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One on One-With Air Canada President & CEO Montie Brewer

With Air Canada President & CEO Montie Brewer 


September 27, 2007
By Darren Locke

Topics

318-oneWHAT ARE THE KEY ELEMENTS OF AIR CANADA’S ‘CHANGING FOR SUCCESS’ INITIATIVE?
The
‘Changing for Success’ initiative is about explaining that we need to
continue to change. That will allow us to morph into a carrier that we
believe provides extreme value to the customer long-term. When we
looked at legacy carriers of old, and the old Air Canada could have
been put in that category, the legacy carriers could be defined as
carriers that were large, that had been around for a long time, that
were really meaningful to the customers and the communities they
served, but somehow just seem to be very vulnerable to low-cost
competition.

When you look at it, you’re old, because your costs
are out of line. But there’s more than just that – it’s how you
approach the marketplace, the revenue model you have, and the offering
you have to the customer. For us to survive long-term, we need to
change the revenue model we have, and we need to change how we manage
our business. We need to simplify it to get the costs out –
simplification actually makes it a better product. And at the same time
we need to clearly demonstrate to our customers the value proposition
we have, which we think is unique to us, and is appreciated by the
marketplace. But we have yet to find a way to get the revenue for that
appreciation.

So there are two areas – the customer side and the
employee side – we need to change. On the customer side, even though we
gave great service day-in, day-out, we ended up with the customer
having fairly large ‘buyer’s remorse’ at the time of purchase. And so
they quickly forgot the great experience they had on their last flight,
because when it came down to purchasing again they would not trust that
they were getting value for the prices we charge. And that came from
basically how we priced the product, how we communicated our price in
the marketplace, and this is something legacy carriers I think in
general are sort of guilty of. We became very focused on how to extract
the greatest amount of money from each purchase, with little idea of
how that forced extraction would impact further purchases. But that
model was so effective that we as carriers became very lazy, because we
could extract revenues without really proving value. Even though the
value was there, and the customer might have appreciated it, how they
were effectively given no choice made it all for naught. And so when
you talk about fare simplification, what we’ve done is simplify it for
the customer so they can see what they’re buying, understand the value
they’re purchasing, and let them willingly buy a higher fare. If

we’re
going to extract more revenue from them, it’s going to come from them
‘willingly.’ The only way we’re going to get that is if we can convince
the customer that there’s actually value in the higher fare, because
the low fare will always be available….

Right now, two and a
half years into it, I think most customers understand that if they want
a little more flexibility, a little more service, they pay a little bit
more and they get it. A good chunk of our fares are higher purchased,
really, and it kind of gives you a measure of success. How do you know
you’re there? When you have two people sitting next to each other on an
airplane, one paid $150, the other paid $250, and they both feel good
about it. In the past that used to be, “How did they screw you over?”
Right? You’ve the $250 guy saying, “Boy, they gave it to me.” Right?
And now they understand, because the $250 guy says, “You know, I could
have bought the $150, but it wasn’t on the flight I wanted, or I need
flexibility, and so I’m okay and felt good with my purchase.”

But
we think we’re only halfway there – we think there’a a lot more change
that needs to take place in the consumer revenue model. But we need to
improve the product as well, so we’re refreshing the interiors of all
of our aircraft…. We’ve got a new international lay-flat seat-bed
similar to what Virgin is bringing out now. That will start showing up
in May, and we’re replacing every seat on every aircraft with a brand
new seat, in-seat video at every seat and in-seat power at every seat.
And that takes us from eight different coach seats, 15 different video
systems, down to one.

And we’re replacing our reservations
system….we’re going to a web-based system that will allow us to
support the products we have. The idea is to let our customers see, and
let our inventory management see the same way. And we can get our
departure control system on it so everything is web-based, and
everything can be managed at any point in the world. We just came up
with this thing that we call “checkin in a box,” it’s basically a
laptop and a little backpack printer that works off the wireless
network, so we can go anywhere we want and check in people wherever we
want, as opposed to fixed places.

WHAT DO YOU SEE AHEAD FOR AIR CANADA?
We
need to continue to work on earning the loyalty of our customers by
being more innovative on pricing. We carry anywhere from 65,000 to
100,000 customers a day, which means there’s anywhere from 30,000 to
100,000 sales transactions happening in a given day. And to think that
we price each one of those transactions correctly and we’ve
communicated the value correctly and have managed that sale correctly
is a bit of a stretch. So, we know as we grow I don’t want to generate
more sales transactions, because it just perpetuates this fallacy that
we manage these things well. And actually what I want is less sales
transactions that I can manage better, and that the customer
understands better, but more fulfillment transactions, which is
basically taking a flight.

Once you divorce the sales
transactions from the fulfillment transaction, the fulfillment
transaction is easy, it’s cheap. And your staff can actually give a
better product at the airport, because it’s no longer tariff-based;
actually, it’s basically “Can I truly help you?” And if we’re going to
have more fulfillment transactions, I’ve got to get more people to buy
or book more trips at a time, and have less sales transacrtions that we
can manage better and that the customer has more time to think through.
When you do that you’re also changing the product you sell, which
brings its own pluses and minuses. So that’s kind of the next step of
the changes, how we get to that kind of world in which we can manage
better, there’s less of them, but we actually have more people flying.

WHILE CANADA’S AIRLINE INDUSTRY HAS STABILIZED SOMEWHAT, WHAT IS YOUR CALL FOR THE US INDUSTRY?

I
worry about my market, I don’t have enough time to worry about theirs!
But they’ve got overcapacity issues, and I don’t know they will solve
that, but market growth is tied to economic growth, and economic growth
in Canada has been fairly good. I think the marketplace here is in a
good state where you have two very good carriers. We have pricing that
is very transparent and competitive, which means customers are getting
true value. It’s a lot better price for customers and for companies, I
think, than what you’re seeing in the US, where you have a huge
dichotomy between the lowcost carriers and what they offer, and what
the legacy carriers still offer. I think that’s very unstable, even if
capacity’s right. But for the US marketplace, if the US economy does
well, that’s going to help them. We see transborder growth for us
looking up pretty well right now, and part of that is driven by the
stronger loonie – more Canadians travel south because of our strong
economy here.

HOW DECISIVE DO YOU THINK THE INTRODUCTION OF THE BOEING 777 AND 787 WILL BE?
The
Boeing 767 is our workhorse on international, and its time is going to
come and we needed to plan for that … and we saw a great opportunity
with the 787. It was coming in at the right time, it brought new
efficiencies to the marketplace which really excite us, and it was the
right size for our needs. It has a bit more length, more range, and so
it was basically a perfect fit.

Once you go Boeing there, it
would be nice to standardize your fleet, and so we played with the idea
“can we standardize, and replace Airbus widebodies?” Although we’re
very happy with them, when you look at the 777 long-range versus the
A340, the four engines versus two engines, the math worked out nicely
for us. It gives us a little bit more size, which we missed – we need a
little bit more size because the departure of the Boeing 747- 400s was
not nice for us. It was a fairly nice workhorse. It gives us the range
– we do have some unique range markets, which we think will work quite
nicely for us (Toronto- Hong Kong, Toronto-Delhi), cities of the world
that are quite attractive to us.

WHAT ABOUT AIR CANADA’S MOVE TO
START OPERATING THE BOEING 777 BETWEEN TORONTO AND SYDNEY IN 2007,
TAKING ADVANTAGE OF THE EXPANDED BILATERAL AIR TREATY BETWEEN CANADA
AND THE US?

‘Open Skies’ opened up the ability to serve new
markets, and long-haul markets tend to need feed. The LA-Sydney market
was unique for us, since LA is also one of our major cities. We serve
nonstop to LA and have our feed structure already there. We have
non-stop from Calgary, Vancouver, Montreal, Toronto, Edmonton.
LA-Toronto is a good market for us, so we agreed to push into the
LASydney market. It’s looking at opportunities and taking advantage of
the ones that work, and that’s one that we think will work.

WHEN DO YOU EXPECT INTRODUCTION OF THE REPLACEMENT FOR YOUR RES III RESERVATION SYSTEM?
Tomorrow
– if I could get it! We’ve been at this for a while, and we’ll be at it
for a while. It’s not progressing as fast as I’d like, but that’s not
surprising – you’re changing the operating system for a good chunk of
the airline…. Transition is absolutely critical, and we want to get
there as fast as we can. We’re getting a lot of work done through the
year, and we can bring this up modularly. We might have certain aspects
up that early (summer 2006), but we’re not planning to do a ‘big bang.’

WHEN DO YOU ANTICIPATE ROLLOUT OF YOUR NEW, SIMPLIFIED FARE STRUCTURE FOR INTERNATIONAL MARKETS?

It’s
going to be rolled out throughout the year. We’ve already turned it on
for the UK. There’s four types – they’re branded differently, because
the attributes for international fares are different from the
attributes for domestic. In North America, all fares are one-way. We do
have some round-trip fares in our international this quarter. With some
countries, you need to have a return ticket or you don’t get in. So
it’s a necessity of the marketplace that’s caused us to look at what
the customer needs there.

WILL AIR CANADA EXPAND ITS LINE OF NEW PRICING PRODUCTS, SUCH AS MULTI-TRIP FLIGHT PASSES?
We
have had a number of these pass products in the marketplace, and the
customer reaction to them has been very, very strong. They’ve been
fairly ‘boutique’ in nature, but I think you’ll see us come out in full
force this year with a large offering of different types of pass
products…. The biggest thing that drives them is the simplicity of
being able to manage their travel. One thing we’re working on is
getting out international passes. Hopefully, we’ll customize the
international pass – “I want to fly this geography, I want it to be
time-based, I want it to be segment-based.” We’ll push back our price
fee, you choose it, and it’s all done.

WHAT DO YOU THINK THE FUTURE HOLDS FOR AIR CANADA?
We
want to fix on the internet, and be known as the carrier that adds
value to the communities we serve, the customers we serve. I think
we’ll be defined differently, because we will be different. Everyone
tries to say are you going to be a JetBlue, or are you going to be a
Ryanair, or are you going to be Delta, and I don’t believe in that.
There’s something in between, and there’s something that has great
value, and we will be unique. So that’s what we’re trying to search
for, and once we get there we’ll be the highest quality airline in
North America, with the greatest customer loyalty, driven through
transparency and choice. And I think that’s quite an enviable place to
be.


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