We now know a little more about Air Canada’s low cost carrier including the fact that it will be named rouge. (That’s right, not capitalized. I hate that.) Flights are to leisure destinations in Europe and the Caribbean and we now know some of the cities. So do the details make you like this plan any better?
Browsing Posts in Air Canada
North America is a big place. When you think about where the next big airline battle is likely to be, you probably aren’t going to guess it’s in small town Canada. You’d be wrong. The battle is brewing, and Air Canada is on the defensive. WestJet is getting ready to invade.
In Canada, there are two big domestic players. We have the big ole’ legacy Air Canada and the young punk WestJet. (Yes, there are other players including the stylish and cool Porter and some of the guys doing rugged flying into the north, but those are niche players.) WestJet has often been called the Southwest of Canada, but it’s really more like JetBlue. There is live television onboard, and the airline wants to partner with many others in order to feed its flights. It also has put together an extra legroom product that it will sell for a fee.
Dynamics of Canada
One of the more interesting announcements to come from the WestJetters was the decision earlier this year to create a regional airline that would fly turboprops around smaller cities.
This sounds pretty goofy, but Canada is a different kind of place, eh? It is an enormous country from a geographic perspective but all but 2 or 3 people out of its 35 million residents (an eighth of the US population) live very close to the US border. So the country’s air travel needs tend to be very unique.
WestJet Choose Small Over Big
There aren’t a ton of cities that can support big airplane service, but WestJet has done a great job of making huge gains in those places. But the opportunity is somewhat limited, and that means WestJet had to start thinking about going elsewhere if it wanted to expand. It could have been like most airlines and tried to go bigger. After all, flying big airplanes over oceans is downright sexy, right? But that would have been pretty stupid.
Air Canada today already flies all over the world and fills many of those seats with cheap connectors from the US. There is limited service from non-Canadian carriers (thanks to some protectionist policies up north) but ultimately, there isn’t a lot of opportunity. At least, there isn’t nearly the opportunity that there could be in the opposite direction.
Feeding small cities in the global network is still largely the domain of Air Canada and its regional fleet. Sure, there are plenty of other operators who do a lot of the tiny town flying – places like mines and oil fields. But for getting people around Canada and into the rest of the world, Air Canada dominates. WestJet saw that and decided that there was opportunity. After all, two beavers are better than one, right?
So WestJet has been rolling right along. It decided to buy a fleet of Q400 turboprops. (Buy Canadian!) And it decided to name the airline… WestJet Encore. At first that named seemed odd, but then I remembered the dual French/English thing up there. WestJet Encore works in both languages. Though I think that I speak for English-speakers everywhere in saying that we would have all been perfectly fine with WestJet Part Deux instead.
But let’s get back to the point. WestJet Encore is pretty much ready to go except for a few tiny things… like where it’s going to fly. Routes won’t be announced until early 2013, and it won’t start flying until later next year. So there is plenty of time, but Air Canada isn’t taking any chances.
Air Canada Flexes Its Muscles
Air Canada has already seen a lot of traffic disappear domestically thanks to WestJet’s growth, and it doesn’t want to lose anything on the smaller routes it still dominates. So even though we don’t know where WestJet Encore will go, Air Canada is ramping up.
Apparently Air Canada thinks that a big chunk of the ramp-up will be in the West and so it’s diving in head first. Starting December 1, there will be one more flight each day between Calgary and Fort McMurray, Grand Prairie, and Yellowknife. Edmonton to Ft McMurray, Regina, and Saskatoon will see an extra flight as well. And not to be left out, Vancouver will get an extra flight each day to both Ft St John and Nanaimo. As of today, most of these are flown with 50 seat CRJs. Beginning in February, however, the 74 seat Q400 will begin moving into these and other routes in the region. So we’re seeing more flights and more seats on each flight. Let the bloodbath begin!
By the time WestJet moves into these markets, it looks like Air Canada will be ready for a fight. I’d imagine we’re going to see some serious bleeding until things sort out.
In the end, I can’t imagine that these markets can support all the service they’re about to get, so there will have to be changes down the line. Will WestJet really be able to make money in an area where other low cost carriers have struggled? If this were in the US, I’d say no. But it’s Canada. And things work differently up there. At least, that’s what WestJet is banking on.
Let’s end the week with a little bit of awesome. An Air Canada flight into Sydney went out of its way to descend down to 4,000 feet in order to look for a missing boater. Incredibly, they found him. Would you have had an issue with the diversion if you were a passenger? Have you see this done before?
How All the American Airlines Trouble Affects Flyers and What You Can Do – Conde Nast Daily Traveler
If you’re a traveler, you don’t care who is at fault when it comes to American’s operational problems. You want to know if it’s really that bad, and if so, what you can do about it. That’s the focus of this column.
In the Trenches: Making the Case for a Full-Time Employee – Intuit Small Business Blog
We keep growing at Cranky Concierge, and I’m finally on the verge of being able to justify a full time employee. The idea is pretty exciting.
How do you get upgraded at the gate on a flight? – The Globe and Mail
I was asked how to get upgraded when you fly. It’s not so easy these days.
When you don’t have any new ideas in this industry but your airline needs help, what do you do? You just recycle old ideas and make them sound like the best thing since sliced bread. Throughout the late 1990s and into the early 2000s, the “airline within an airline” plan of having multiple brands in the same company took hold. If hotels can have multiple brands, why can’t airlines, right? (Huzzah!) They all failed except for one down under. But that won’t stop airlines from trying it again and again and again. This time, Air Canada is jumping onboard as are all the big European carriers. Bleh.
The original rationale for this kind of thing was that low cost carriers were encroaching on existing legacy airline turf. Because of that, the big airlines decided the only way to compete was to go the commodity route. They decided they needed to have the lowest fares in the market but to do that, they also had to have lower costs so that the venture was profitable. Piece of cake, right?
Just about every US airline save American and Northwest tried this. Everyone remember CALite, Shuttle by United, Metrojet, Delta Express, Song, and Ted? They’re all long gone because they failed miserably. In some cases, they didn’t really have reduced costs. In other cases, they were used on the wrong routes. But in all cases, they were huge distractions for the main airline that resulted in little benefit.
Air Canada Says Third Time’s a Charm
This strategy wasn’t just tried in the US either. It was pitched by consulting firm after consulting firm, time and time again. Many airlines fell for it, including Air Canada. It started Zip in 2002 to try to compete with upstart WestJet with some tired old 737-200s. You might remember seeing those airplanes – they had a different bright neon color on each airplane. But that wasn’t enough. Air Canada also started Tango, an airline that did longer flights to leisure destinations. Neither lasted long and today, only Tango lives on simply as the name of Air Canada’s cheapest published fares.
Air Canada now thinks its time for round three. Next summer, the airline will once again create a leisure-focused low fare airline. This one will even be combined with its vacation package arm. It will start with four aircraft and eventually, there will be 20 767s flying over the ocean and 30 A319s flying North America routes.
And why is it that this plan will magically solve all that ails Air Canada? Well, step 1 is that they will cram more seats on the airplane and they will have lower labor costs. Step 3 is profit. Step 2? Magic.
The idea is to fly routes that the airline doesn’t currently serve, but will that help to support the rest of the airline? Not really, and that’s what bothers me about all these schemes. They’re cramming seats in and going for low fares. If they connect people into the Air Canada network, then it’s going to be on low fares and it’s not going to be very helpful to the current airline. If it’s point to point flying, then maybe the idea is to make enough money that they can mask the failings at the rest of the airline? That’s been the strategy behind the very successful Jetstar in Australia. But let’s not get there just yet.
Europeans Love the Strategy
On the other side of the Atlantic, just about every European airline is trying to figure out how it can compete with the low cost carriers that are currently winning all the battles. IAG (owner of BA and Iberia) launched Iberia Express to take over existing Iberia routes mostly in and out of its Madrid hub. This is purely a play to lower operating costs in order to support the larger airline so it’s somewhat different than most efforts.
Meanwhile, Transavia has been carrying the torch for Air France/KLM in the low cost world. The Dutch airline has long served leisure markets from Amsterdam but it has also now established a French subsidiary to fill in for Air France too, primarily out of Orly airport.
Lufthansa is putting together its own low cost carrier plans as well. It already has a low cost carrier called Germanwings which it picked up in 2009. Germanwings does a lot of flying on low fare routes outside of Lufthansa’s main hubs. Now Lufthansa will take ALL short haul flying that doesn’t touch Munich or Frankfurt and transfer it into this new low cost carrier. Unlike with Iberia Express, the short haul flights that feed the long haul operation will still be Lufthansa in Munich and Frankfurt.
What’s the Point?
In the end, these plans always have the same purpose. Low cost carriers with their cheap labor and lower operating costs come in and eat the legacy carriers’ lunches. Leacy management decides labor costs are too high so they find a way to start a new airline with lower labor costs. Sometimes there’s an operational twist about how lean and mean the new operation will be. Then that will solve everything, right? Not quite.
In nearly all cases, this plan hasn’t worked. Airlines set up specifically as low cost carriers have the business in their DNA. They (at least the successful ones) are simply really good at keeping costs down and fares low. The ones started by other airlines don’t usually have that same level of success because there is too much interference from people elsewhere in the organization. (Oh, and there often isn’t demand for them anyway.)
The one place it worked? Australia, where Jetstar seems to be doing well. Jetstar was set up as a completely separate airline and appears to have had more separation from Qantas than other airline attempts had. But guess what? That still hasn’t done anything for Qantas itself. That airline continues to struggle mightily. It’s just that the parent company now has at least something that’s making money unlike the mess that is Qantas. Just think what might have happened if they focused on fixing the main airline instead.
Can this strategy actually help the main airline? Yeah, financially it can if they flip the thing over. Look at Austrian, which recently transferred everything over to lower cost Tyrolean. It still operates as Austrian from a customer perspective but its at lower labor rates under the Tyrolean contract. Naturally, employees hate this because management really just makes an end-run around hard-negotiated contracts. This may help the airline’s balance sheet but it guts the soul of the airline itself.
Jetstar hasn’t reached that point… yet, but every airline employee naturally looks at these things skeptically, as they should. Most of these fail and simply divert important resources from the core airline. Some succeed but without helping the parent airline. And others, as in the case of Austrian, just take the parent airline over entirely. In the end, the chance of seeing real benefit is minimal.
Just run the airline you have, please.