Having so far failed to achieve new concessions from its employees, Canadian Airlines International has said its 30 June deadline was an 'arbitrary' date, and that it needs 20 per cent less in labour savings than estimated in April.
Since passing the deadline without new contracts, management at the unprofitable carrier has stepped back from Plan A. This promised to 'achieve savings through growth,' premised on the idea that work-rule changes - the only concessions labour is prepared to offer - would only be of value if the airline could increase its revenue base. CAI has also tempered threats to downsize radically the operation. That was Plan B. '[Plan B] was a scare tactic,' says Steve Garmaise of First Marathon Securities. And plan A? 'It was unrealistic.'
Union frustration over massive wage concessions only two years ago, and seeing colleagues at rival Air Canada offered wage give-backs for productivity gains, has led CAI management to reduce its unions' contribution to cashflow improvement. Of a targeted C$325 million ($238.3 million) in overall improvements, unions were originally expected to supply C$125 million - this has now come down to C$100 million.
As negotiations with labour continue, management plans up to 394 lay-offs, as it cuts back operations in northern Canada and Labrador and eliminates its Montreal/Mirabel-Rome service. As the carrier focuses on cutting domestic services and increasing its international routings, this 'first step' could save C$15 million.
Planning cutbacks is now being aided by new technology supplied as part of the carrier's agreement with American and its Decision Technologies arm. CAI admits that its ability to pinpoint unprofitable routes and inefficient use of capacity has been improved by the new technology.
Though the airline expects its first profit since 1988 this year, first quarter losses of C$108 million were about 40 per cent higher than losses for the same period in 1994. Analysts predict CAI's second quarter will barely break even, as operating figures for April and May show capacity growth far outstripping demand. In May a 10.5 per cent increase in available seat miles was met with a 2.7 per cent drop in revenue passenger miles and an 8.4 point drop in load factor, to 61.5 per cent.
The cause of hardship is primarily a weakening economy, competition with Air Canada and a devaluation of the Canadian dollar to the US dollar. CAI's long-term debt - primarily aircraft leases - is almost solely based on the US dollar. Though CEO Kevin Jenkins talks about accumulating cash for the next downturn - the carrier only had $73.3 million on hand at the end of March - it will be difficult in what some are calling an 'undeclared recession' in Canada.
Source: Airline Business
