Features Operations
Ken Pole: Voodoo Economics

Why did Canadian Auto Workers president Buzz Hargrove so strongly
resist Air Canada's push for additional concessions? Money. The
airline's initial proposal would have left many front-line workers in
borderline penury. Yet Air Canada CEO Robert Milton had no choice but
to push back as hard as he did. Had negotiations collapsed, Deutsche
Bank would have followed Victor Li in search of a better return on
investment.

On
that note, I choked at Hargrove's disingenuous observation that other
investors would readily be found: "The only question is going to be who
is going to have the money in it and who is going to be making a pile
of money, and what is the price they are going to force on the members
of our union and the others who work at the airline." What the union
boss conveniently ignored is that airlines also spend piles every day.
The only pile I saw here was the ‘higher and deeper’ kind!

Air
Canada now has the summer to put its affairs in order. That’ll be no
mean feat, considering that its costs include servicing the debt
incurred from its merger with Canadian Airlines International. Air
Canada reported its last profit, $140 million, in 1999, the year before
the merger was completed. It lost $82 million in 2000 despite a huge
jump in operating revenues.

Then the industry went into global
meltdown in 2001, when Air Canada reported a loss of nearly $1.32
billion, followed by losses of $828 million in 2002 and $1.87 billion
last year. That's $4.1 billion in four years – a daily average of some
$2.8 million! Some of the red ink results from attempts to fend off the
discount carriers, but most of Air Canada's losses have been due to
factors beyond its control.

Excluding terrorism and SARS, those
factors include soaring fuel costs, which have forced Air Canada to
bump fares incrementally. But fuel costs comprise significant federal
and provincial taxes, dumped into consolidated revenues to underwrite
an array of programs, most of which have nothing to do with aviation.
In a sense, those taxes subsidize the majority of Canadians who don't
fly – but perhaps it's just payback for the days when general revenues
essentially subsidized air travel as Ottawa picked up most of the tab
for air navigation services (ANS) and the like.

Then there are
the sundry charges levied by local airport authorities (LAAs), perhaps
the most egregious being at Toronto/Pearson. New airports are all very
nice, but if we want them it should be the users – passengers, freight
companies and other aviation-related industries – who pay for them. And
don't forget the approximately $250 million in lease payments the LAAs
remit annually to Ottawa, which retained ownership of the land when it
transferred airport jurisdiction.