Air Canada must transform itself into low-cost carrier, CEO Milton says AMY CARMICHAEL Canadian Press Thursday, February 20, 2003 VANCOUVER (CP) - Air Canada won't use old-style airline management in the face of dismal results but transform itself into the kind of low-cost carrier that is winning in the post-Sept. 11 market, says its president. "This time we are not looking at planes and schedules and seats," chief executive officer Robert Milton said Thursday. "We are looking at the new realities of the marketplace." Air Canada has traditionally catered to the full-fare and business traveller, which used to make up the majority of business, said Sam Barone, an independent airline analyst. Now those figures have flipped and upwards of 80 per cent of passengers are chasing seat sales and deals. "Market psychology is the deciding factor," he said. "People want discount fares and nothing else and in order to provide that Air Canada has a massive restructuring job ahead of them." Milton told the Vancouver Board of Trade the airline can succeed in the new market with a more flexible workforce and lower staff costs. "Air Canada's salaries and benefits represent over 30 per cent of our operating costs - over $3 billion annually - and we must do things differently," he said. The company is meeting with unions but faces a formidable challenge in negotiating a new deal, he said, but it is the best avenue for improvement. "If we had our main low-cost competitor's work rules, pay scales and so on, we would drop $1.3 billion to our bottom line," said Milton. Instead, the company had to cut $1.3 billion this year. It has cut costs by shifting to online bookings through promotions and reorganizing planes to add more seats at relatively low cost. Air Canada is also selling stakes in components of the business that have been successful, such as Aeroplan. Milton said the sale of a significant interest in Air Canada Technical Services is being investigated. So is the creation of an airport ground handling services subsidiary. Barone said Air Canada is up to the challenge and noted they are leading the pack of old-style, so-called legacy carriers. "They're doing a lot better than a lot of the U.S. carriers that are really being battered," he said. U.S. Airways and United Airlines are already under bankruptcy protection and there is constant speculation about when American Airlines will make its trip to bankruptcy court. These carriers, and Air Canada, were built on an old business model of being all things to all people, Barone said. Milton said it's painfully obvious that model now is obsolete. "It makes for an inflexible cost structure, a mammoth distribution infrastructure which relies heavily on computer reservation systems and a vast airline network which is unnecessary for the price-conscious traveller," he said. Barone said there's no reason Air Canada wouldn't succeed once it reorganizes but it's a massive job. "It's such a big organization that there isn't one thing that will turn this around, it's a total overhaul of the business model and cost structure." The company got a minor leg up from the federal government in Tuesday's budget when airport security taxes were reduced. But Ches Chard, a spokesman for the Association of Canadian Travel Agents, said it will only have a minor impact on bookings. *************************************************** The owner of Roger's Trinbago Site/TnTisland.com Roj (Roger James) escape email mailto:ejames@escape.ca Trinbago site: www.tntisland.com Carib Brass Ctn site www.tntisland.com/caribbeanbrassconnection/ Steel Expressions www.mts.net/~ejames/se/ Site of the Week: http://www.trotters.net TnT Webdirectory: http://search.co.tt *********************************************************