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One on One with Joe Sparling, president of Air North

One on One with Joe Sparling, president of Air North                 


June 9, 2008
By Darren Locke MBA

Topics

WHEN YOU LOOK AT HOW AIR NORTH HAS DEVELOPED SINCE IT STARTED IN 1977 WITH A SINGLE CESSNA 206, WHAT KIND OF A JOURNEY HAS IT BEEN FOR YOUR AIRLINE?
Slow and steady, slow and methodical. Certainly things have changed a lot since 1977, but I don’t think our growth has been particularly dramatic. In fact, we’ve tried to keep it from being too dramatic.


HOW DID THE REPLACEMENT OF YOUR PISTON FLEET FROM 1996 ONWARD CHANGE AIR NORTH?

The introduction of first the turboprops and then the jets brought a new level of service and a new level of reliability.Evolving from just the bush flying work into the scheduled service was a move that fairly purposefully put the company out of what I consider to be the more risky environment and into a more stable year-round type of work, and the scheduled flying produced that for us. Like a lot of airlines we started with piston-engine equipment – the DC-3s were the airplanes that most major airlines and a lot of smaller airlines started with. We certainly enjoyed operating them, they gave us great service, great reliability, but as time went on it became more difficult to support the piston-engine fleet, and the fact remains that they were unpressurized airplanes, so you were often travelling in the weather rather then above it. And I think that being able to evolve, when we acquired the Hawkers, we suddenly had turboprop reliability, we had pressurization, we had better speed, better payloads, and it marked a significant improvement to our scheduled operation. Then as time went on we built up a significant charter operation with the Hawkers as well.        

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Photo by Stephanie Churchill


DID THE ADDITION OF B737-200s IN 2002 MEAN A MAJOR BOOST TO YOUR CAPABILITIES?

It did; the idea of us providing jet service to the South in 1977 seemed totally out of the ball park for us, but as time went on it didn’t seem that unreasonable. I remember a long-time Yukoner telling me that “you don’t realize it, but one day you’ll be flying jet service to Vancouver.” I distinctly remember him making that comment, and I remember that my own reaction was one that “yeah, that doesn’t seem all that unreasonable,” although we didn’t have any specific plans for it. But it seemed like a doable proposition, and when Canadian Airlines was acquired by Air Canada that was when we started thinking about it more seriously. Canadian was a carrier that had originated in the North, it was a favourite in the Yukon, and I think that for us to establish a service to compete with them would have been pretty risky. But when it became an Air Canada product the degree of loyalty that Yukoners had was nowhere near the same as the loyalty that Yukon residents had for Canadian. We then started thinking, “well maybe this is something that we can seriously look at.”

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The public didn’t seem to mind it so badly when it was Canadian in the market, but when it was Air Canada people started looking at alternatives, and the Yukon government in particular began to get active in thinking about ways in which a competitive service might be introduced. I think their initial thoughts were that the competition had to come from outside, and we did our best to convince them after all that this was something that could be done from within the Yukon, and in a lot of ways could be done to the advantage and benefit of the Yukon and the people who live here.           


HAS THE HAWKER SIDDELEY 748 TURBOPROP BEEN A SOLID PERFORMER FOR AIR NORTH?

The Hawker’s been a great airplane for us, and we didn’t break any new ground in replacing our DC-3s with Hawkers. Most of the northern airlines had DC-3 fleets, and replaced them with Hawkers, so they were the logical DC-3 replacement for northern carriers. They have a great gravel capability, a passenger/freight combi capability, a short-field capability – a very versatile airplane, a rugged airplane. They’re the mainstay of our turboprop scheduled service throughout the Yukon and between the Yukon, the Northwest Territories and Alaska. We use them extensively in our turboprop charter operation as well.   

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The addition of B737-200s in 2002 added a major boost to Air North’s capabilities.


ARE THERE ANY PLANS TO ADD NEW AIRCRAFT TO YOUR FLEET?

Yes, we plan quite specifically to upgrade and modernize both our turboprop and our jet fleet. We’re looking at Dash-8 equipment for the turboprop fleet, and a newer-generation 737 for the jet fleet, perhaps a 300 series. This is something we hope to accomplish during 2008 if we can. We’ve got to move on to more fuel-efficient aircraft. Unlike the carriers in Nunavut and the Northwest Territories, we don’t have as many gravel runways to contend with. Certainly, our north-south jet route, we can replace the 200-series Boeing with a 300-series without any problem at all. We’re not dealing with gravel runways for our turboprop network. If we ultimately want to bring jet service to some of the Yukon communities, Dawson and Old Crow, we’re going to have to have paved runways. I don’t expect that’s going to happen overnight.     

AT WHITEHORSE YOU PROVIDE GROUND HANDLING FOR CONDOR AND FIRST AIR. IS THIS A GOOD
EXAMPLE OF MAXIMIZING YOUR REVENUE SOURCES?
When you’re based in the North, you want to have control and ownership, or I’ve always felt you want to have control and ownership of as much of your infrastructure as possible. So we have a good spread of ground-handling equipment here in Whitehorse, and we have a good spread of ground handling equipment in Vancouver, and we want to keep a good stable crew of people. We also have our own flight kitchen in Whitehorse. Again, we want to keep the people that we hire to work in these operations, so it helps to do that if we’re able to take on a little bit of outside work. So we’re ground-handling First Air and Condor, and in Vancouver we’re ground-handling American Airlines. It’s not work that we necessarily sought out aggressively, particularly in Vancouver. In fact, we are not trying to get heavily into the ground-handling business, but it’s nice to have one other little contract that allows us to give the guys working for us a full work day, instead of just part-time work.


WILL WE SEE AN EXPANSION OF AIR NORTH’S ROUTE NETWORK?

We recognize that our strengths are here in our own backyard, and once we get too far out of our own backyard we’re just like anybody else. I think that what we want to do is continue to improve the service that we provide in the Yukon and to and from the Yukon, and beyond that I don’t see us taking on additional routes that don’t involve the Yukon. We’ve had one of our jets down helping out Canadian North a little bit out in Alberta, and we’ve got a little tour program into Nevada that we’re operating right now out of Edmonton and Calgary. Again, those things I don’t consider to be too far from our backyard. But we’re definitely focused on maintaining our core product, which is our service to and from and within the Yukon.    


SINCE THE ARRIVAL OF YOUR 737-200s, HOW HAS YOUR PHYSICAL INFRASTRUCTURE GROWN IN WHITEHORSE?

When we first got the jets I imagined that our workforce was going to go from 28 to 56 people. I shouldn’t say imagined, I projected that. We thought we were going to maybe subcontract a lot of work to get us started. In any case, here we are today with around 200 full-time employees. Certainly we’re doing more business then I projected we would be doing in 2002 when we started. I didn’t imagine that we’d have our own catering department, and I thought we’d be farming out more of the maintenance functions. To a certain extent we perhaps underestimated the amount of infrastructure that would be required to run the jet operation, and particularly in the maintenance department I imagined we’d be taking on five or six new people, and we’ve probably taken on 15 additional people or more since we started. So for a whole bunch of reasons our infrastructure has grown quite a bit.

We started off operating out of the original building that we built in 1981. The first thing that we acquired after we bought the airplanes, because after all that was number one, you’ve got to get the assets that are going to generate the revenue. Step two, we thought we were maybe going to share the hangar between the turboprop and the jets, and it soon became apparent that wasn’t going to work out very well. So we put up a 14,400-square-foot hangar primarily for the jet maintenance and administration. The third thing we bought was the catering building and ground support equipment building, and then fourthly we built an administration building for our call centre. We do over half our bookings out of our call centre. We also figured out that if you can keep the call centre agents happy and in a good mood that tends to roll over into the way they talk to the customers. So we figured it would be pretty important to put the call centre in a nice, bright, well-lit environment, and that was the reason for putting up the admin building. Certainly I think that’s been a good move for us as well.          


DO YOU SEE AIR NORTH ACQUIRING REGIONAL JETS, OR LARGER AIRCRAFT, IN THE FUTURE?

I don’t know that a much larger aircraft would make a lot of sense, because of course you’re trading off frequency with economies of scale. The bigger the aircraft, the lower your seat-mile costs are going to be. I don’t think our market would be happy with two flights per week with a 300-passenger airplane. So, you have to trade that off. I think the size we’re at now makes some sense for us – I could see that growing, perhaps a larger 737 model. We’ve looked at the 300, the 400, the 700 and the 800. I think that either a 300 or 400 would work in our market. Certainly, I like the seat-mile costs of the 400. But, you have to sell those seats in order to justify the extra operating costs. So for us today in this market, it maybe makes more sense to look at the 300, which is what we’re doing. With respect to the northern routes, I think if we could introduce jet service, and it has to be combi jet service for it to make sense, I think that there would be some economies of scale that the northern points would enjoy. Now that may have to be, undoubtedly would have to be traded off with some frequency sacrifices, and there would have to be a balance there that was acceptable to the communities. But in general, our turboprop operation costs us about twice as much per seat mile as our jet operation, but if you are flying a half-empty jet on northern routes you’re not accomplishing anything because you’ve got to pay for the empty seats. It’s without a doubt a tradeoff, but some day I can see us being able to bring jet service to the northern routes as well. So step one is the infrastructure, we need to be looking at paved runways, and step two will naturally follow, and that is the combi jet service to the northern communities.         


DO AIR NORTH’S IN-FLIGHT CATERING SERVICES DISTINGUISH IT FROM OTHER AIRLINES,
PARTICULARLY LARGER ONES?
I think larger airlines maybe is the difference. When we started we looked at the field of actual and potential competitors and we thought, although there are some areas [where] we can’t possibly compete with the big guys, there are also areas that any of them would have a tough time competing with us, and that is the fact that we do live here. On any given flight, our customer service staff, our flight attendants, even our pilots are going to know a certain proportion of the passengers that are on that aircraft, and they’ll know them on a first-name basis. We encourage them to interact with the people that they know just the same way that they would on Main Street or in the schoolyard or in the grocery store. And the other people, the people that don’t know the service staff, its “polite professionalism,” and those people will pick up on the genuine interpersonal reaction between the people that do know one another. That’s really been successful for us – we see it in the comment cards, and it’s something that a large competitor can’t possibly duplicate. It makes a huge difference for us having our pilots, our flight attendants, our maintenance people living right here in Whitehorse. They’re members of the community, they know everybody, they know a lot of people in the community and that’s where I think we have our edge.

Flying in and out of the Yukon, at the northern end of the route the air service is really more important to the northerners then it is to the southerners. If you walk around Vancouver and talk about air service to Whitehorse, even in the Vancouver airport most of the people won’t know where Whitehorse is, who flies there, what you are talking about. But you walk down Main Street in Whitehorse and you ask them what time the sched to Vancouver goes, and most of the people can probably tell you! And I think that’s the difference.


WHAT DO YOU SEE AS THE FUTURE FOR AIR NORTH?

Well, I think more of what we’re doing now. We have recently, as part of our fleet modernization program, started the process for another local equity offering. We were very, very pleased with the results; we raised almost $5 million in just three days here a couple of weeks ago. We’re very nearly at the point where we can say one in ten Yukoners has an ownership stake in the airline, and I think that’s a pretty significant and remarkable statistic. The way the share subscriptions have rolled in, it absolutely surprised me. When we did our first local equity offerings in 2002 I was unsure as to whether or not they would sell. They absolutely did sell, and they sold much quicker then I thought they would.