AC CEO discusses the industry and the airline's place in it
#1
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AC CEO discusses the industry and the airline's place in it
http://www.montrealgazette.com/Canad...119/story.html
Montreal-based Air Canada recently posted one of the best operating profits for the third quarter in its history, withstanding the onslaught of Calgary's WestJet Airlines Ltd. and the general economic uncertainty.
Its travails are far from finished, however. Airlines, and legacy carriers in particular, face challenges ranging from an iffy economy to mounting fuel costs to security measures and grumbles about meal service (none) and baggage fees (too many).
Aerospace reporter Francois Shalom visited Air Canada president Calin Rovinescu recently for a wide-ranging discussion at his office in St. Laurent, next to a runway and hangar where jumbo Air Canada jets were awaiting repair.
Montreal-based Air Canada recently posted one of the best operating profits for the third quarter in its history, withstanding the onslaught of Calgary's WestJet Airlines Ltd. and the general economic uncertainty.
Its travails are far from finished, however. Airlines, and legacy carriers in particular, face challenges ranging from an iffy economy to mounting fuel costs to security measures and grumbles about meal service (none) and baggage fees (too many).
Aerospace reporter Francois Shalom visited Air Canada president Calin Rovinescu recently for a wide-ranging discussion at his office in St. Laurent, next to a runway and hangar where jumbo Air Canada jets were awaiting repair.
#3
Join Date: Aug 2010
Posts: 3,130
Straight up dishonesty from a captain of industry. We know better, but does the average consumer know (or care). Appalling really.
#4
Join Date: Sep 2009
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I find it strange that he brings up the YOW-FRA route to support his point. Maybe I don't know the entire history of this - is he suggesting that AC doesn't want to be operating that route, but was pressured into it?
Does anyone know what their numbers are like on this route?
Does anyone know what their numbers are like on this route?
#5
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Why is AC insisting on waging a misinformation campaign. There's at least one outright lie in there - about 'direct' service between AUS and Europe. Why doesn't CR call a spade a spade and admit that the increasingly shabby Euro carriers have been beaten out of the route by TG SQ MH CX and other carriers that not only have an AC/LH type of relationship through alliances with Euro carriers, but also offer a vastly superior product.
10-15 years ago there were (at least):
LH FRA-(BKK???)-SYD
OS VIA-(KUL???)-SYD/MEL(?)
BA LHR-BKK/SIN-SYD/MEL
Now only BA is left, so no *A option.
Asian airlines having superior products? Some do, some don´t. SQ: probably yes, TG: not in C, NH: not the old C, but the new C is nice
Basically most airlines are still transforming their C class product from lie-flat to flat beds, the only *A airlines which have completed this transition are AC, SA and SQ (though the new SQ new hard product obviously is better)
#6
Join Date: Aug 2010
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I wouldn´t call it misinformation. It´s a fact that the number of direct flights between Europe and Australia decreased (with no *A carrier left flying Europe-Australia), now whether this is due to inferior products / change in the airline´s strategy / the economy / Middle Eastern airlines entering the market, is a seperate discussion.
10-15 years ago there were (at least):
LH FRA-(BKK???)-SYD
OS VIA-(KUL???)-SYD/MEL(?)
BA LHR-BKK/SIN-SYD/MEL
Now only BA is left, so no *A option.
Asian airlines having superior products? Some do, some don´t. SQ: probably yes, TG: not in C, NH: not the old C, but the new C is nice
Basically most airlines are still transforming their C class product from lie-flat to flat beds, the only *A airlines which have completed this transition are AC, SA and SQ (though the new SQ new hard product obviously is better)
10-15 years ago there were (at least):
LH FRA-(BKK???)-SYD
OS VIA-(KUL???)-SYD/MEL(?)
BA LHR-BKK/SIN-SYD/MEL
Now only BA is left, so no *A option.
Asian airlines having superior products? Some do, some don´t. SQ: probably yes, TG: not in C, NH: not the old C, but the new C is nice
Basically most airlines are still transforming their C class product from lie-flat to flat beds, the only *A airlines which have completed this transition are AC, SA and SQ (though the new SQ new hard product obviously is better)
The problem is that we are going into semantics here. There are, in fact, 'direct' flights between Europe and Australia (British Airways and Virgin Atlantic). Whether the UK actually is a part of Europe or not is a whole separate issue.
I should specify that there is a reason that I called it misinformation. Note the following passage:
Q: Now that Ottawa has denied Emirates Airlines more landing slots in Canada, is this the end of the long battle you waged against the Dubai carrier?
CR: I don't expect we'll ever get to a point in time -ever -where we'll be able to say the chapter is closed. People have analyzed the story of Australia's experience 95 different ways. And the result is that (after Canberra allowed Emirates Airlines many more landing slots), there's not the same level of service between Europe and Australia that were was previous to that. Carriers have pulled out of those markets, and what has effectively been lost is the ability to fly direct to Europe the way you could before.
He is implying, in no uncertain terms, that EK and EY forced these airlines out. I somehow doubt it was EK or EY that forced LH and OS out of the market. I am fairly certain it was the Asian carriers who won that battle. And the Aussies have benefitted from it, as do people travelling to Australia. They may not be able to sit on an LH plane for the last 6hrs of their flight, but through S, they can branch off to flights to 4 cities (5 if you fly CX, I think) apart from SYD. And to top it off, you re dealing with world class airports like SIN and HKG - not LHR and FRA.
I think the most important aspect of this statement is its failre to recognize the impact of Aussie policy. At best, he is lying by omission (or telling partial truths, whichever you call it).
There population is 20m to our 30m. They are spread out over a mini continent. And yet they have the following traffic:
SYD - 33 million
YYZ - 30 million
MEL - 26 million
YVR - 16 million
BNE - 19 million
YUL - 12 million
PER - 10 million
YYC - 12 million.
The top 4 international airports in Australia have 88 million passengers passing through them. The top 4 international airports in Canada have 70 million passengers passing through them. Thats a 26% difference in air traffic, despite the fact that Australia has 10 million, or 33% less people than Canada does. As far as success goes, I think these statistics speak for themselves. EK and EYs entry has hardly done all that much damage. For one, QF is profitable AND one of the world's better airlines (definitely on par with Europe's best).
As for the rest, why would you want to fly LH C when you could get a codeshared aircraft putting you in SQ C. Apples and oranges, really.
#7
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He is implying, in no uncertain terms, that EK and EY forced these airlines out. I somehow doubt it was EK or EY that forced LH and OS out of the market. I am fairly certain it was the Asian carriers who won that battle. And the Aussies have benefitted from it, as do people travelling to Australia. They may not be able to sit on an LH plane for the last 6hrs of their flight...
Now, it of course makes a difference how you look at it:
a) customers will always have an option, so why should they care about the differences between the business models of EK vs. European airlines?
b) from a macro-economical point of view EK will always have a huge competitive advantage like cheap labour, cheap oil etc. and will always try to use legitimate and illegitimate measures (the latter point certainly being a controversial issue) to force other airlines to reduce capacity/discontinue certain routes etc.
I´m not making any judgements, but I fully understand that AC may tend to agree with my macro-economical analysis and thus try to limit EK´s market share in the Canadian market as long as possible.
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...
I think the most important aspect of this statement is its failre to recognize the impact of Aussie policy. At best, he is lying by omission (or telling partial truths, whichever you call it).
There population is 20m to our 30m. They are spread out over a mini continent. And yet they have the following traffic:
SYD - 33 million
YYZ - 30 million
MEL - 26 million
YVR - 16 million
BNE - 19 million
YUL - 12 million
PER - 10 million
YYC - 12 million.
The top 4 international airports in Australia have 88 million passengers passing through them. The top 4 international airports in Canada have 70 million passengers passing through them. Thats a 26% difference in air traffic, despite the fact that Australia has 10 million, or 33% less people than Canada does. As far as success goes, I think these statistics speak for themselves. EK and EYs entry has hardly done all that much damage. For one, QF is profitable AND one of the world's better airlines (definitely on par with Europe's best).
As for the rest, why would you want to fly LH C when you could get a codeshared aircraft putting you in SQ C. Apples and oranges, really.
I think the most important aspect of this statement is its failre to recognize the impact of Aussie policy. At best, he is lying by omission (or telling partial truths, whichever you call it).
There population is 20m to our 30m. They are spread out over a mini continent. And yet they have the following traffic:
SYD - 33 million
YYZ - 30 million
MEL - 26 million
YVR - 16 million
BNE - 19 million
YUL - 12 million
PER - 10 million
YYC - 12 million.
The top 4 international airports in Australia have 88 million passengers passing through them. The top 4 international airports in Canada have 70 million passengers passing through them. Thats a 26% difference in air traffic, despite the fact that Australia has 10 million, or 33% less people than Canada does. As far as success goes, I think these statistics speak for themselves. EK and EYs entry has hardly done all that much damage. For one, QF is profitable AND one of the world's better airlines (definitely on par with Europe's best).
As for the rest, why would you want to fly LH C when you could get a codeshared aircraft putting you in SQ C. Apples and oranges, really.
How interesting that your arrival here coincides fairly neatly with the EK thread.
#9
Join Date: Aug 2010
Posts: 3,130
Well, to a certain extend his message that EK and EY force European airlines out of various markets or make competition that hard that the European airlines can´t make a profit anymore is true. (though I probably agree with you that there were other factors involved for LH/OS pulling out of Australia, but the statement most definitely is true for the Europe-Asia/Africa market)
Now, it of course makes a difference how you look at it:
a) customers will always have an option, so why should they care about the differences between the business models of EK vs. European airlines?
b) from a macro-economical point of view EK will always have a huge competitive advantage like cheap labour, cheap oil etc. and will always try to use legitimate and illegitimate measures (the latter point certainly being a controversial issue) to force other airlines to reduce capacity/discontinue certain routes etc.
I´m not making any judgements, but I fully understand that AC may tend to agree with my macro-economical analysis and thus try to limit EK´s market share in the Canadian market as long as possible.
Now, it of course makes a difference how you look at it:
a) customers will always have an option, so why should they care about the differences between the business models of EK vs. European airlines?
b) from a macro-economical point of view EK will always have a huge competitive advantage like cheap labour, cheap oil etc. and will always try to use legitimate and illegitimate measures (the latter point certainly being a controversial issue) to force other airlines to reduce capacity/discontinue certain routes etc.
I´m not making any judgements, but I fully understand that AC may tend to agree with my macro-economical analysis and thus try to limit EK´s market share in the Canadian market as long as possible.
As for Africa, I can't say I know anything about it, so I ll take your word for it.
As for the other two points,
a) At the end of the day, the consumer should have the option of choosing the product that affords best value-for-money. High value-for-money = high efficency. The extension of this line of thought is that high value-for-money will ensure that disposable income is used to bolster all sectors of the economy, instead of being funnelled into one inefficient sector to keep a few actors afloat. Insofar as this is the case, not only does the consumer benefit from lower prices, but the economy as a whole benefits from more efficient use of capital.
b) Comparative advantages are a fact of life. Why should AC be protected from it when AC itself sources blankets and pillows and other stuff from China, where these items are produced at lower cost due to - yup, those words again - Comparative Advantage. If we had a national policy of sourcing everything locally (also known as protectionism), then I would agree. However, the current approach towards AC is detrimental to the country because it is based on inefficient use of capital to keep AC afloat. Assuming 30 million people fly AC annually and $10 of their airfare is lost to inefficiency, you are still looking at a loss of $300 million to the Canadian economy due to that one company's inefficiency. IMHO, this is a conservative estimate of the inefficiencies inherent in the Canadian policy towards aviation.
I fail to see why we should punish airlines for comparative advantage when we force other sectors in our own country to take on "illegitimate" comparative advantages. After all, labor laws in China afford that nation a massive, but questionable, comparative advantage. That hardly stops AC from sourcing items from them. If AC is against comparative advantages, maybe it should source everything from Canada.
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I don't know many European carriers that have been forced out of Asia because of EK. Granted a lot of Euro airlines stopped serving Pakistan post-2001, but that was due to security concerns. A lot of routes also disappeared with longer range aircraft putting an end to 3-4 stop flights. I know BA once flew its BKK route via DEL.
As for Africa, I can't say I know anything about it, so I ll take your word for it.
As for Africa, I can't say I know anything about it, so I ll take your word for it.
- many governments have argued that having at least one national airline with an extensive int´l network is beneficial to society and are therefore willing to subsidize the airline industry
- many economists argue that the airline business is a matter of "national interest" / "societal welfare" etc. (e.g. maintaing a certain number of daily flights/day to small cities to, even if the demand usually wouldn´t justify the frequencies), and not just a regular business (so your "producing pillows in China" comparison is not adequate)
The opposite argument of course is the efficiency argument you have brought up which is also important.
Also, competition per se is desirable, while it could be questioned whether a very strong EK and European airlines not generating a profit anymore is an overly desirable situation. (oligopoly, long-term route network, economic/political impact of relying on EK´s route network etc.)
We could go on arguing forever about this, but I think we can both agree that there are contradictory economic theories that can be applied to this complex matter and there needs to be trade-off between the factors. (and my personal opinion is that giving EK limited access to the Canadian market, as it is the case now, is a decent compromise)
#11
Join Date: Aug 2010
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Forcing a competitor out of a market certainly is an extreme case and doesn´t happen that often, but undercutting prices (for a limited period of time) certainly is one of EK´s strategies. I don´t say this is bad from a customer, short-term perspective. I´m just saying that the effects on the entire ecomony are much more complex than some try to make us believe ("EK is cheaper, so give them unlimited slots in Canada!"), you obviously have a better understanding of the economy than many others, so I´m sure you´re also aware of the following aspects:
- many governments have argued that having at least one national airline with an extensive int´l network is beneficial to society and are therefore willing to subsidize the airline industry
- many economists argue that the airline business is a matter of "national interest" / "societal welfare" etc. (e.g. maintaing a certain number of daily flights/day to small cities to, even if the demand usually wouldn´t justify the frequencies), and not just a regular business (so your "producing pillows in China" comparison is not adequate)
The opposite argument of course is the efficiency argument you have brought up which is also important.
Also, competition per se is desirable, while it could be questioned whether a very strong EK and European airlines not generating a profit anymore is an overly desirable situation. (oligopoly, long-term route network, economic/political impact of relying on EK´s route network etc.)
We could go on arguing forever about this, but I think we can both agree that there are contradictory economic theories that can be applied to this complex matter and there needs to be trade-off between the factors. (and my personal opinion is that giving EK limited access to the Canadian market, as it is the case now, is a decent compromise)
- many governments have argued that having at least one national airline with an extensive int´l network is beneficial to society and are therefore willing to subsidize the airline industry
- many economists argue that the airline business is a matter of "national interest" / "societal welfare" etc. (e.g. maintaing a certain number of daily flights/day to small cities to, even if the demand usually wouldn´t justify the frequencies), and not just a regular business (so your "producing pillows in China" comparison is not adequate)
The opposite argument of course is the efficiency argument you have brought up which is also important.
Also, competition per se is desirable, while it could be questioned whether a very strong EK and European airlines not generating a profit anymore is an overly desirable situation. (oligopoly, long-term route network, economic/political impact of relying on EK´s route network etc.)
We could go on arguing forever about this, but I think we can both agree that there are contradictory economic theories that can be applied to this complex matter and there needs to be trade-off between the factors. (and my personal opinion is that giving EK limited access to the Canadian market, as it is the case now, is a decent compromise)
The only thing that I am against is the outdated policies that allow these issues to flare up out of proportion.
I am NOT calling for unlimited access. I do, however, support daily service. If KL can do it on (unjustifiably) 3 routes, why can't EK? What loyalty do we have to the Netherlands? Perhaps we could scrap some of KL's frequencies and give them to EK?
Lets consider the broader facts:
1. EKs entry into Australia hasn't killed Australia's national carrier. In fact, a second one has just emerged to rave reviews (V Australia). QF is, of course, a top notch carrier. It is profitable, which is more than we can say for AC most of the time.
2. If airlines are about national interests and social welfare, they should be nationalised and/or subsidized. The truth is that AC does not serve all of Canada, nor is it obligated to (as was evident in the recent cancellation of the YOW-Regina (I think) flight). It has no qualms about cancelling thse flights. Furthermore, there are half a dozen smaller airlines that exclusively serve small airports around the country. These airlines can replace AC on certain routes (they they don't currently serve because of capacity requirements). If AC stops serving Iqaluit, First Air will take over. And so on.
3. The extensive international network is costing Canada. When you funnel passengers through FRA, you force them to pay AT LEAST $20 more in government taxes than they would travelling through the UAE. Assuming 5 million Canadians transit through Europe annually, we are literally throwing $100 million into the garbage can.
4. The notion that only national carriers should service point to point traffic is outdated. AC openly tries to divert US - Europe and US-Asia traffic through Canada, often by pricing those tickets significantly lower than tickets originating in Canada. That aside, it also punishes people who originate in countries that either have inadequate or poorly run national carriers. In some cases, the national carriers quite literally lack the capacity to serve Canada adequately. And then theres the issue of countries that don't get any coverage from Euro airlines. In such cases, airlines like EK offer a legitimate alternative. Pakistan is the most obvious example.
5. We are already in an oligopoly situation, best illustrated by the fuel surcharge issue. Notice how fuel surchages on transatlantic flights are uniform across carriers. Compare it to AC's publicly available policy on fuel surcharges to Japan. And when you consider the rest - several European airlines (and AC) were cponvicted of price fixing cargo fuel surcharges, its hard not to connect the dots. With AF owning KL and LH controlling OS and LX, and the whole AC/LH tie up, not to mention a potential AC/LH/UA/CO joint venture, you're basically looking at an oligopoly that EK might be able to trouble. In such cases, I think the independents of the ME could be a good thing, rather than a bad one.
6. Producing pillows is just one case. Canadian producers across the board face massive competition from abroad. And to top it off, they have to pay the highest airfares in the developed world. Hardly conducive to efficiency. In addition to the losses our companies face over the inflated airfares, we also have to factor in a tourism industry that could be doing a lot better. High airfares actually prompt Canadians like myself to choose foreign holiday spots instead of Canadian ones. Thats lost revenue for Canada.
7. I would still argue for a daily EK service, partly because it won't cause the massive domino affect of collapsing airlines that some "analysts" predict, but it will put pressure on the current eastbound oligopolies, particularly the AC/LH/OS/LX and AF/KL rackets.
So yes, I would contend that current policies are, on balance, doing more harm than good. It may not be promoting inefficiency, but it is certainly doing a lot to protect it. IN these austere times, every dollar saved is a dollar earned. That said, I agree that you raise some valid points - and EK should not be giving unlimited access. However, I feel that they should be given more access, if only to put pressure on the current oligopolies spanning the Atlantic. I mean, you may have several carriers on those routes, but when 6 of them belong to 2 groups, you're looking at a pretty dire situation.
Last edited by yulred; Dec 14, 2010 at 7:28 pm
#12
Join Date: Oct 2006
Posts: 1,830
V
There population is 20m to our 30m. They are spread out over a mini continent. And yet they have the following traffic:
SYD - 33 million
YYZ - 30 million (add in BUF,DTW as well...)
MEL - 26 million
YVR - 16 million (add in BLI,SEA as well)
BNE - 19 million
YUL - 12 million
PER - 10 million
YYC - 12 million.
The top 4 international airports in Australia have 88 million passengers passing through them. The top 4 international airports in Canada have 70 million passengers passing through them. Thats a 26% difference in air traffic, despite the fact that Australia has 10 million, or 33% less people than Canada does. As far as success goes, I think these statistics speak for themselves. EK and EYs entry has hardly done all that much damage. For one, QF is profitable AND one of the world's better airlines (definitely on par with Europe's best).
As for the rest, why would you want to fly LH C when you could get a codeshared aircraft putting you in SQ C. Apples and oranges, really.
There population is 20m to our 30m. They are spread out over a mini continent. And yet they have the following traffic:
SYD - 33 million
YYZ - 30 million (add in BUF,DTW as well...)
MEL - 26 million
YVR - 16 million (add in BLI,SEA as well)
BNE - 19 million
YUL - 12 million
PER - 10 million
YYC - 12 million.
The top 4 international airports in Australia have 88 million passengers passing through them. The top 4 international airports in Canada have 70 million passengers passing through them. Thats a 26% difference in air traffic, despite the fact that Australia has 10 million, or 33% less people than Canada does. As far as success goes, I think these statistics speak for themselves. EK and EYs entry has hardly done all that much damage. For one, QF is profitable AND one of the world's better airlines (definitely on par with Europe's best).
As for the rest, why would you want to fly LH C when you could get a codeshared aircraft putting you in SQ C. Apples and oranges, really.
Probably close to 2 million Vancouver passengers fly out of BLI & SEA to avoid the USA's taxation scheme on cross-border flights, something that isn't an option in Australia. I suspect the numbers are similar for YYZ area passengers using BUF..
#13
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you could swim to the nearest airport and risk not being eaten up by a shark :P
#15
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I was actually planning to fly AC LHR-YVR-SYD this NYE in C, but then they doubled their Z fares ($3600a.i. to >$6500) and US offered a nice opportunity to do my trip in F for <$2000, guess which option I chose.