Open Jaw was on hand in Montreal on 12JUN for a party marking tremendous Air Canada expansion at YUL.
Prior to the event, Air Canada EVP Revenue and Network Planning Mark Galardo sat down with correspondent Jim Byers for a frank discussion on hot topics such as newly introduced free wine and beer, the looming competition bureau hearings and the ultra-basic fare.
Q. Can you tell us more about the growth strategy from Montreal? What are some of the new routes?
“We’re celebrating three new long-haul destinations (out of YUL); Madrid, Seoul and Stockholm. And we also have two new U.S. routes; St. Louis and Austin. So, that’s five new routes, and it’s pretty exciting. There’s lots of interest. Many of our U.S. routes, Austin and St. Louis, a decent chunk of customers on board are actually transiting through Montreal to go to Europe, Africa and even Asia. Without that, most of these routes would probably not be feasible.”
Galardo said Sixth Freedom fares are vital to Air Canada’s strategy.
“We have three hubs,” he said. “In importance, it’s Toronto number one, Vancouver number two and Montreal number three. The beauty of these three hubs is they all complement each other in terms of demographics but also geography. We have neighbours to the south that are 10 times the size of us. We’ve got good geography and optimal flight paths.”
Q. We’ve read a lot about airplane supply problems. Are those issues forcing Air Canada to adjust its expansion plans?
“We’ve had problems with Boeing and we’ve had problems with Airbus. Both manufacturers have had issues. With Airbus we were hoping to get the A321XLR. It should’ve been flying by now. But it’s about 18 months late relative to our initial expectations, and that’s really slowed us down. We’ve had to lease in a bunch of airplanes to make up for that gap. And then we’ve had A220 issues, the engine from Pratt and Whitney issue, which we’re not immune to. Today we have seven or eight airplanes’ parked with no engines. We’re certainly still in a very good demand environment, so there were would be good usefulness for those airplanes. On Boeing we’ve had a couple 787’s move around of late, and we have some 737 Max that are coming in next year that also are at risk of slipping. We think we have another 18 months or so of some aircraft issues. Once we get on the other side of this we’re going to have 70-plus new airplanes coming at us, and we’re going to be resuming our growth.”
Q. Seventy planes? Really?
“Yes. Between the 321s, the 220s, the Max, and we put in a 787 order last year, plus the aircraft today that we can’t fly. You’re looking at 70-plus airplanes worth of capacity coming online in the next five years … out of 300 or so airplanes globally now. Some (existing planes) will be retired but it’s a huge amount of growth on the horizon. The net effect will be a substantial increase in our size.
Q. WestJet recently raised some eyebrows with its ultra-basic fare. Is that something Air Canada has contemplated or would be in favour or doing?
“Not for now. We’re comfortable with our branded fares and the way we position ourselves in the market. There is no short-term desire to change anything right now. We already have a basic product (Air Canada Rouge). We think it’s a little elevated compared to the ultra basic, and we’ll just leave it at that.”
Q. Air Canada just the other day introduced free snacks and beer or wine, plus $5 spirits, on domestic and U.S. flights. How’s that going?
“It’s very early days, very early days, so it’s a little early to judge. There will always be some growing pains and some issues short-term. Do we have enough inventory? Can we serve everybody? This is more of a, let’s evaluate this in six moths or a year from now and we’ll see how successful that is. Certainly the reception from the Canadian public has been very positive.”
Q. You want to evaluate this. Is that why the program was only announced for 2024?
“Exactly, exactly. If all goes well we’ll be able to extend it. You can imagine it’s a bit of a change.”
Q. The federal Competition Bureau will soon be holding hearings on competition in the Canadian airline industry. Is Air Canada worried about becoming a political football as people complain about air fares?
“I don’t know enough about it to comment,” Galardo said “But, of course, we’ll cooperate. We run a very serious business here, we’re very transparent. And we’re prepared to cooperate to the fullest extent.”
Q. IATA recently suggested air fares will be rising. Do you agree?
“It’s really tough to tell, Jim. This industry has cost escalation happening in the form of higher labour costs, higher supply chain costs. We’re also very dependent on fuel costs. On some airplanes fuel makes up 50% of the total expense. Clearly, we have to cover all those rising expenses, and so the question becomes how are we going to do that and where is the industry going."
*A new study by Corporate Traveller, a division of Flight Centre Travel Group, finds that airfares between major Canadian cities have increased by an average of 14%.
“Its too early to tell, but you can imagine that if cost pressures continue, airlines are going to have to recoup in the form of rates and charges.”
Q. When we were researching the IATA story, we saw an item that showed the staggering losses airlines suffered during the pandemic. How long will it take Air Canada to recoup those losses?
“How do you measure losses? We took on a lot of debt and we had to issue a lot of equity to pay for keeping the lights on at this company. Are those losses? There’s also the whole balance sheet repair that comes with that.
“It’s good to say that in 2023 we had a record year. Basically, we are where we were pre-Covid. We’re very proud of that. But the scars from COVID are still there, regrettably.”
Q. In Air Canada’s last quarterly financial statement, it seemed that profitability wasn’t quite where you would like to see it. Are you confident about the next quarter?
“I’m not going to comment on the outlook as that would be irresponsible. What I will say is 2023 was a euphoric year. It was a euphoric year for the industry, and I thought we did a very good job of executing in that environment. 2024 is a year of normalization, a year when we start to return to more sustainable booking curves, yield in general, and demand. So, 2024 may not be as euphoric as 2023 but it’s still shaping up to be a decent year. It’s important to recognize, and we’ll say this over and over again, but when you look back 10-15 years from now, 2023 might be the outlier. But it was a welcome outlier,” he said with a chuckle. “Don’t get me wrong.”
Q. In other words, revenge travel wasn’t going to last forever.
“Exactly. We didn’t think that would be the case. Maybe some did. We certainly did not. We thought a return to normal was in store at some point. That being said, 2024 will still, touch wood, be another good year for us.”
