This article from NYTimes.com has been sent to you by psa188@xxxxxxxxx /-------------------- advertisement -----------------------\ Explore more of Starbucks at Starbucks.com. http://www.starbucks.com/default.asp?ci=1015 \----------------------------------------------------------/ Bankruptcy Is Changing Air Canada June 4, 2003 By BERNARD SIMON TORONTO, June 2 - The in-flight meals on Air Canada are still free, but not the new "cinema combo" of chocolate bars, licorice, Häagen-Dasz ice cream and mineral water, which the airline has begun selling on some of its North American flights in recent weeks. The snacks say more about Air Canada's future direction. The airline, which filed for bankruptcy court protection April 1 and is losing some 5 million Canadian dollars ($3.7 million) a day, undoubtedly needs to recoup the expense of providing the snacks, charging $4 for two candy bars and a bottle of water. But Air Canada, North America's seventh-biggest airline, is also looking to changes like the new snack offerings to help it build a new public image. When Air Canada executives talk about the overhaul now in progress, the financial side, with its crippling debt load and underfunded pension plan, is only part of the conversation. "It's not just about aircraft or tickets or airports," Robert Milton, the chief executive, said in a speech last month. "It's about changing a culture." Canadians have a love-hate relationship with Air Canada. Though it was privatized more than a decade ago, it is still widely thought of as the national airline, and prized as one of a dwindling number of Canadian companies recognizable around the world. But as a former government entity with a dominant 70 percent share of the domestic market and a heavily unionized work force, Air Canada is also lambasted for mediocre food, lost luggage and surly service. "Air Canada badly needs to change the buzz about the service experience," said Douglas Reid, who teaches business strategy at Queen's University business school in Kingston, Ontario. In ways large and small, Air Canada wants to use its passage through bankruptcy to do that. According to John Reber, a spokesman for the airline, one purpose of the new cinema snacks is "to make the flight fun." Without a change in culture, Mr. Reid said, it is doubtful that Air Canada can win any customers back from its chief rival - WestJet, a low-cost Calgary-based carrier and one of the many around the world modeling itself on Southwest Airlines of Dallas. WestJet has challenged Air Canada on a growing number of routes. With its nonunion cabin crews who wear denim jackets and sprinkle in-flight announcements with wisecracks, WestJet has been profitable every quarter for more than six years. By contrast, Air Canada lumbered to a first-quarter loss of 270 million Canadian dollars ($197 million) and estimates that it lost another 310 million Canadian dollars ($226 million) in April and May. Air Canada, based in Montreal, has a sprawling route map, with scheduled jet service to 20 cities in Canada and some three dozen in the United States, scores of regional feeder routes and more than 40 overseas destinations. But Russell Wodiska, a senior consultant at Eclat of Arlington, Va., which advised some of Air Canada's unions in recent negotiations with the airline, noted that it gets a high proportion of its revenue from a small number of those routes, making it "incredibly vulnerable" to low-cost rivals. In the weeks since it filed for bankruptcy protection April 1, Air Canada has extracted 1.1 billion Canadian dollars ($804 million) in cost savings from nine unions and from its managers, to be achieved through a combination of layoffs, wage rollbacks and loosening of work rules. The labor-cost savings were seen as essential before the airline could start serious talks with its hundreds of creditors about restructuring its debts, which total 12 billion Canadian dollars ($8.8 billion). Pamela Sachs, head of the union representing Air Canada's flight attendants, said that the new labor agreements would also help instill a new culture. In the talks, Ms. Sachs said, "we talked all the time about trimming the tree from the top," meaning focusing the brunt of layoffs on workers who have been on the job longest. "It's about injecting new blood," Ms. Sachs said. "We're going to see an element of youth and vitality." According to Mr. Wodiska, the consultant, the average age of Air Canada's flight attendants is several years older than at the major United States airlines, and most of Air Canada's attendants are at the top of the pay scale. Air Canada tried to go toe to toe with WestJet and a proliferation of other low-cost operators long before the bankruptcy filing. Since 2001 it has set up two no-frills subsidiaries, known as Tango and Zip, which are run as separate airlines and offer fares that are comparable to WestJet's and sometimes lower. Zip, which flies mostly in western Canada, is a nonunion operation, though its expansion is limited by agreements Air Canada made with the parent carrier's unions. Tango is unionized, and its route network has been cut back in recent months; instead, Air Canada is expanding Jazz, a subsidiary operating on regional routes mainly in Ontario, Quebec and British Columbia. The Jazz pilots belong to a different union and are paid less than their colleagues at the parent airline. They are lobbying for a bigger role at Air Canada, which fits well with the airline's plans to add 85 smaller commuter jets over the next few years and dispose of some Boeing 747's and 737's. Under the recent union agreements, Jazz will operate all Air Canada planes with fewer than 75 seats. After Air Canada's deal with its own pilots expires next April, the Jazz pilots hope to start flying larger aircraft as well. Air Canada expects regional aircraft with fewer than 110 seats to make up 62 percent of its fleet by 2009, up from 38 percent now. Its international operations, Mr. Reid of Queen's University said, will probably focus on routes across the Atlantic and Pacific "where it doesn't have to compete against WestJet or Southwest." In another move to woo passengers, Air Canada simplified its domestic fares last month, eliminating some restrictions and making it easier to change bookings. For a round trip between Toronto and Calgary, Air Canada was quoting a <object.title class="Movie" idsrc="nyt_ttl" value="158017;245269;149898">"Fun"</object.title> fare of 501 Canadian dollars ($367) on its Web site this week, about 10 percent more than WestJet's fare for similar departure times. http://www.nytimes.com/2003/06/04/business/worldbusiness/04CANA.html?ex=1055735319&ei=1&en=d227d654e1611bea --------------------------------- Get Home Delivery of The New York Times Newspaper. Imagine reading The New York Times any time & anywhere you like! Leisurely catch up on events & expand your horizons. Enjoy now for 50% off Home Delivery! 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