Neha Jain: http://canadaaviationnews.blogspot.com/16

1. . End of cheap air fares in Canada near?

Despite arguments that high taxes and fees from Ottawa are behind higher fares in Canada, the country’s largest airlines have also been testing the upper limits of what consumers are willing to pay to fly, according to one analyst.

And while it is still too early to say for certain, the days of cheap travel in Canada may be drawing to a close, Raymond James analyst Ben Cherniavsky, said in a note to clients Wednesday.

The highlight of the fourth quarter for both WestJet Airlines Ltd. and Air Canada were the pricing improvements they experienced in the final three months of the year.

WestJet, for instance, said its yields, reflecting higher prices, rose 6.8% during the quarter, and Air Canada’s were up by 5.3% in the domestic market as well.

These small increases have incredible impact on the profitability of the airlines. WestJet’s fourth-quarter earnings per share of 33¢ doubled his earnings estimates simply because its yield of 17.6¢ was only slightly more than his estimate of 16.8¢.
His random sampling of fares shows that the country’s largest carriers are still trying to find the upper threshold where fare increases impact demand.

“We do not know where demand destruction ultimately kicks in (nobody does), but it is obvious that at some point consumers and (less so) businesses will eventually balk at price increases and just stay put,” Mr. Cherniavsky said. “It appears that Canada’s airlines are prepared to test these price sensitivity limits—at least that is the main conclusion that we have drawn from our latest survey of lowest available fares in Canada.”

February fare index was up 34% and 46% for Air Canada and WestJet respectively, marking the “highest absolute value” he has has recorded in February in the eight years since he started doing these surveys.
The index has proven useful in the past in determining the direction of pricing trends.

“While it may be a stretch to suggest that this marks the end of cheap travel per se, it appears increasingly evident to us that, after more than a decade of waiting (effectively ever since Canadian failed), the elusive benefits of a ‘cozy duopoly’ in Canada’s airline market may finally be at hand.

2. Air Canada pilot retirement age is up in the air

OTTAWA – The issue of whether Air Canada can force older pilots to retire is back in play after a Federal Court judge found the Canadian Human Rights Tribunal ignored key evidence in a 2009 decision about the airline’s mandatory-retirement policy.

In a decision posted to the Federal Court website this week, Judge Anne Mactavish ordered the quasi-judicial tribunal to reconsider whether youth is a genuine occupational requirement for Air Canada pilots.

In 2009, the tribunal ruled in favour of Robert Kelly and George Vilven, two Air Canada pilots who challenged their mandatory retirement at age 60. It found that mandatory retirement provisions in the airline’s collective agreement with the Air Canada Pilots’ Association violated the Canadian Charter of Rights and Freedoms. In a second decision last fall, it reinstated Kelly and Vilven and ordered Air Canada to compensate them for lost income.

The tribunal has since heard a complaint from 68 other former Air Canada pilots, with a decision still pending. In addition, the Canadian Human Rights Commission has referred complaints by another large group of former pilots to the tribunal and is investigating even more.

The Federal Court got involved after Air Canada and the pilots’ association filed applications for judicial review of the tribunal’s 2009 ruling.

In her 128-page decision, Mactavish upheld the tribunal’s finding on the charter issue. But she also concluded that it erred in finding Air Canada had failed to demonstrate that age is a bona-fide occupational requirement for its pilots, which would make the violation of their charter rights justifiable.

At the tribunal hearing, Air Canada argued that scrapping mandatory retirement would make it almost impossible to schedule its pilots within International Civil Aviation Organization rules. That organization allows pilots-in-command younger than age 65 to fly internationally, as long as one pilot in the crew is younger than 60.

Air Canada says 86 per cent of its flights are to an international destination or pass through foreign airspace, and thus are subject to the international body’s rules

Within five years of the abolition of mandatory retirement, a substantial percentage of Air Canada’s pilots would be over age 60, the airline told the tribunal. It could accommodate only a “very limited number” in that age bracket before scheduling would become unworkable, it said.

But the tribunal appeared to ignore much of the evidence central to Air Canada’s case, Mactavish observed.

“This is not merely a situation where the tribunal failed to specifically refer to evidence contrary to its findings,” she wrote.

“Rather, the tribunal states quite categorically that there was ‘no evidence’ on these points.”

That gave rise to the “inescapable inference” that the tribunal overlooked important portions of the airline’s case, she said.

At one point, for example, the tribunal found evidence was “lacking” as to the potential costs Air Canada would incur if it had to hire additional pilots to cover its schedule. But, Mactavish noted, the airline “actually provided detailed evidence” on that issue.

“No explanation was provided by the tribunal as to why this evidence was ‘lacking.’ This element of the tribunal’s decision thus lacks the transparency and accountability required of a reasonable decision.”

As a result, the judge set aside that part of the tribunal’s decision and ordered it to re-determine, based on all the evidence, whether Air Canada has established that age is a bona-fide occupational requirement for its pilots. If the answer is yes, that could validate Air Canada’s mandatory retirement policy.

3. Air Canada, unions on different flight paths

Air Canada is forecasting that its employees will reap $2,125 each in extra compensation for 2010 after the airline met an array of financial and operating targets. But the pay-for-performance system clashes with union desires for sharp jumps in base wages.

Management is striving to instill a corporate culture that rewards workers for flights arriving on time, friendly customer service and company profitability. As contracts with its five unions near expiry, however, labour leaders say they’re determined to make up for years of wage sacrifices and workplace concessions.

While a new program to issue $500 worth of Air Canada shares to each employee is being billed as a sound way to help engage the work force, union leaders said staff would rather see base wages grow.

The differing priorities highlight the challenges ahead in contract talks as Air Canada seeks to continue on the path to financial recovery, less than two years after a cash crunch nearly forced it to seek bankruptcy protection. Last week, the Montreal-based carrier announced that it posted a $107-million profit last year – its first annual profit since 2007.

“Our members have done their part to help Air Canada get back to making a profit. Are they looking for increases in wages and benefits? You bet they are,” said Dave Ritchie, general vice-president of the International Association of Machinists and Aerospace Workers (IAMAW).

Leslie Dias, national representative for the Canadian Auto Workers union, said her members make an average of $24.58 an hour, only 4.5 per cent more than they did in 2003, so the “bonuses” for 2010 don’t replace wages that have risen at less than half the inflation rate. She said employees are working harder than ever, awaiting recognition not only for having their paycheques frozen over past two years, but also for enduring wage cuts from 2003 to 2005. (In April, 2003, Air Canada entered 18 months of bankruptcy protection.)

Officials from the CAW, which represents 3,800 airport customer service agents and call-centre staff, met last Friday with management representatives to kick off negotiations. The two sides are to reconvene next Monday.

When Calin Rovinescu took over as Air Canada’s chief executive officer in April, 2009, he acknowledged that it would take time to change the corporate culture at the airline. Last week, he reiterated the importance of rewarding a productive work force.

“It is my desire to build a focused, performance-driven culture. In 2010, we delivered on all of our priorities we set for the company, and we will both reward and celebrate this so we can build on our successes in the years ahead,” Mr. Rovinescu told analysts on a conference call.

On top of wages negotiated in labour contracts, the airline’s employees are garnering about $55-million in other remuneration pegged to 2010’s performance, or $2,125 for each full-time worker, according to Air Canada.

At WestJet Airlines Ltd., which has a non-unionized work force, more than 84 per cent of employees own shares in the Calgary-based carrier. Air Canada employees have tended to avoidstock ownership, but last week the airline announced that it will soon grant $500 worth of shares to each eligible employee worldwide, in a $14-million payout. “Half of these shares will vest immediately and the other half will vest in February, 2014,” Air Canada said in a statement.

As well, in a “special incentive,” $500 in cash will be awarded to each member of the carrier’s Canadian defined-benefit pension plan. “The award is being made pursuant to the 2009 pension funding and other arrangements as a result of the company achieving certain financial targets in 2010. This award is being made at a cost of $13-million to Air Canada,” the airline said.

About $1,125 is flowing to each eligible employee in a $28-million “sharing our success” program that rewards employees for meeting certain operational and customer service targets, notably on-time performance of scheduled flights and favourable passenger satisfaction surveys, among other measures. Workers are eligible to receive $75 a month for achieving on-time performance targets and another $75 a month for meeting consumer-oriented goals.

“In 2010, the company contributed $243-million to its pension plans. Moreover, based on the close of markets on Feb. 10, 2011, the 17.6 million shares granted to the unions for the pension fund in 2009 are now worth about $60-million,” Air Canada added.

The CAW’s Ms. Dias said union leaders are bracing themselves for a long set of talks over the next collective agreement. “We plan to meet for an extended period of time if we’re making progress. We could be meeting for a few weeks,” she said.

The CAW’s contract expires Feb. 28. Collective agreements expire March 31 at the IAMAW, the Canadian Union of Public Employees, Air Canada Pilots Association and the Canadian Airline Dispatchers Association.

4. Man on U.S. no-fly list refused boarding in Canada

A British man is effectively trapped in Canada after two of the country’s airlines refused him boarding because he is on a no-fly list in the United States.

Dahood Hepplewhite arrived at Pearson airport on Sunday with a ticket for Air Transat’s flight to the United Kingdom. But, according to the 30-year-old, the airline told him about his place on the controversial list and that he wouldn’t be allowed to get on the aircraft, which flies through U.S. airspace.

He says he bought a ticket on Air Canada for the next day, but officials there denied him too, concerned their plane might have to land in the U.S. in an emergency.

The Canadian Civil Liberties Association believes the airlines are acting on a bill that is not yet law. If approved, it would give U.S. officials final say over who can board a plane in Canada, even if the destination and any stopovers are not in the U.S.

“Bill C-42 hasn’t passed yet,” said Sukanya Pillay of the CCLA.

“We’re not supposed to be having the private sector handing over this information to foreign governments when the passenger isn’t flying to that particular government’s home state.”

Air Canada wouldn't comment about the specifics of the case, but a spokesperson sent CityNews a written statement.

"This is a customer and security issue,” Peter Fitzpatrick wrote. “Air Canada operates in compliance with all applicable laws.”

Meanwhile, Hepplewhite – here on a visitor’s visa which expires in April – just wants to take his Canadian wife and children back to Britain so he can work.

“Ban me from the country if you feel I’m such a threat,” he said on Tuesday.

“I couldn’t bear to feel that I’m imprisoned in a country with no rights, no nothing. I want to go home. I’m not trying to go anywhere or do anything. I just want to go home.”

He says he doesn’t know why the U.S. deems him a threat to security, but his wife thinks it has to do with him converting to Islam.

According to Hepplewhite, Canadian immigration officials at the airport gave him two options: overstay his visa so he is arrested and deported, or buy tickets on a cruise ship so he can get home without crossing U.S. soil or air.

NEHA JAIN

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