Air Canada gives WestJet a taste of its own medicine

Yahoo Finance Canada
An Air Canada jet taxis at Newark Liberty International Airport, Wednesday, May 2, 2018, in Newark, N.J. (AP Photo/Julio Cortez)
An Air Canada jet taxis at Newark Liberty International Airport, Wednesday, May 2, 2018, in Newark, N.J. (AP Photo/Julio Cortez)

With the threat of a pilot strike looming at WestJet, competitor Air Canada is playing hardball — using the same tactics once employed against them by the Calgary-based airline.

Air Canada, by far the largest airline in this country, has offered to assist passengers adversely affected by the potential strike by adding increased capacity on key routes within Canada.

“Travellers who may be concerned about the uncertainty resulting from WestJet’s strike vote mandate can book Air Canada with confidence,” wrote the Montreal-based airline in a release.

WestJet pilots recently voted 91 per cent in favour of a strike mandate and will be in a legal position to commence job action on May 19.

What goes around, comes around

“WestJet did the same to us when we were having labour problems,” said George Smith, Labour relations expert and Senior Fellow at Queen’s University, who worked in senior management at Air Canada in the ‘80s and ‘90s. “They ‘kindly’ offered to put more flights on the bread-and-butter routes like Montreal-Toronto, Toronto-Calgary and Toronto-Vancouver; those are the routes that make a lot of money for the company with business travellers, and those are the routes they relish,” he says.

“WestJet lobbied the government very strongly to not intervene, to let the market do its thing, to ‘let us benefit if Air Canada can’t get its act together.’”

Now the shoe is completely on the other foot, says Smith.

“Air Canada has understood the necessity for labour peace and I commend them for the 10-year labour agreements for many of their collective agreements,” says Smith. “They have no uncertainty right now, employees are included in decisions about new equipment and routes and they have good control of their labour relations. Air Canada will be saying ‘don’t intervene.’

“On those key routes where they wants to attract those business travellers, they’ll upgrade capacity and divert planes from lower-paying routes to capitalize on WestJet’s problems,” says Smith.

Competition in Canada

Business school will teach you that when you have just two main players, an oligopoly, there’s two options for them, says Dr. Barry Prentice, a Professor at the Asper School of Business at University of Manitoba.

“They can fight to maximize their market shares, or they can fight to maximize their joint profit,” says Prentice. “It seems that initially WestJet started out fighting to maximize market share, but for the last four to five years they seem to be going along with whatever happens.”

Prentice gives the example of the $25 baggage fee being introduced by both airlines on the same day. “The old WestJet probably wouldn’t have done that, but the one that wants to jointly maximize profits says ‘sure, we’ll do that too. You raise fares, we’ll raise fares.’ It’s a very cosy competition right now.”

Investors are wary

“Airline stocks are historically not the best investments because outside factors such as fuel prices have a huge impact on the bottom line,” says Smith. “The warnings from analysts are ‘be prepared for a rocky ride.’ Why would you invest in a company that is in for a rocky ride when you can put your money somewhere with more certainty?”

“These are growing pains that come with a company that’s transitioning from being a point-to-point discount carrier to a hub-and-spoke system,” says Prentice.

“They announced they’re buying [Boeing] 787s for international transport, they’re becoming a mainline carrier and along with that comes the union.”

Is government intervention necessary?

The peak summer travel season is quickly approaching, but ALPA (Air Line Pilots Association), the union representing the pilots, says they will not take job action during the May long weekend.

“If we look at railways, where the government only allows the railways to be on strike for about a week before it forces binding arbitration, I’m not sure they will let the airline have a protracted strike because it’s so disruptive to business and tourism,” says Prentice. “From the government’s perspective, how much damage are you willing to tolerate to the economy in the name of collective bargaining?”

“This will raise the whole spectre of the argument,” say Smith. “Is air travel a necessary service, a public service like policing or fire fighting? Should we have the inalienable right to fly to Vancouver whenever we want? Or is this a lesser-required service?”

“I don’t think this will lead to a big drop in the GDP,” Smith adds. “People will find alternatives, train, drive, or fly with another airline. Ultimately I don’t think this will have a huge impact. I think WestJet will be appealing to the government to say this is a vital service, if they don’t have a settlement they’ll be asking the government to assist them with back-to-work legislation.” 

Will they strike?

“There’s a mutual self-interest here,” says Smith. “It is to the pilots’ advantage that the company is growing and expanding and buying new equipment and to the company’s advantage that the employees are engaged in part of their growth.

“But those are not the things that are being emphasized in public now. But that’s why we have a process under the Canada Labour Code. That we haven’t heard anything from the media blackout surrounding the negotiations and hopefully both parties realize what’s at stake,” he says.

“It’s human nature to work towards a deadline,” says Smith. “98 per cent of the work gets done in 2 percent of the time.”

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