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Purser: The Great Duopoly

Canada can support only two major airlines, but they both manage to keep things lively.


September 27, 2007
By Richard Purser

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One thing that seems certain about the Canadian airline industry is
that a country with our population base cannot support more than two
major airlines. A one-time potential third major airline, Wardair,
disappeared in 1989, leaving Canada with only two: Air Canada and
Canadian Airlines International. Then CAI disappeared in 2001, leaving
it open to question whether Canada could support even two major
carriers. But by then WestJet Airlines was five years old and on the
way up. Today, after another halfdecade, WestJet has proven its staying
power while all other potential contenders have fallen by the wayside.

But
the airline road is rocky even for the biggest players; witness Air
Canada’s recent battle with bankruptcy. And witness the US; it has more
than nine times Canada’s population, but does that mean it can support
18 major airlines? Hardly. At the time this is being written it has
only seven – and a couple of those could soon disappear through
consolidation. CAI suffered from trying to be an Air Canada equivalent
(only better); WestJet prospers by going its own way.

WestJet so
far has maintained a simple corporate structure, but Air Canada has
become big and complicated enough to go the holding-company route. For
nearly four decades we have had to read media references not just to
United Airlines but to “UAL Corp.’s United Airlines,” and for a quarter
of a century we have had to read not just of American Airlines but of
“AMR Corp.’s American Airlines.” (AMR Corp. has 10 subsidiaries beside
American Airlines, but the only one the average reader is likely to
have heard of is American Eagle, the feeder airline; UAL Corp. has
eight subsidiaries which in turn hold a host of sub-subsidiaries.)

Now,
but only since 2004 as it emerged from bankruptcy, Air Canada is a unit
of ACE Aviation Holdings Inc., as is Air Canada Jazz, the regional
carrier, which would actually be Canada’s second biggest airline if it
were spun off. Jazz has its own president/CEO, Joseph Randell, as has
Air Canada itself, Montie Brewer. But far better known than both is
Robert Milton, the former CEO of Air Canada who brought the airline
through its struggle for survival. He is now chairman, president and
CEO of ACE, the holding company. He remains chairman of Air Canada.

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As
for just who runs what in a structure like this – well, we’ll just have
to wait until Brewer (who was formerly executive VP, commercial) and
Randell (who formerly headed Air Nova, which joined with AirBC, Air
Ontario and Canadian Regional Airlines to form Air Canada Jazz) write
their memoirs. Or until Milton writes the second volume of his.

As
Brewer explained to a New York investor conference on Dec. 7, according
to the Financial Post’s Chris Sorensen, investors and analysts don’t
yet fully understand Air Canada’s relationship to its new parent, ACE.
Brewer was dealing with an unanticipated drop in Air Canada’s share
price following a Nov. 17 initial public offering in which 25% of ACE’s
stake in Air Canada was sold. There had previously been successul IPOs
of ACE units Jazz and Aeroplan, and another subsidiary, Air Canada
Technical Services, is likely to be sold outright.

Life is
simpler at WestJet, but not entirely simple. Remember the espionage
episode of 2003-04, when WestJet management downloaded proprietary Air
Canada data? The caper was discovered and WestJet had to issue a costly
apology to Air Canada – and to Milton personally last May 29.

To
most of us, that put the matter to rest. But the Globe and Mail got
hold of some of the gory details and published them spectacularly early
in October. So far, so good; that’s what journalism does. But the
newspaper decided to editorialize. Noting that chairman/CEO Clive
Beddoe had already given up his additional title of president (to Sean
Durfy, former executive VP, marketing and sales) as part of a
succession plan, it suggested that the board of directors “consider
speeding up the timetable set by the company founder to relinquish the
last of his executive responsibilities.” A follow-up editorial compared
the WestJet situation to the loss of “moral compass” by the board of
Hewlett- Packard in a US corporate governance case.

But the
media at large failed to pick this stuff up and run with it, and the
public appears to consider the case closed. WestJet’s business and
stock are both riding high.


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