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Bullish About the Bear

Longevity is an admired trait of any company, but particularly so of an airline. Other than Air Canada, that was created as Trans-Canada Air Lines in 1937 and went through a rebirth of sorts in 2004, most of the other high-profile Canadian airlines are relatively young


September 29, 2009
By Frederick K. Larkin

Topics

Many Have Played, Few Have Stayed
Longevity is an admired trait of any company, but particularly so of an airline. Other than Air Canada, that was created as Trans-Canada Air Lines in 1937 and went through a rebirth of sorts in 2004, most of the other high-profile Canadian airlines are relatively young. For example, Air Transat, Jazz Air, Skyservice Airlines and WestJet Airlines are all less than 25 years old.  So, when an airline operating under its original name celebrates its 40th anniversary, it is noteworthy. Such is the case with Bearskin Lake Air Service Ltd. of Sioux Lookout, Ont.  

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Bearskin currently serves 17 communities with a fleet of 14 Fairchild Metros.


 

Given its bounty of natural resources, northern Ontario has seen plenty of aviation activity in support of its commodity-oriented economy. Over the past three decades many local scheduled carriers have disappeared as a result of mergers, acquisitions or financial failure. Former players included Air Ontario, Austin Airways, Canadian Voyageur Airlines, Frontier Air, Hooker Air Services, norOntair, On Air, Ontario Central Airlines, Ontario Express, Patricia Air Transport and White River Air Services.

In light of the current economic environment, is Bearskin positioned to reach its golden anniversary in 2013 and to prosper beyond that? Before we attempt to answer that, let’s review how the company has come to where it is today.

That Was Then…
It all began on July 17, 1963, when Otto John Heglund founded the company at Bearskin Lake in northwestern Ontario. Two years later the Class 4C charter outfit was purchased by Henri Boulanger and Albert Cone, who expanded the fleet of float equipped aircraft from the original pair of Cessna 180s.

In 1972, a 24-year-old Bearskin pilot named Harvey J. Friesen purchased 50 per cent of the company. Five years later he acquired the other half and became the company’s chief. That same year, Bearskin became a scheduled carrier with the introduction of the Sioux Lookout-Big Trout Lake route. The following year, the company initiated its second sked service from Sioux Lookout to Thunder Bay. Harvey Friesen’s brother Cliff purchased an interest in the company that year and established a base for the carrier in Thunder Bay.

During the late 1970s and early 1980s, the Ontario government funded the development of airports to serve numerous First Nations communities that were accessible only by air. The company, which was now marketing itself as Bearskin Airlines, seized the opportunity to establish scheduled services connecting those communities with key transportation nodes such as Thunder Bay and Winnipeg.

A meaningful boost to Bearskin’s growth came in the fall of 1988 when it entered into a commercial agreement with Air Ontario – an Air Canada connector carrier; with that arrangement came Bearskin’s participation in Air Canada’s Aeroplan frequent flyer program. Bearskin remains an Aeroplan partner today.

In 1991 the carrier acquired its first two Fairchild Metro aircraft. Bearskin used these aircraft on Sept. 14, 1992, to introduce scheduled flights between northwestern Ontario’s two largest cities – Thunder Bay and Sudbury. Further opportunity came in the spring of 1993 when Ontario Express, a regional affiliate of Canadian Airlines, withdrew from the Thunder Bay-Sault Ste. Marie-Sudbury-North Bay-Ottawa route. The so-called “Northern Tier” route was an ideal fit for Bearskin, thus it moved quickly to fill the void in seat capacity by initiating service on April 4 that year. 

Although it now had a significantly larger presence across northern Ontario, Bearskin still faced competition on many of its key routes from norOntair – an air service funded by the provincial government. That changed on March 29, 1996, when norOntair’s operations ceased as a result of the province withdrawing its financial support. Once again, Bearskin responded by expanding its network to Marathon, Wawa and Timmins, and by increasing frequencies on the “Northern Tier” route.

In 1999 the company increased its presence in Manitoba. Having operated a route from Winnipeg west to Brandon (from April 1994 until October 1995), it now looked north. In May 1999 it introduced scheduled service from Winnipeg to Flin Flon and The Pas – routes that remain in place a decade later.

In an effort to skim some cream off Canada’s second busiest city-pair, Bearskin initiated scheduled service between Toronto Buttonville Municipal Airport (in suburban Markham, Ont.) and Ottawa on Sept. 10, 2001.  Nine-seat Pilatus PC-12s supported the impressive schedule of seven round trips each weekday. 

Bearskin beefed up its northwestern Ontario schedule on Oct. 15, 2002, when it began service between Winnipeg and Dryden, Ont., using 12-seat Beech King Air 100s. Calm Air International had discontinued that route in late September.

Bearskin used Buttonville again when it began service between northern Ontario and the Greater Toronto Area on April 7, 2003. That day it started flying there from Sudbury using PC-12s to provide three round trips each weekday.

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This summer the company celebrated its 46th birthday.


 

Six years ago, the map depicting Bearskin’s northwestern Ontario destinations resembled a barn wall that had been peppered with buckshot. A seemingly random pattern of approximately 30 dots represented a significant portion of the carrier’s network. That changed dramatically in July 2003, when Bearskin sold its scheduled routes north of Red Lake and Sioux Lookout that served 21 First Nations communities for approximately $18 million to Wasaya Airways LP. The deal included two Pilatus PC-12s, rotables and a hangar.

A year later, in Aug. 2004, Bearskin reorganized its eastern Ontario route structure and focused on its traditional territory. The rationalization included the withdrawal of its services from Toronto Buttonville as a result of competitive pricing from the majors.

Any truly entrepreneurial management team is always on the lookout for niche market opportunities that have inherent pricing power. With that in mind, Bearskin initiated service between Ottawa and the Region of Waterloo International Airport in Breslau, Ont., on Oct. 1, 2007.  The latter serves the cities of Kitchener, Waterloo, Cambridge and Guelph – a region known for its technology industries and post-secondary educational institutions. The provision of convenient non-stop flights between Ontario’s two leading technology centres proved to be a worthwhile endeavour.

As its route structure matured over the years, so did its fleet. The single-engine piston aircraft (including Cessna 180/185s, a Beaver and Otters) were supplemented by such piston-twins as Super Skymasters, Aztecs, Navajos and DC-3s. During the ’80s and ’90s, these aircraft were largely replaced by turbine powered machines including Cheyennes, Twin Otters and a Bandeirante. During the past decade, four aircraft types served as the company’s workhorses – the Pilatus PC-12,  the Beech King Air 100, the  Beech 99 and the Fairchild  SA227 Metro.

This Is Now …
Bearskin currently serves 17 communities (including 13 in Ontario and four in Manitoba) with a fleet of 14 Fairchild Metros. Its head office is at Sioux Lookout and it has another base at Thunder Bay. Bearskin’s “team” numbers approximately 255, with about 70 pilots, 70 maintenance personnel, 90 ground support staff and 25 administration/management people. The company’s employees are represented by three unions. The flight crews are members of the Air Line Pilots Association, aircraft maintenance engineers are members of the International Association of Machinists and Aerospace Workers, and the United Food and Commercial Workers International Union represents passenger service agents.

The company’s primary customers include government and business travellers. The latter group being largely represented by mining, forestry and professional (medical, legal and financial) personnel. The balance of its traffic is made up of people travelling for medical reasons, to visit friends and relatives and for leisure.

An extremely important part of the Bearskin story is its route network and the competitive dynamics associated with it. The company’s core product is scheduled passenger transportation. Convenience is provided by a typical weekday frequency of three flights (morning, mid-day and afternoon/evening) in each direction on key routes.

In its region of operation, where geography dictates a longer routing for surface transport, air travel is the most logical mode for travellers in a hurry. The table on page 24 outlines the airline competition faced by Bearskin and the shorter distances offered by air travel on 10 of its key city-pairs.

As shown in the table, Bearskin has direct airline competition on only three of those 10 routes. The six northern Ontario city-pairs that are served by Air Canada or Jazz Air all require time consuming transfers at Toronto’s Pearson airport. Also of interest is the fact that the average stage length of the 10 routes shown is only 246 miles: suitable for small turboprops, but not for larger turboprops or regional jets. Would Bearskin ever operate the 680-mile Ottawa-Thunder Bay route? Probably not, given the distance and the fact that Jazz Air operates a 50-seat CRJ once daily in each direction on that run for Air Canada.

In order to gain a better understanding of any business model and therefore appreciate how a company may perform in the future, it is useful to perform a S.W.O.T. analysis (Strengths, Weaknesses, Opportunities and Threats).  Doing so with Bearskin Airlines yields the following insights:

 BEARSKIN AIRLINES’ COMPETITIVE DYNAMICS
City-Pair Stage
Length
(SM)
Highway
Distance
(SM)
Airline Competition
Ottawa-Waterloo  266 337 None
Ottawa-Sudbury 262 302 AC/Jazz Air via YYZ
Sudbury-North Bay 68 78 AC/Jazz Air via YYZ
Sudbury-S.S. Marie 177 189 AC/Jazz Air via YYZ
Sudbury-Timmins 137 182 AC/Jazz Air via YYZ
Sudbury-Thunder Bay 416 620 AC/Jazz Air via YYZ
S.S. Marie-Thunder Bay 260 433 AC/Jazz Air via YYZ
Thunder Bay-S. Lookout 167 244 Wasaya Airways
Winnipeg-Flin Flon 379 542 Calm Air International
 Winnipeg-The Pas 325 455 Calm Air International

S.W.O.T. ANALYSIS OF BEARSKIN AIRLINES
 
STRENGTHS:
Standardized fleet – The eclectic fleet mix is history. One aircraft type provides cost savings related to employee training, maintenance and inventories of parts and rotables. It also provides crew scheduling flexibility and a consistent level of service for the customer.

Appropriate aircraft type – Given its size (19 seats), speed and pressurized cabin, the Fairchild Metro has proven to be near perfect for Bearskin’s network. While the smaller (nine seats) single-engine PC-12s had a less than satisfactory dispatch reliability, the Metros have performed well. In light of the typical loads, the SA227 offers a better breakeven passenger load factor than a 30-seat Embraer Brasilia, a 34-seat Saab 340 or a 37-seat DHC-8-100 Dash 8. Even with each aircraft operating five to six block hours per day, Bearskin is profitable with its system-wide PLF of about 45 per cent.

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Bearskin CEO Harvey Friesen purchased 50 per cent of the company in 1972.


 

Sensible scheduling – Reasonable frequencies on its key routes, with three to four flights spread out during the day, have proven to be a winning formula for attracting and retaining customers.

Low-cost distribution
– Since the introduction of its website five years ago, the company has seen the Internet play an increasing role in ticket sales. Today almost a third of its sales are booked on the web.

Relatively stable workforce – Employee turnover is an ongoing issue at most airlines. Smaller carriers are often used as a training ground by some employees who move on when an opportunity from a major carrier presents itself. Having said that, Bearskin offers a lifestyle option that has proven to be quite acceptable to many. As a result, there are many employees who have 10 to 15 years of service with the company. Despite the recent economic downturn, normal attrition has enabled Bearskin to avoid layoffs.

Community involvement – Giving back to its constituency is a hallmark of good corporate character. During the past 11 years, Bearskin has hosted an annual golf tournament (Charity Golf Classic) in six communities. Along with other sponsors, it has raised just over $1 million for local charities. As well, Bearskin has hosted an annual curling bonspiel (Hope Classic) since 1997. That event has raised more than $1.7 million to support breast cancer treatment, research and equipment in northwestern Ontario.

WEAKNESSES:
Natural resource exposure – A portion of its customer base is related to the mining and forestry industries. Bearskin has experienced the cyclical behaviour of these businesses over four decades and continues to adjust seat capacity on specific routes as required.

Unionized employees – The presence of unions can sometimes trigger concern in the minds of managers and owners. A review of press releases related to past settlements at Bearskin reveals co-operative sentiments from both sides. Management and labour have worked to obtain agreements that provide stability for the employees as well as for the future of the company. Such an enlightened approach is a sharp contrast to recent worker/management dustups in the public sector. Interesting to note that Bearskin has never experienced a strike.
 
OPPORTUNITIES:
Return to the Twin Cities – For almost three years during the ’90s, Bearskin operated between Thunder Bay and Minneapolis/Saint Paul, Minn. That service ended when competitive pricing made the operation non-economic. Today, Mesaba Airlines operates that route (under the Delta Connection banner) twice a day with 34-seat Saab 340Bs. There is industry speculation that, with the merger of Northwest Airlines into Delta Air Lines, Thunder Bay may be dropped from the Delta network. Should that come to pass, Bearskin would be able to service the route with a more appropriate gauge of equipment. 

Charters – With the arrival of its 14th Metro, the company has additional capacity to provide charter services.

THREATS:
Competitive pressure – Given the size of the communities that it serves and the mix of customers that it carries, it is reasonable to assume that Bearskin’s network has a base level of traffic that expands when economic activity increases. As its routes are not high-growth markets, there is probably enough traffic to enable one airline to earn a profit. Should a second carrier attempt to duplicate Bearskin’s Ontario network, the outcome would probably be a financial misadventure.

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“Bear Country”


 

Further economic deterioration – The livelihood of northwestern Ontario and northern Manitoba is tied largely to the fates of the mining and forestry industries. While a cyclical recovery will eventually transpire, a prolonged slump in key commodity prices might lead to a downsizing of the enterprise in the interim.

What Does All This Mean?
The business model of Bearskin Airlines can be simply described as a triumph of common sense over ego. Traditional practice demands that a commuter airline work towards achieving regional status by expanding its route network, growing its fleet and increasing the size of its aircraft. Jet aircraft are deemed to be the status symbol associated with maturity. 

When an airline disregards these temptations and instead focuses on the provision of a logical service that not only pleases its customers but enables consistent profitability, it is a remarkable occurrence indeed.

“Bear Country” stretches over a large patch of real estate. Lynn Lake is 1,300 miles northwest of Waterloo. Winnipeg is 1,050 miles west of Ottawa. Between these points there are another 13 stations served by the carrier. The company has proven that by operating the right sized aircraft, with the right number of daily flights, scheduled at the right times and flown over the right stage lengths it can make money. That’s certainly alright.

What Does The Future Hold?
Given the state of the economy today, crystal ball gazing is not a popular pastime for the company’s CEO. Harvey Friesen notes that in such an environment it is best to stick with the knitting. When asked what the company might look like in ten years, he stated that it would probably be similar to what it is today – a scheduled carrier – only larger. More destinations, possibly including some south of the border.

As he is currently 61 years of age, and has been building the business for 37 years, time will come for a change in leadership. He is also the major owner amongst the company’s five shareholders. One gets the sense, however, that any change in the Pilot in Command is still some time off and that the present course will be maintained for now.

Conclusion
This summer the company celebrated its 46th birthday. This commercial longevity can be attributed to the strict attention that has been paid to some basic business tenets: monitor the customers’ needs and provide services accordingly; keep a close eye on operating costs; exercise discipline in meeting maintenance and safety standards; and temper ambitions by recognizing the risks associated with unnecessary expansion. Continued adherence to this regimen should result in the company being able to thrive well past its 50th birthday.  

It is probably accurate to say that Bearskin Airlines does not enjoy the public profile of some other successful Canadian carriers. However, once you gain an appreciation of its unique attributes, it’s easy to be bullish about The Bear.