Air Canada Asia Lcc

[dagger]

Boeing claim that a 777-300 can seat up to 550 in all Y configuration.

That's true, and some airlines - not AC - have opted for 10 abreast rather than 9 abreast seating. Etihad, Austrian, China Southern. I'm not suggesting AC needs to do that. I'm suggesting it can do 500 with 9 abreast, with the current pitch and seat width.

[jkavafian]

The number of passengers on the flight is irrelevant to the individual. The individual cares about legroom and elbow space. The economy seat width and legroom in a 500-seat 777-300ER can be the same as it is today, and I've flown 15 hours in such a seat on YYZ-HKG. So do 190 people each and every night.

As for the China carrier issue, the Globe story suggest a plurality ownership for AC, with a private investor and a foreign carrier comprising the balance of the ownership. If if the private investor is Canadian, the airline can be Canadian for purposes of domicile and meeting Canadian ownership requirements.

I see that. ANA has 516 seats on their domestic configuration but the seats are 1.5 inches narrower and they use 10 abreast. In any event, with the extra people and luggage I don't believe that kind of density on a 777 would work long haul.

http://www.seatguru.com/airlines/ANA/ANA_Boeing_777-300ER_B.php

But I'm not willing to argue too hard considering that I don't believe in the LCC plan.

[Fido]

But I'm not willing to argue too hard considering that I don't believe in the LCC plan.

Agreed

[FA@AC]

I'm suggesting it can do 500 with 9 abreast, with the current pitch and seat width.

But they could do that now without setting up an offshoot carrier if they wanted to--maybe they will, in fact.

Would the savings in labour costs on the LCC be so great as to make or break the profitability of whatever routes are chosen despite the expense of setting up separate infrastructure? I'm not getting where hugely reduced cost savings other than on labour come from unless then LCC fleet is configured in a high density layout.

[dagger]

But they could do that now without setting up an offshoot carrier if they wanted to--maybe they will, in fact.

Would the savings in labour costs on the LCC be so great as to make or break the profitability of whatever routes are chosen despite the expense of setting up separate infrastructure? I'm not getting where hugely reduced cost savings other than on labour come from unless then LCC fleet is configured in a high density layout.

You're a flight attendant and you have to ask?

Listen, if there is one thing about an LCC operated at a mainline it's that they had better be branded differently and deal with different markets, not try to parallel each other. Secondly, it may be that pilot wages per se won't be lower, but pay for stick time only would still be a significant productivity improvement, and when it comes to flight attendants, ground service, airport staff and so on, you can appreciate (I hope) the opportunities to provide the service with fewer people. Moreover, you don't have to provide LCC customers with lounges or even large call centers. You don't have to interline baggage with 130 airlines. You don't need to provide the same quality IFE, or the same meal service as you do on the mainline carrier and you separate the two and brand them differently as much as possible so people don't have the same service expectations of the LCC as they would the mainline.

[Fido]

But they could do that now without setting up an offshoot carrier

That is true

Would the savings in labour costs on the LCC be so great as to make or break the profitability of whatever routes are chosen

Labour at Air Canada is less than 20% of total cost

So a 10% saving on each persons wage would only reveal a less than 2% bottom line saving.

[Fido]

Dagger:

The LCC must be intergrated with the mainline so that the LCC receives feed.

Otherwise the LCC will be short of customers.

ZIP showed this very well.

[FA@AC]

Listen, if there is one thing about an LCC operated at a mainline it's that they had better be branded differently and deal with different markets, not try to parallel each other.

AC could reconfigure a subfleet to operate certain routes now, and they could brand it however they wished, knock themselves out with a paint job appropriate for its markets, etc. Some airlines already do this with shuttle products, beach markets (JL's umpteen divisions, BA to some extent at LGW etc). I don't see the need for a separate management structure, new office space or the many additional costs that operating a completely separate airline would bring. These are expenses that may or may not be offset by lower labour costs.

Secondly, it may be that pilot wages per se won't be lower, but pay for stick time only would still be a significant productivity improvement, and when it comes to flight attendants, ground service, airport staff and so on, you can appreciate (I hope) the opportunities to provide the service with fewer people.

I can, but that comes under labour costs, and we all acknowledge that those would be low(er). What I question is whether the savings in labour costs would be sufficient to offset the expense of setting up considerable infrastructure for a small offshoot carrier.

Moreover, you don't have to provide LCC customers with lounges or even large call centers. You don't have to interline baggage with 130 airlines. You don't need to provide the same quality IFE, or the same meal service as you do on the mainline carrier and you separate the two and brand them differently as much as possible so people don't have the same service expectations of the LCC as they would the mainline.

IT isn't yet at the point where it would be prudent for any airline to do away with call centres entirely. Given economies of scale, AC's existing call centres might handle LCC calls at less expense than it would take to set up new call centres--even offshore ones--or alternate distribution channels for the separate airline. AC already operates lounges in Canada to which LCC customers could be offered access or not. I see little in the way of cost savings there, although some expense in contracting lounge space at LCC destination airports would be saved I suppose. AC could, however, achieve the same savings by marketing a subfleet for leisure/low yield destinations as I suggested above without going to the expense of setting up an entirely separate entity. I still see labour as the only expense that an LCC would save that AC could not now save by branding segments of its operation differently under its current structure and making the appropriate adjustments to its product and its marketing. I'd go so far as to suggest that AC ought already to have done this given the disappointment that some customers express when they travel on the two ex-HA 767s, the nasty fin 687, or the two 319s that AC got back from Mexicana but did not update. The same applies to the offering of less expensive IFE and other on board ammenities. They could do it now under a differently branded product. Either the savings on labour costs are huge, the LCC provides people with significantly less room on board than they now have (in which case I question, despite the EK example, whether anyone would fly it on 13-hour flights), or I'm still missing something.

The LCC must be intergrated with the mainline so that the LCC receives feed.

Otherwise the LCC will be short of customers.

I lean towards that view too. No feed at the Chinese/Philippino/Taiwanese end or at YVR? 500 is a high number of seats to fill if your market is strictly point-to-point. The LCC could possibly connect to its "alliance partner" AC in YVR, but you'd then be diluting what might already be thin yield.

[rudder]

Shape of things to come? CR clearly idolises Alan Joyce:

http://news.yahoo.com/video/world-15749633/qantas-splits-into-two-operations-29367602.html

[Thebean]

If one takes a look at JME's comments yesterday, one can imagine that AC might be a bit leary of having Transat achieve the same sort of traction in Asia as they achieved in Europe and especially France. Transat had their eyes opened to this market a couple of years ago.

Even if Transat decided to enter the pacific market, they'd still have the same issue they have with all their flying: aircraft capacity and no domestic feed.

Regardless, it is a legitimate strategic concern for AC.

Whether or not the rumors of the direction of the strategic response make any sense at all is an entirely different matter.

I'm sure there are a number of options on the table.

[AIP]

Secondly, it may be that pilot wages per se won't be lower, but pay for stick time only would still be a significant productivity improvement,

Hey Wonderboy, how much non stick time do you really believe the flight crew get credit for on a YVR-Asia flight ??

You are grasping at straws in an attempt to make yourself sound informed and lend credence to this latest greatest hair brained idea.

[jkavafian]

_{Hey Wonderboy, how much non stick time do you really believe the flight crew get credit for on a YVR-Asia flight ??}

_{You are grasping at straws in an attempt to make yourself sound informed and lend credence to this latest greatest hair brained idea.}

_{To think that there's a whole lot of aurguing going on for a 500-seat 777-300ER on a 14 hour leg that can never happen.}

[Guest rozar s'macco]

I still think an all-B767 LCC is the cheapest, quickest, lowest-risk way to combat Transat, Sunwing and WestJet, to the Caribbean, Europe, and heck even across the Pacific of that's the latest and greatest.

But the day you start allocating your newest, best aircraft to the discount division (that doesn't yet exist) is the day you signal intent to kill your company. If I'm a shareholder I'm starting to wonder just W, TF are they smoking up in the "war room"?

This is getting embarrassing.

[Thebean]

I still think an all-B767 LCC is the cheapest, quickest, lowest-risk way to combat Transat, Sunwing and WestJet, to the Caribbean, Europe, and heck even across the Pacific of that's the latest and greatest.

But the day you start allocating your newest, best aircraft to the discount division (that doesn't yet exist) is the day you signal intent to kill your company. If I'm a shareholder I'm starting to wonder just W, TF are they smoking up in the "war room"?

This is getting embarrassing.

What's stopping WestJet from picking up a half dozen B767-300's and doing the same, with WJ type costs?

[Fido]

WJ type costs?

What are WJ type costs?

Do they get cheaper fuel?

[Guest rozar s'macco]

Hey Bean- nothing, of course. But AC already has 30 of them, so that strateg could be executed very quickly if needed. For any carrier, introducing a new aircraft type is a big undertaking, let alone 2 at a time. WJ's "WestJet-type costs" exist because they have stayed disciplined on their single type strategy; those costs are going to be a distant memory if they continue to turn themselves into Canadian Airlines. But hey, you should advise them to go for it, hubris always pays off in the airline business.

[jkavafian]

What are WJ type costs?

Do they get cheaper fuel?

I think he means single class seating, no airport lounges, better employee work rule, no pension obligation and so on.

[mrlupin]

I think he means single class seating, no airport lounges, better employee work rule, no pension obligation and so on.

The pension advantage can't be that big. AC has not been making contributions for the pension plan shortfall for years and doesn't plan to in the future. It has been kicking the proverbial can down the road since 2003. It is only funding current employee pension benefits. For AMEs, with everyone in the industry paying better wages then AC, it's pension plan is what keeps its employees there. Remove it and you would get a mass exodus. Call it a golden noose if you want... One could argue that the extra 15-20% spread in wages offered at competitors makes up for the pension plan contribution.

As for the single class seating, is that not what the LCC is about? That also addresses lounge costs. As for work rules, AC has the government on it's side and it is going to impose collective agreements. I would say the work rules section should be covered if AC management does it's work properly. The down side to this coercive bargaining is likely to be seen in the productivity department but it's hard to tell without access to the numbers...

I think the big advantage at Westjet is the yes we can attitude versus the "red tape" approach at AC. There is a price to having a heavily bureaucratic structure that is slow to change.

[dagger]

I think he means single class seating, no airport lounges, better employee work rule, no pension obligation and so on.

You mean like an AC LCC would have?

[Guest rozar s'macco]

Is it too obvious to mention that any new strategy AC cooks up ends up on focussing mainly on how to "get it past" the employees? Tricks, lies, sandbagging, lobbying, and last effort, government intervention/legislation. Whereby WJ says let's all share in the upside.

AC's management spend an inordinate amount of time hoarding the gold and wondering why they fail to execute.

[dagger]

Is it too obvious to mention that any new strategy AC cooks up ends up on focussing mainly on how to "get it past" the employees? Tricks, lies, sandbagging, lobbying, and last effort, government intervention/legislation. Whereby WJ says let's all share in the upside.

AC's management spend an inordinate amount of time hoarding the gold and wondering why they fail to execute.

Yes, because unions and a lot of employees don't want to entertain radical new concepts, that's why. They think they should be paid the way they were always paid, that the company should compensate them for making contract changes that make the company more profitable, even before the hoped-for profit is achieved.

It's been like this for decades, and I think Calin's got it right. One by one, the biggest obstacles to sustainable profitability can and will be eliminated, either directly or by arbitraging down overall costs through the creation of an LCC.

[mrlupin]

Yes, because unions and a lot of employees don't want to entertain radical new concepts, that's why. They think they should be paid the way they were always paid, that the company should compensate them for making contract changes that make the company more profitable, even before the hoped-for profit is achieved.

It's been like this for decades, and I think Calin's got it right. One by one, the biggest obstacles to sustainable profitability can and will be eliminated, either directly or by arbitraging down overall costs through the creation of an LCC.

Employees entertained the radical concept of pay reductions with raises that got them back to the same salary 10 years later with no inflation adjustment. That should count as a radical concept no?

Can't you understand that after seeing how the mother ship treats its loyal employees (think AVEOS,Jazz and Aeroplan) employees have realized that they are just numbers and when the corporations sees fit to eliminate their jobs they will do so? It's not a matter of taking it personally but of being pragmatic about it. The 5 million dollar man chooses to get paid in retention bonuses instead of stock options. Even he seems to protecting his back end... Why would the employees believe his plan has legitimacy if he is not even willing to stake part of his compensation on it? Let him have a great Miltonesque bonus in 5 years if his plan pans out... Right now, his compensation structure seems based on a company that might not have a future.

If a low cost carrier is the way to go, lets see him ante up with some personal exposure. Right now, he just appears to be on aboard for the ride. He risks almost nothing if this flops. He just goes back to some law firm and keeps reaping in the $$.

[dagger]

Employees entertained the radical concept of pay reductions with raises that got them back to the same salary 10 years later with no inflation adjustment. That should count as a radical concept no?

Can't you understand that after seeing how the mother ship treats its loyal employees (think AVEOS,Jazz and Aeroplan) employees have realized that they are just numbers and when the corporations sees fit to eliminate their jobs they will do so? It's not a matter of taking it personally but of being pragmatic about it. The 5 million dollar man chooses to get paid in retention bonuses instead of stock options. Even he seems to protecting his back end... Why would the employees believe his plan has legitimacy if he is not even willing to stake part of his compensation on it? Let him have a great Miltonesque bonus in 5 years if his plan pans out... Right now, his compensation structure seems based on a company that might not have a future.

If a low cost carrier is the way to go, lets see him ante up with some personal exposure. Right now, he just appears to be on aboard for the ride. He risks almost nothing if this flops. He just goes back to some law firm and keeps reaping in the $$.

And don't you see that the only reason AC had ACTS and Aveos into the 21st century was by federal mandate? That airlines around world are getting out of doing their own heavy maintenance. If not for the ACPPA, Air Canada would have gotten out of air frame maintenance many years ago, and that the workers who have been doing it have been receiving many years of over-market wages and benefits. Had they been working at any other airline, they would been laid off for good 5-15 years ago. And yet the economic drag on the company has been huge.

But whine on about executive pay, which is a tiny, tiny fraction of the burden imposed by outmoded, uncompetitive labour concepts.

Sure, I'd tell the executives to work for a bit less, I'm that kind of guy, but you don't want to hear what I would do to the unions.

[Thebean]

Employees entertained the radical concept of pay reductions with raises that got them back to the same salary 10 years later with no inflation adjustment. That should count as a radical concept no?

Can't you understand that after seeing how the mother ship treats its loyal employees (think AVEOS,Jazz and Aeroplan) employees have realized that they are just numbers and when the corporations sees fit to eliminate their jobs they will do so? It's not a matter of taking it personally but of being pragmatic about it. The 5 million dollar man chooses to get paid in retention bonuses instead of stock options. Even he seems to protecting his back end... Why would the employees believe his plan has legitimacy if he is not even willing to stake part of his compensation on it? Let him have a great Miltonesque bonus in 5 years if his plan pans out... Right now, his compensation structure seems based on a company that might not have a future.

If a low cost carrier is the way to go, lets see him ante up with some personal exposure. Right now, he just appears to be on aboard for the ride. He risks almost nothing if this flops. He just goes back to some law firm and keeps reaping in the $$.

I've lost count at the number of "low cost airline within an airline" ventures that have been created on paper by earnest MBA's that have never worked in practice.

Low cost is a state of mind and starts at the very top.

If the executive group doesn't completely and utterly buy into the low cost state of mind, the low cost mentality can never be expected to trickle down to the rank and file and permeate through the organization, no matter how promising the airline looks on paper. Without that mentality hard wired into the corporate DNA, the ventures are pretty much DOA.

I had high hopes for Scoot, but I fear the sponsors at SIA will inevitably turn it into a flawed, under performing, yield canibalizing, and very expensive three year or so experiment. Jetstar's supposed success has purely been at the expense of Qantas. Air Asia, a successful shorter haul LCC has already withdrawn from KL to Europe flying.

If it were as simple as the legions of MBA's and high priced consultants claim, all the various attempts over the past 20 years or so would still be operating, creating profits for both the LCC and the mainline operation.

That has never occured. Enough said.....

[J.O.]

That is precisely why the AC LCC plan is doomed before it starts, IMHO. The employees could work for free and the head shed would still find a way to lose money.