landmass the size of Alberta where there is enough critical mass to operate fleets of large aircraft dedicated to two airports.

Air Canada's unit labor costs are too high, but Air Canada is well on the way to attacking its overall labor costs. One example: My prediction is that Air Canada will become the first major airline in the world to sell North American O&D tickets exclusively via the Internet. By 2007, Air Canada will have fewer passenger/res agents per hundred thousand passengers than any other international airline and even some LCCs. That's one way you deal with the CAW.

As for a 40% market share of transborder, well, that's not bad all things considered, like the fact there are a dozen competitors in that market and AC has never had more than 50% of that market. And it is a recovering market now that US employment is starting to rise. As businesses move into expansion mode, you will see more business travel.

Air Canada does have serious problems. It may not exit from CCAA. It must attract an investor. It must win the confidence of capital markets so banks and other agencies will lend it money in the future. But there is a boldness of purpose there - which I partly attribute to Montie Brewer's presence since he's driving the commercial side of the entire automation strategy and doing a magnificent job of it. Who would have thought Air Canada would get to 60% online domestic bookings in a year? Who would have thought that Air Canada would overhaul its entire North American fare matrix in a year and a half, moving to the discount yield management structure?

In all honesty, I can't say whether AC is dead or not. Fuel prices, the economy, terorrism, etc, are all unknowns. I do know that it is shaping up as a brilliant summer for international travel, and I do know that the creditors have no apparent interest in pulling the plug in the timeframe you suggest.

Indeed, don't be surprised if the creditors - and I don't mean Cerberus - become "The Investor" and take AC out of CCAA, God and the unions willing.

[Seeker]

The point in my mind is not that he said these things about AC but that he didn't also disclose the fact that he has a vested interest in seeing Westjet prosper. This goes for you too I believe - something about commissions? Am I correct in my memory that you stated you would direct your customers toward Westjet because it pays a higher commission for you even if the AC flight might be better for them?

[Guest manwest]

Yes I would sell anyone over AC if the client did not ask for AC as their carrier of choice if the flight times are close to the same its makes no difference to the passenger, when especially the fare is lower for them and I can I make a commission. I live and work in a capitalist society. My business is more than sellin an airfare with a low or nil commission rate.

[Guest bmibebe]

Every morning I wake up and read the latest on this site , and some mornings I'm happy and some mornings I'm sad . Today I'm a bit gloomy after reading Jacques post. I don't think he's right about everything,butI still agree with him on most points.

The one point I disagree with is regarding ACTS. Aircraft maintenance is a cuthroat business, I should know as I have worked for indepedant maintenance organizations in Europe, FLS for example. Although the bottom line and the lowest cost is an important factor, quality and reputation is a close second. ACTS has changed a lot in the last year and has become more competitive. We are not there yet but we will be. We also have a reputation for safety and quality that no one can beat. If we get our house in order maybe we will be bidding to do work on the likes of Jetsgo and Westjet. Let's hope

Happy easter to all

[dagger]

Virtually all major international airlines have pro-rate agreements with Air Canada that gives them access to AC's domestic net.

[Seeker]

Go back a re-read my post. I'm not talking about a situation like you describe, I'm talking about a case where the customer would clearly be better served by the AC flight but the Westjet sale means more commission for you. I'm sure I remember you stating that you would still book the Westjet flight over the AC flight. Is this not what you said? Are you not the same as JK - bottom dealing for your own benefit?