Canadian Airlines International has survived the winter with the help of government, employees and creditors, but competition in western Canada is still growing with charter operator Canada 3000 expanding its scheduled services.
Canadian's cash position has improved enough to defer searching for a C$60 million (US$40 million) credit facility it was planning to source to ensure liquidity through the typically slow first quarter. 'We've put that on hold because we don't need it anymore,' says the airline.
In early March, Ottawa gave Canadian a C$20 million annual fuel tax rebate for the next four years. Under the deal Canadian must exchange C$10 of tax losses for every dollar of fuel tax rebate. The carrier had initially hoped to carry over the losses, but settled for this scheme, which allows it to buy them back later at favourable rates if it returns to profit. The British Columbia and Alberta provincial governments also kicked in. 'BC contributed C$11 million retroactive for 1996 and Alberta saved us another C$8 million by cutting its fuel tax in January,' explains the carrier.
Further support came from unions and creditors. Most significantly, lenders and lessors have informally acquiesced to a six month moratorium on C$170 million in payments even though Canadian missed its deadline for completing these deals. 'No one is threatening to foreclose,' says the carrier, 'and we begin payments again in May.' In addition, AMR Services took a 35 per cent cut in service fees at the same time as AMR wrote off its entire US$192 million investment in Canadian.
Meanwhile, Canada 3000's plan to launch scheduled flights in May from Vancouver to Alaska and the Yukon show how Canada's three upstarts are surviving despite a generally lacklustre year for all airlines. Each startup's formula varies, but the common theme seems to be that each sticks to what it does best.
New seasonal flights to Anchorage and Whitehorse are the latest in Canada 3000's steady expansion into more scheduled single-class service to leisure destinations. Since Canada-US deregulation two years ago, the former all-charter carrier has added scheduled flights to Florida, California, and Hawaii. 'Since open skies [with the US] our operating licence is exactly the same as Delta's or Air Canada's,' says Angus Kinnear, president of Canada 3000. Some debate persists about whether his airline's flights are 'scheduled,' because tour operators handle distribution for both charter and scheduled flights. But Kinnear claims the only difference is that travel agents book through tour operators rather than directly. 'It's more efficient for us to use the services of our tour operator customers and pay them a fee,' he says.
Kinnear denies reports that Canada 3000 plans to extend its Anchorage flights to Japan. 'That's news to me,' he says. Anchorage is offering incentives worth US$1 million to entice an airline to restore scheduled service from there to Japan, but Kinnear insists Canada 3000 only plans to serve Alaska from Canada.
WestJet, the next oldest upstart, just completed its first year of operations having carried 758,000 passengers - more than twice its original estimate. Both the Calgary-based startup and the other relative newcomer, Greyhound Air, have stuck to well defined niches as low cost, no frills domestic carriers. Since its launch last July, Greyhound has maintained its hub in previously underserved Winnipeg.
Source: Airline Business
