Opinion piece published in the Globe and Mail – copyright at bottom

The Sept. 11 slump is only one of Air Canada’s burdens. Worse is a corporate culture that takes customers for granted, says consumer advocate Michael Janigan

Thursday, October 4, 2001 – Print Edition, Page A17
As wary Canadian air travelers inch their way past ticket agents and airport security this week, they may be forgiven a nostalgic backward glance at the state of the airline service that existed in Canada a little more than two short years ago.
Canadian Airlines was then still vigorously contesting most domestic markets with Air Canada, regional airlines were offering full menus of service buttressed by a successful new entrant, WestJet, and customer service was a largely uneventful and predictable experience. This memory now recedes like a lost golden age. Measures can be taken to restore consumer confidence and satisfaction—but it will require political will and an understanding of how we got into this situation.
The restructuring of the Canadian airline industry that was triggered by Canadian Airline’s woes commenced at the close of 1999. Canadian’s shotgun marriage with Air Canada set air travelers on a forced march through a wilderness of delayed baggage and cancelled flights. Seat sales went missing.
Air Canada, now the only big kid on the block, seemed determined to act that way. Combative chief executive officer Robert Milton bristled at political and regulatory efforts to reel in his airline’s bull-elephant behaviour. After a year-long orgy of bad press, the airline finally took halting steps to improve customer service, only to be flattened by the economic downturn.
The events of Sept. 11 prompted Air Canada’s public posture as a supplicant. But Mr. Milton’s wild-eyed demands for $4-billion of relief were easily faced down by Transport Canada and its minister, David Collenette. However, Mr. Collenette seems destined to live out every verse of the children’s lyric, “There’s a hole in the bucket, dear Liza.” His efforts to patch government airline policy of the 1980s with quick fixes that usually require further repair have resulted in a framework that seems bereft of most of the benefits of either competition or regulation.
Certainly, Air Canada has company in a sea of red ink. Swiss Air and Sabena, once thought to be paragons of reliability, plummeted into court protection from creditors this week.
A financial tsunami rolled across the airline industry—already suffering from overcapacity—after the terrorist attacks. This prompted a swift U.S. response, understandably more extensive than the recently announced Canadian government package. However, the U.S.-based airlines, which reaped a substantial financial cushion from government coffers, also moved swiftly to restore passenger confidence and rebuild capacity with seat sales and customer service.
Meanwhile, Air Canada grumpily opined that fare discounts won’t sell more tickets, and made a beeline for the public trough (the optics of Air Canada’s compensatory claim arising from the Sept. 11 tragedies were somewhat compromised by the carrier’s penurious attitude to passenger expenses for additional accommodation and surface travel incurred for the same reason).
Still, if Canada must go back in the business of underwriting airlines, it’s an opportune time to insist on their operation in the public interest.
The process starts with the dominant airline. Air Canada was a laggard in terms of airline productivity before its merger, and this has largely continued. Notwithstanding this fact, Air Canada gambled on three outcomes to justify the assumption of Canadian Airlines debt and other commitments in 1999: that it would garner significant benefits in reduced costs as a result of the merger; that there would be continued economic growth in the markets served by Air Canada; and that it could set monopoly prices on most routes without loss of significant market share.
True, it has realized more than $700-million in annual reduced costs from rationalized services in the merged airline. But rising fuel costs and the economic slowdown made the merger conditions a millstone. And while customers continued to pay non-competitive airfares between many cities, Air Canada has tried to protect its market share with tactics that prodded the Competition Bureau into initiating corrective action.
With its high prices and indifferent service, the money-losing near-monopoly has prompted numerous calls for Ottawa to allow U.S. airlines to operate domestically between Canadian cities (without reciprocal rights being given to Canadian carriers to operate the same way in the United States). This strategy says we should rely on the U.S. airline industry to provide the market discipline that our government or new-entrant domestic airlines cannot.
While it’s pleasing to think of Air Canada’s comfortable stranglehold on domestic airline travel being loosened by players of comparable size or larger, let’s remember that U.S. airlines are also being criticized for failing to foster a nationwide competitive market and service that meets reasonable customer expectations. In many U.S. regions, the dominant carriers have carved up markets, employing the “hub and spoke” method of operation to squeeze out competition and charge prices based on their market power.
We need not seek a Made-in-America solution for our airline woes, but we do need political will to fix them. In this country, Transport Canada is responsible for ensuring that prices are properly aligned with costs on all routes where there is insufficient competition. But this isn’t occurring.
As well, Canada’s airlines should all have quality-of-service standards written into their conditions of licence. (Transport Canada is terrified that this measure might look like regulation and that there might actually be calls for enforcement, and so the job of persuading the airlines to make nice has been left to the Airline Complaints Commissioner).
But the main task is to get Air Canada to change its corporate culture—to root its corporate salvation in the policy of not taking customers for granted. This means abandoning tricky anticompetitive ruses, like starting a new discount airline. Above all, it means providing prices and service at standards that are sustained, fair and dependable.
Michael Janigan is executive director and general counsel of the Ottawa-based Public Interest Advocacy Centre.
Copyright © 2001 Globe Interactive, a division of Bell Globemedia Publishing Inc.