LONDON – Back in March 2021, WestJet CEO Ed Sims was being interviewed by EUROCONTROL as part of the Aviation StraightTalk series, where an interesting topic came up about industry consolidation.
But this was not on the scale of airlines merging with each other, which he exemplified the merger between Air Canada and Air Transat, but more on the fact of airlines, airports, air traffic control and other facilities coming together as “it would be very helpful for the industry”.
This piece will look at whether this level of industry consolidation, which is seen in the U.S to bring down airport charges and enhance affordable flying, could work for Canada in order to support the industry, even during the tough times of the COVID-19 pandemic.
Work for the Better of All in the Industry
Sims stated that because of the conditions of the pandemic, that “there is an argument now to consolidate the foundations of the aviation industry to remove the boundaries between airlines, airports, air traffic control and actually say: how do we all have common objectives and how do we all have the game to encourage each other”.
This point was given on the basis that airlines are cutting costs through the increased use of outsourcing, but Sims argues that airlines need to be more involved in the process.
“It is my view that I think there should be a co-investment right across in a country like Canada, where we only have 36 million people in the country. Having that position of equity and therefore all of us working towards the greater good of the growth of Canadian aviation for me is more important than who writes the paycheck for the individual because that’s the key to supporting growth”.
Federal Government Needs to Encourage Industry Consolidation & Fairer Competition
The Canadian market directly supports 250,000 jobs in aviation with 750,000 indirectly. Sims is stating that focus is needed on the indirect jobs, as the collapse of the market has seen jobs lost as a result.
He even referred to his own airline where he has cut 10,000 of his workforce since the pandemic began, meaning only 4,500 people actually work for the airline at this present time.
He also argues that industry-based consolidation would enable the market in Canada to be more competitive, especially with the current controversy behind the Air Canada-Transat merger which would see Air Canada own around 94% of the total market share for transatlantic flights.
In terms of airport charges to the passenger, Sims compared the cost for passengers to the United States, which runs a more industry-based consolidation where airlines invest and expand in the current infrastructure it has. In the U.S, the cost is around $8 per passenger, whereas, in Canada, it is $24 because of the way the government is approaching aviation in Canada (EUROCONTROL, 2021).
This view could be critiqued by those in the U.S as the Canadian population is nearly ten times smaller to that of the U.S, meaning the more consumers travelling domestically there are, the cheaper such airport costs can be as a result. There is the question about whether this would work in Canada, but Sims argues that the Canadian Government need to offer stimulus in order to kick-start the industry again.
But again, there are reservations from the Canadian Government, particularly on the provincial perspective. Whilst Canada has a Federal Government, its provinces run almost independently unless intervention is needed.
These provinces have created their own “bubble”, as Sims refers to it, where the laws and regulations for traveling are different on an independent basis. The Federal Government will not be able to intervene that easily via sector-specific support in that respect because the different provinces have different perspectives on aviation functioning in Canada.
Some require the links as it is the only method of connectivity, whereas others are wanting to contain the spread of the virus as much as possible. So acquiring unilateral support in establishing that support with a push forward to consolidation may not be as easy as Sims would like it to be.
“Aviation is a vector of containment, not spread”
Because of this, Sims also mentions that the government needs to kick-start the industry again, and encourages the view that aviation has been a vector of containment rather than a vector for spread.
Evidence that substantiated this view came from figures at Canada’s major airports where the 50-100,000 passengers tested at airports such as Toronto and Calgary had only encouraged a spread of the virus by 1.5%, compared to the national average spread of 3.5%.
“So we can say with some conviction that whether it’s HEPA filters whether it’s hygiene factors whether its mandatory masks that we put teeth behind that legislation [going into the future”, he said.
So because of the amount of testing being conducted as well as the rollout of the vaccine finally beginning to take shape, the sector should begin to re-open in order to preserve as many jobs as possible, and maybe even rehire down the line.
It is why Sims put across the important point of restarting the industry. Airlines in Canada can’t invest in anything at the moment because of the sectoral shutdown, but once reopening commences and the revenue streams are restored, then the focus on industry consolidation could take better shape then.
Airlines versus Government Action
Sims also criticized the Canadian government for its speed on vaccine distribution, of which Canada has moved into the top 60s, which is a negative number, having originally started out in sixth place.
He credited the UK government at the time for vaccinating over a third of the population in record time, with the aim of restarting international travel by June this year.
Another bold statement to do with getting the industry back on its feet was Sims believing that flight crew should be amongst the first to be vaccinated, so then consumer confidence can increase, with it being marketed around “fully vaccinated flight crews”, which would squash any qualms about hygienical safety onboard.
He also believes that the Canadian government need to help out more, especially with airlines having to axe domestic routes and bases, despite the government telling them to restore the routes irrespective of changes to regulation, which is argued for when wanting to nationalize. Sims does not want this as he believes that “when you start allowing a national government to determine your network structure you have lost part of your identity”.
What Sims wants instead is on top of the wage subsidy is more financial help to airlines specifically in order to prop up the vital airlinks that Canadian carriers have had to cancel.
Can Industry Consolidation work in Canada?
The answer to this question is very much a theoretical versus practical specification. It is something that could work on paper, but on the practical side, this may not be the case at all.
And Sims may have indirectly answered this point. With Air Canada wanting to merge with Air Transat, this of course removes a competitor from the very limited number of airlines operating in the country already.
That of course will cause airfares to rise, meaning securing more revenue for the airline. Air Canada may appear to be thinking more in the short-term, which is understandable due to the financial constraints caused by the pandemic.
However, WestJet could definitely pave the way of a new normal in Canadian aviation, as investing in the facilities would obviously cost more in the short-term, but in the longer term arena when we are all out of this pandemic, it could provide new revenue streams, which is what carriers are looking for currently.
If WestJet were able to successfully lobby governments and provinces successfully, it could produce substantial economic growth and jobs, in a sector where investment means everything.
In a poll conducted on Twitter, it was a 50-50 split in terms of whether such consolidation is needed.
It is even more clear that this level of consolidation is needed, as carriers such as Delta, KLM-Air France, and others are stealing up to 23% of market share away from WestJet due to the pandemic limitations. Working together as both a team and still a competitor may work a lot more significantly not just to preserve business, but an industry.
- EUROCONTROL (2021), Aviation StraightTalk Live with WestJet CEO, Ed Sims, https://www.youtube.com/watch?v=6W_iiPuPhrw&ab_channel=EUROCONTROL [Last Accessed 3rd March 2021]