$70 Million: Another Drop in the Bucket


$70 Million:

Another Drop in the Bucket


More Wage Concessions Can’t Save Canadian

The restructuring of Canadian Airlines must be financed by those actors who are truly responsible for its plight, or who have profited so well from the disaster that is Canada’s airline industry of the 1990s.

To Canadian Airlines Workers:

Once again Canadian Airlines is in financial trouble. And once again Canadian’s management has turned to its workforce for a quick fix: more wage concessions. But this time they will have to look elsewhere.

This information package, prepared by the CAW Research Department, shows that labour costs have nothing whatsoever to do with Canadian’s financial predicament. Past concessions on wages and work rules have cut painfully into our members’ incomes, and undermined the quality of our work life--but they have not prevented even more huge losses for Canadian. Further sacrifice on our part will be equally ineffective in solving the true problems facing not just Canadian Airlines, but Canada’s airline industry as a whole.

A more realistic refinancing package for Canadian must target those who have real influence over the future course of our industry: the federal and provincial governments, American Airlines, and the banks. And just bailing out Canadian one more time is not enough: we must also start to control and regulate the destructive, dog-eat-dog competition that has so devastated this entire industry. How much more evidence do we need that deregulation has failed? Neither the airlines, nor workers, nor consumers have benefited from so-called "free competition." The time has come to restore some sanity to Canada’s skies.

We encourage you to read this material, discuss it with your colleagues and family, and participate in the activities that have been planned for the coming weeks to pressure both Canadian Airlines and the government for a more realistic solution to Canadian’s woes. By sticking together we can defend our jobs and our self-respect.

In Solidarity,

Buzz Hargrove Anne Davidson

CAW President Local 1990 President

Falling Labour Costs Haven’t Stopped Canadian’s Losses

Since 1991, Canadian’s labour costs per available seat mile have fallen by more than one-quarter, after adjusting for inflation. Yet Canadian’s losses have still mounted. The problem is that cost savings aren’t reflected in an improved bottom line. Instead, savings are diverted to pay for new planes and new routes, as the airlines try to drive each other out of business.

The Free-Market Crash Landing of Canada’s Airlines

Since deregulation in the late 1980s, Canada’s major airlines have raced to out-do each other with new routes and more capacity. They each hope that by increasing market share they can drive their opponents out of business. Then they can jack up prices at will. But passenger traffic hasn’t grown enough to keep up with the billions of new seat-miles added by the airlines. Load factors have fallen (despite modest growth in passenger traffic), and huge losses have resulted.

Who Has Benefited From Deregulation? Not Travellers.

Despite promises that "free competition" would push down air fares, Canadian consumers have not consistently benefited from deregulation. Sure, incredible short-term seat sales have attracted much attention. But the bargains never last long, and prices on other routes often increase at the same time. The average fares actually paid by travellers have in fact increased faster than consumer prices in general since deregulation, according to official Statistics Canada data. The U.S. experience suggests that airline safety may even be compromised by relentless fare-cutting.

Who Has Benefited From Deregulation? Not the Company.

Canadian Airline executives praise the virtues of "free" competition and deregulation, despite the company’s losses. Yet Canadian, once a great company, has not turned a single annual profit since deregulation was fully phased in. Deregulation has led the company into a no-win cycle of destructive, predatory competition: expand capacity, cut fares, try to destroy the competition. But the hunter has become the hunted--dragged down by excess capacity and debt costs, Canadian’s future now depends on a fundamental change in how the whole industry operates.

Who Has Benefited From Deregulation? Not Workers.

Airline employees--especially those at Canadian--have been the first victims of the predatory competition unleashed by deregulation. Management always turns to labour costs as the first source of savings when money is tight, and the 1996 crisis is no exception. Employment is down by 3700 jobs since 1991. Real wages for a full-time CAW member at Canadian have fallen by 8% since 1992. Working conditions have deteriorated with speed-up and short-staffing. The airline industry used to be a good place to work (and one of the better occupations for women); but deregulation has changed all that.

Deregulation’s Achievement: Empty Seats From Coast to Coast

Airlines have rushed into competitive battle, adding ever more planes and routes. Short-term losses become long-term losses. Companies search for additional funds (including wage concessions) to subsidize their market wars. Contrary to promises, our deregulated industry has become incredibly inefficient: unfilled seats, flown for billions of kilometres, the irrational side-effect of airlines’ efforts to drive each other out of business. Capacity grows even as firms teeter: troubled Canadian increased capacity by 11% in 1995, and further again in 1996. Canadian carried empty seats for over 12 billion kilometres in 1995--enough to fly every resident of greater Vancouver to St. John’s, Nfld., for free.

"Investing" in Canadian Airlines: Still Waiting for the Payoff

Canadian’s management proposes that if workers would accept yet another wage concession, then we can share in future profits. Since the company has not recorded an annual profit since 1988, don’t hold your breath waiting for the dividends to start flooding in. Workers have already "invested" in the company, receiving shares in return for past wage concessions. But this was not a good investment. The same investment in the Toronto Stock Exchange would be worth 18 times as much today; even a 100% risk-free investment in government bonds would be worth 12 times as much today.

CEOs, Pilots, and Workers...Who Can Afford To Give?

President Kevin Benson has kindly offered to take a wage cut, along with the workers. Canadian’s pilots have already agreed to a 10% wage cut. But this is a lot easier for those making a six-digit salary--perhaps they will have to delay their next luxury vacation, or even trim their mutual fund purchases. Benson makes 10 times as much as a full-time CAW worker at Canadian Airlines; pilots make more than 3 times as much. Moreover, their incomes have increased much faster in the 1990s, despite Canadian’s financial problems. CEOs and pilots can afford to give, if they want to. The rest of us can’t.

No Promises: These Concessions Won’t Be The Last

CEO Kevin Benson knows that Canadian’s labour costs are not the source of the company’s financial problems. He wants a wage concession solely because the wages are "there," and he thinks workers can be pressured more easily than the banks, American Airlines, or the government into paying for the bailout. So he can’t promise that this 10% wage rollback, combined with other restructuring measures, will solve the problem. This is what Benson told CAW leaders:

No Promise of Job Security

...Bensoncannot promise that the 10% rollback will prevent layoffs

No Promise of Financial Turnaround

...Bensoncannot guarantee a break-even date for Canadian, let alone a timetable for future profits

No Promise that More Concessions won’t be Needed

...Benson offered no assurance that Canadian will not ask for more wage concessions later

No Promise that More Capacity won’t be Added

...Benson may buy evenmore aircraft capacity with the labour savings he obtains

Saving Canadian Airlines...A Strategy that Could Work

In the short-run, Canadian Airlines needs a rescue package. But another financial rescue alone won’t solve Canadian’s true difficulty: the irrational and destructive pattern of dog-eat-dog competition that was unleashed by airline deregulation. In the long-run, we need a transport policy that puts some sanity back into Canada’s skies.

Refinance Canadian Airlines

The restructuring of Canadian must be financed by those actors who are truly responsible for Canadian’s plight, or who have already profited so well from the disaster that is Canada’s airline industry of the 1990s. Workers didn’t create the problem; past concessions haven’t fixed the problem; and cutting our wages again won’t solve the problem. This time we must turn to governments, to American Airlines, and to the banks for a package to write-off debts and give CAI time to recover.

Reregulate Canada’s Airline Industry

Clearly, just bailing out Canadian Airlines once more will not solve the problem. The time has come to reimpose sensible economic discipline on this industry. We must eliminate the costly duplication of flights and routes. We must regulate access to the industry, and prevent the destruc-tive, short-sighted fare wars which benefit no-one in the long-term. We must set ticket prices which fairly reflect costs. Despite free-market rhetoric, deregulation has been a disaster for this industry; it’s time for a new approach.

Bailing out Canadian Airlines: Who Should Pay?

Too many powerful players have too much at stake to simply let Canadian collapse. A bail-out will occur. The only question is, who will pay for this bail-out? Workers have already done more than their share, and can’t solve the under-lying problem anyway. Here are the players with the financial and political clout to keep Canadian flying:

The federal government.

Federal deregulation created Canadian’s problem. The federal government must step in with emergency funds to keep Canadian in the air. It just offered a huge interest-free loan to airplane-maker Bombardier (based in Quebec); why not offer similar help to Western Canada’s aviation industry?

Provincial governments.

Working with the federal government, provincial contributions can also help. Thousands of jobs in B.C., Alberta, Ontario, Quebec, and other provinces are at stake, so these provincial governments can and must step in.

American Airlines.

American Airlines has made more profit in 3 years from its service agreement with Canadian than Canada’s entire airline industry has earned this decade. It also wants to maintain access to Canadian’s ultra-lucrative trans-Pacific routes. It can well afford to, and must be forced to, ante up new funds.

The banks.

The banks have earned some $700 million in interest from Canadian since 1990 (equal to 60% of Canadian’s losses). They have profited enough from our woes, and must now be required to write-off a share of remaining debt.

Labour Costs are Already Very Low at Canadian Airlines

Canadian’s losses cannot be blamed on high labour costs. Labour costs are lower than Air Canada’s, and much lower than the major international airlines. As for the non-union start-ups, their main advantage over Canadian is not lower wages but lower aircraft leasing and interest costs--it is the new capacity they add to the industry, not their labour costs, that is really hurting Canadian. Canadian does have a big cost disadvantage in one area, however: one-time restructuring charges from seemingly endless rescue plans have added $500 million to company losses since 1992.

Canadian’s Costs in Perspective

Canadian

Air Canada

Wage & Benefit Cost per Worker

$50,267

$63,878

Labour Costs / Total Op. Costs

26.2%

31.2%

Labour Cost per Available Seat Mile

3.7 cents

4.7 cents

SOURCE: Company financial reports, Statistics Canada. 1995 data.

Back to the Future: More Concessions Won’t Work

Canadian’s employees have already made substantial sacrifices in their wages, benefits, and working conditions to help keep this company afloat. But painful as these concessions were, they were far too small to prevent further huge losses. If lower labour costs were the key to Canadian’s profitability, the concessions should have to have been 4 times as large (equal to over 40% of actual labour costs). The true problem is rooted much deeper. More concessions cannot save the company in the future, either: a 10% wage cut would allow the company to continue operating for less than 10 additional days.

The Past...

Estimated total value of labour concessions since 19921

$314 million

Estimated concessions as share actual total labour costs

9.3%

Canadian Airlines losses since 1992

$1.084 billion

Total actual labour costs since 19922

$3.371 billion

Total concessions required for break-even

(as share of total actual labour costs)

41.5%

The Future...

Annual value of further 10% wage concession

$70 million

Annual operating costs

$3.2 billion

Additional operation time "bought" by concession

8 days

SOURCE: Company financial reports, CAW Research.

1. Cumulative savings generated by decline of real labour cost per ASM from 1991 level (due to wage concessions and work rule changes).

2. Includes ascribed "cost" of employee share purchases.

Taking Action

The pressure will be intense for Canadian Airlines workers to agree to yet another wage cut--even though no serious analyst has claimed that the company is in trouble because of high labour costs, or that further wage conces-sions can save the company. We need to stick together to protect our jobs and incomes, and to demand a realistic long-run solution to the fundamental economic problems which have gripped Canadian and the whole industry.

  • Tell Canadian Airlines that wages are not the problem.

  • Talk to your co-workers about sticking together to refuse further wage cuts.

  • Inform the public about the need for a rational reregulation of the airline industry.

  • Lobby federal and provincial politicians about supporting the refinancing of Canadian and introducing a new, sane airline policy.

  • Phone or write your MP or your provincial represen-tative: ask what they are doing to protect jobs in the airline industry.




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