Qantas and Air Canada: A tale of two airlines

Commentary, Transportation, Ken Phillips

Air Canada shareholders must wish they could swap to Qantas shares. Airline industry analysis suggests that Air Canada is more likely to collapse than survive. Qantas continues to post profits. Air Canada has run big losses for the last two years.

On the surface Qantas and Air Canada are similar. They are iconic national airlines carrying their countries’ symbols across the globe. They service similar sized domestic populations and geographic areas and both have long proud histories.

Air Canada’s generic problems are nearly identical to Qantas. Primarily these include ageing and entrenched workforces and work practices crashing headlong into a grinding competitive environment that takes no prisoners.

Qantas is confronting the problems. Air Canada is not.

Two weeks ago, Air Canada’s woes blew up in spectacular fashion. The airline has been in protracted, unsuccessful union negotiations for many months. Wildcat strikes have been frequent. The Canadian government has an interventionist approach on strikes affecting businesses deemed to be of national interest. The government pushed through controversial ‘return to work’ legislation covering Air Canada workers ordering unions to an arbitrator.

Following this the Canadian industrial relations minister was heckled and jeered by Air Canada workers as she walked through Toronto’s airport. The airline sacked the workers (15 of them were later reinstated), triggering a massive, sudden strike.

Mayhem has erupted across Canadian airports with flight cancellations stranding tens of thousands of customers, many who were unable to get their luggage for up to ten hours. Passenger anger resulted in confrontations with Air Canada employees with one employee being spat on, an event that may symbolise what Canadians think of their national carrier.

The entire (unresolved) dispute has strong parallels to the Qantas dispute of 2011 with one massive difference. Air Canada management has lost control of its management capacity. Events control it rather than management controlling events. In comparison, through its temporary closing down of the airline, Alan Joyce at Qantas showed that management is running Qantas.

Qantas management have had firm control for a long time. Their 2004 move to start up Jetstar, as a low cost subsidiary carrier competing directly with Qantas has been their saviour. Jetstar has enabled them to take on domestic and international budget airlines and win.

Qantas’ is headed to primarily becoming a marketing and brand manager of airlines. Jetstar’s newly announced expansion into the Japanese and Chinese domestic markets reinforces this view. Expect to see Qantas international primarily reduced to the Australia-London and Australia-LA routes.

Where Qantas has Jetstar, Air Canada has failed to kick start a similar ambition for an Air Canada owned, low budget airline. Air Canada unions don’t want the budget airline and have worked hard to block the start up. Now Air Canada is being cannibalised by an increasingly popular domestic low cost carrier, Westjet. Qantas responded to the challenge from Virgin with Jetstar. Air Canada has failed to respond and is suffering the consequences.

Qantas management has forced commercial reality onto its staff, highlighting the irrelevant role of the Transport Workers Union and its boss, Tony Sheldon. Other Qantas unions have jumped in to become part of the new competitive play. Interestingly ex-Air Canada pilot union officials have urged members to support the needed changes.

But Air Canada is left with a horde of TWU types. Air Canada’s unions and union bosses have retained their relevance but it’s a relevance related to the self-destruction of a crumbling Air Canada.

This is demonstrated in a key item of Air Canada’s industrial negotiations. Much of the battle is over management’s desire to reduce the expensive pension scheme weighing heavily on Air Canada’s costs. Unions won’t budge. It’s really a fight by an aging workforce (understandably) desperate to secure retirement incomes. The fight shows the entrenched Air Canada staff attitude of viewing the airline as already defunct. They’re not fighting for an airline with a future, but instead are fighting over how it dies.

Air Canada leadership seems strategically inept or visionless, or both. This is partly demonstrated by a failure to invest in new aircraft. With the average age of Air Canada planes approaching 13 years, Air Canada has a massively expensive service bill. Yet its wholly-owned fleet service subsidiary Aveos recently collapsed due to lack of work from Air Canada, costing 3,300 jobs. Air Canada’s maintenance costs increased 27 per cent last year.

The Qantas, Air Canada comparison is a tale of two cultures. In a free market, people make choices as consumers. Qantas is responding to consumer choice. Air Canada is angry that people are not choosing it.