I need an answer

[Guest Simcoe]

I'm gonna keep posting this until someone answers the question coherently.

Before agreeing to any pay cut proposal, someone better explain to me what use it is to take paycuts when they won't be nearly enough to reach the stated goal of matching Westjet's costs.

If we can't match the costs, we can't really match the fares and make any money, let alone expect any "profit sharing" in the future. Consumers are not going to pay 20% more for an AC flight because it’s AC. I won’t pay 20% more for gas at Petro Canada than an independent because it’s Petro Canada and they have Petro points. I doubt any forum readers would either. That’s not realistic.

In 2002, Air Canada produced 60.637 billion ASM's at a cost, including interest, of $10.31 billion with an average flight length of 1,225 miles. That is a cost per available seat mile of 17 cents a mile.

http://www.newswire.ca/releases/February2003/06/c7398.html

WestJet produced 4.651 billion ASM's in 2002 at a cost, including interest, of $600.4 million with an average flight length of 625 miles. That is a cost per available seat mile of 12.91 cents a mile.

http://www2.cdn-news.com/scripts/ccn-release.pl?/2003/02/13/0213021n.html?cp=wja

In the first quarter of 2003 WestJet produced 1.485 billion ASM's in 2002 at a cost, including interest, of $171.62 million with an average flight length of about 625 miles. That is a cost per available seat mile of 11.56 cents a mile.

http://www2.cdn-news.com/scripts/ccn-release.pl?/2003/04/30/0430039n.html?cp=wja

In order to match WestJet's cost structure, Air Canada needs to shave between 4.1 cents a mile and 5.4 cents a mile off each and every one of the 60.637 billion miles produced in a year. That works out to cost cuts of between $2.49 billion and $3.58 billion a year.

When you consider what it costs Air Canada to operate a flight over WestJet's average flight length, you can easily add 30% to those numbers.

You can quibble with the numbers but the bottom line is the bottom line. I don't see any chance of overall costs being cut between 25 and 35%, (and more likely 45%). US Air didn't come close to this under Chapter 11. They dropped for 12 cents to 10 cents. Southwest is still at 7.5 cents. Does anyone think US Airways is in any position to go head to head with SWA?

I don't see revenue improving with the introduction of even lower fares the other day and the obvious reduction of flying that is going to have to occur.

Sure, taking a 15% cut will help, but at the end of the day, it's not going to be nearly enough to save the ship, I'm sorry to say.

There are some that say that the international flying is so much more costly. Is that why C3000 had a casm of 10.1 cents for the year ended April 30 2000?

Look at Cathay Pacific. In 2002, their CASM was cdn 13.1 cents a mile, (c$5.133 billion in expenses divided by 39.2 billion ASM's), and they operate 5 747-400's and 6 747-200 freighters, none of which produce an ASM.

13.1 cents is far below AC's 17 cents. To match Cathay's costs, AC needs to cut $2.3 billion, forgetting about the expense of flying 11 747's 14 hours a day in freighter configuration.

http://www.cathaypacific.com/cx/intracx/content/documents/91684_1freport2002e.pdf

Sure business class is more expensive to operate, but then so are the fares to cover it. Roundtrip J class from YYZ to LHR is $6,099, coach is $970.30. One would think that with a cost per mile of 17 cents and a yield of 86 cents in J class, that the numbers should work, and make up for the supposed huge costs of international flights. If they don’t then why bother with J class and all the trappings?

How do I trust or have faith in a Board of Directors and management group who turned 80% marketshare into bankruptcy, when even United only had 22% US share. If they coudn't make it work with that advantage, how do they propose running a smaller carrier with less share. Sorry, I don’t see it. Al I see is a desperate management group bludgeoning everyone and everything in it’s path. That’s no way to run a business. Sure costs may come down, but employees will be miserable. Remember the last time you bought something at a store with miserable service? Have you been back since?

Sorry, I'm not buying into it. I wish I could.

JMO

[Guest Ben Dover]

Here’s your answer.

AC’s goal is to become profitable. Their preliminary plan shows profitability after reorganization. Perhaps we don’t have to go as low as West Jet in order to make money. By restructuring the labor agreements as proposed, we are becoming more LIKE a low cost carrier. Our goal was never to become a low cost carrier, just to reorganize enough to achieve profitability. RM’s reference to WJ was merely to show the large disparity between the labor costs between the two airlines. To think that we can become a WJ is unrealistic, and even management knows that.

[ai]

Simcoe - I hope this helps

Several variables come into play when coming up with the CASM.

You are focusing on one of them (ie 15% wage cut). You are absolutely right that this is not enough to drop our CASM to WS's level.

Some of the other variables which need to be addressed:

1) Productivity - Often not fully explored in this forum. Productivity does not just mean what you get from employees. Aircraft, for instance, is important. With their shorter average stage length WS can produce a higher acft utilization than AC can. We need to be able to increase our avg blk hrs/day per acft by getting more flying from front and back end crews per month. By getting their pilots involved in the grooming, WS has shorter turnaround times for their 737s than we do. This all adds up at the end of a day/week/month/year.

2) Distribution cost: Moving away from CRSs and going on-line (like we sort of announced this week) will help reduce mamoth costs from CRS use. - WS primarily advocates on-line bookings with an additional saving to boot.

3) ET. Paperless travel costs significantly less.

4) Crew Hotels: This is an expenditure that is in the 10's of millions $$/year. Did you know that based on the layover time, crews have it in their contract that they have to stay in a downtown hotel (not airport). We have all shopped for hotels and we all know that it is far more expensive to stay downtown (sometimes 2x as much).

5) Antiquated Work Rules: AC check-in agent can only do sooo much...than it becomes a gate agent issue (risk of grievance if not abided by)...after the gate agent...only a flight attendant can do certain things. If we were to adapt these work rules to today's reality, we would be able to do with less employees with the removal of scillos (sp?).

6) I know it is not a preferred course of action; however, less employees translate into less employee per acft, hence improving CASM by improving productivity.

7) WS seat density is not a la AC. 125 seats in a B-737 vs our 100 (12J 88Y). Assuming an identical cost for everything else, WS immediately has a 25% CASM advantage by cramming in 25 more seats.

8) This leads me to why AC wants smaller more cost efficient planes. This would increase our PLFs which in turn would bridge the gap between RASM (revenue per ASM) and CASM. All the while flying an acft that does not cost anywhere near as much as a B-737 in fuel.

9) Lease costs - Don't forget that WS raised enough capital to fully buy (0$ for ownership cost) their first few acfts.

I can go on with more items...I hope this helps you in your quest for an answer!

[dagger]

Where does it say that the statement goal is to match Westjet's costs. I thought the stated goal was to close the gap by half. Westjet and Air Canada can have different cost structures because Air Canada and Westjet have different revenue structures. The trick for full-service airlines is to lower costs enough to be able to offer discount pricing for a portion of their inventory in order to stop the erosion of their business to discount airlines and still make money. Moreover, your "sacrifice" is only one of many that will affect Air Canada's costs. If aircraft leases are marked to current market rates, savings would be in the hundreds of millions of dollars. If debt was converted to equity, Air Canada would save about $200 million a year in non-operating expense. If thousands of employees are let go outright, and the remaining employees collectively work more productively - then there will be hundreds of millions of dollars in annual savings. So applying the percentage of wage reduction to AC's costs tells you nothing about where AC's costs are going to be after a restructuring.

Moreover, Westjet has made very healthy profit margins. AC could get by with half of Westjet's profit margin and still make a very nice buck. Thus having to "match" Westjet's costs is not the issue. It might be nice in a theoretical world, but it is not realistic or necessary. The key is the happy median and how to get there. It can't come just out of the employees, or just out of the lessors or just out of the other creditors.

[B75/76]

“Before agreeing to any pay cut proposal, someone better explain to me what use it is to take paycuts when they won't be nearly enough to reach the stated goal of matching Westjet's costs.”

All your arguments are valid and seem quite logical. It seems to me, however, you are concerned primarily about the long term survival of the airline.

Perhaps you are correct and this will not save it for an extended period of time. It is also pretty apparent AC is not in a position right now to survive short term. That hurdle needs to be cleared first, or the rest is irrelevant.

The reality is the paycuts may buy you time. Time to plan personally. Time for the industry to, perhaps, recover and provide some employment alternatives. Additional time before the EI line becomes a reality.

It has been a long 18 months since the demise of C3. My experience tells me now is a really poor time to have to scramble for a job, especially if you are one of thousands. It is also easier to find work, it seems, while one is employed. Don’t rush to the EI line if you can help it.

[Frosty]

Nicely Put Dagger!

The Happy median is what need's to be found!

[Guest flyersclub]

But is AC a full service airline any longer??I just returned from ORD to YYC ... 3.5 hr. flight with a 1700 hr. departure .. for dinner we were offered a meatball sub or smoked meat sandwich .. wrapped in tin foil .. handed to you ... that's it .. not on a tray, with nothing else!! This is a business traveller's flight ... most people were pretty surprised ... so I don't know who could describe this as full service??

[Guest George]

Been on a full service US airline lately?

No, I figured as much. Open your eyes a little their buddy.

[Fido]

"With their shorter average stage length WS can produce a higher acft utilization than AC can"

Not true: Generally the longer the stage length the MORE utilization you get. You are correct about turn times however.

"This leads me to why AC wants smaller more cost efficient planes. This would increase our PLFs which in turn would bridge the gap between RASM (revenue per ASM) and CASM."

The CASM of CRJ's is higher than great big airplanes. The advantage comes from Trip Cost IF you do not have enough passengers to fill the larger aircraft. Given a choice between operating 4xCRJ's or one 200 seat aircraft, take the 200 seat aircraft everytime.

[Guest gunny12]

flyersclub,

No need to worry about the service on that sector (ORD-YYC). The marketing wizards have decided to drop it. And, according to the Ops staff in ORD, just when we were entering the summer period. Historically, this sector is oversold quite regularily over the summer months?? Where's the plan??????

Heaven help us..........

[Guest M. McRae]

Perhaps taking into account the "Beef" scare, the SAR scare and oh yes the "West Nile Virus" scare????

[Guest flyersclub]

there never was one .. i have flown on them all! you obviously missed the beginning of the post ... nighty nite!