Its pilot strike may push Air Canada temporarily into the red, but analysts differ over how much that will hurt the carrier's long-term strength.
Air Canada's two-year settlement involved a 4% pay raise this year retroactive to April, a 5% raise next year plus stock options, pension enhancements and protection against layoffs from codesharing. The strike grounded the airline for 13 days in September during Canada's peak travel season.
This settlement adds only about C$10 million ($6.5 million) a year to the payroll, but the strike itself cost some C$330 million, including C$40 million to ensure that passengers could travel on alternative services. That was offset by cost savings of C$40 million due to the shut-down, but the airline spent C$50 million on a fares sales to get traffic moving again after the strike.
Credit rating agency Standard & Poor's took Air Canada off credit watch following the settlement and describes its outlook as "stable". The rating agency's biggest concern is the airline's commitment to buy $1.4 billion of new aircraft over the next three years.
Ted Larkin, veteran analyst at Toronto's Gordon Capital, is more concerned. "The deal they made with the pilots association sets the bar up pretty high for negotiations with the other unions," he says, adding that both major railroads in Canada recently settled with all their unions for 2% per annum over three years "That's 6% for three years. Air Canada's pilots got 9% over two. That's a lot less than the 20% for two the pilots originally asked for, but it does not set the tone for cost-cutting," says Larkin.
* Meanwhile, Northwest Airlines is also adding up the cost of its pilots' strike. The airline carried only 1.4 million passengers in September, compared with 4.4 million a year ago. Analysts put the cost at some $90 million.
Source: Airline Business
