Air Canada's woes may be short term

The contract dispute between Air Canada and its flight attendants may hurt financially now, but it isn't likely to damage the carrier's long-term business prospects, experts say.
Dozens of Air Canada flight attendants rallied Thursday in front of Labour Minister Lisa Raitt's constituency office in Milton, Ont., some wearing masks and singing 'We're not gonna take it anymore.' (CBC)

The contract dispute between Air Canada and its flight attendants may hurt financially now, but it isn't likely to damage the carrier's long-term business prospects, experts say.

After giving their union a strike mandate, Air Canada flight attendants were thrown for a loop this week when Labour Minister Lisa Raitt referred their labour dispute to Canada Industrial Relations Board. The order effectively removes their right to strike while the board investigates the impact on the health and safety of Canadians.

The board generally takes weeks to come back with rulings, by which point Parliament will be back in session and back to work legislation is expected to be tabled.

Impact expected

Travellers scrambled to make alternative arrangements, and travel agents report a drop in the number of new bookings. But beyond a temporary low for Air Canada's image, experts don't expect a major hit to the company's bottom line.

"I don't think it will be that dramatic," Schulich School of Business professor Fred Lazar says. He expects a drop off in the number of new bookings, and frustrated travellers vowing never to fly with them again.

But soon enough, he expects, the company will come forward with an apology and likely a seat sale. "Then all will be forgiven," he says. "They'll take a temporary hit through lower fares, but that might be it for now.

Even a temporary dip in travelers can cost the company a lot of money. P I Financial analyst Chris Murray estimates that every 1 per cent increase or decline in Air Canada's traveler numbers cost the company plus or minus $83 million in operating earnings.

With money like that, it's clear the airline has much to lose from even a short-term drop-off in customers.

The International Air Travel Association says North American air carriers such as Air Canada saw, on average, a 3.9 per cent increase in demand last quarter. That's encouraging news for an industry struggling to deal with a wobbly economy. But not enough of an increase that a carrier could simply brush off a precipitous — albeit temporary —decline in passengers.

But perhaps far more troubling than any temporary financial losses for the company is the larger implication of their acrimonious relationship with labour. Twice since the flight attendants' collective bargaining agreement expired in March, the union has rejected a new agreement that has been put to them by their union leadership.

"It really raises a question of the confidence the members have in the leadership of the union," former Canadian Auto Worker union head Buzz Hargrove told CBC News recently.

The ongoing labour dispute is going to continue to weigh on Air Canada share prices in the near term, Murray says. "In our opinion, the primary risk in this labour dispute is the ability of the union leadership to negotiate a realistic settlement," he said. It appears as though there's some sort of move to replace members of the CUPE executive team. "That could prolong negotiations further," Murray said "but given the terms of the tentative agreements [and] earlier settlements by customer service agents … any final contract would not be dissimilar to current expectations."

Lazar agrees with that assessment. "There's a longer term problem here," he says. "It's becoming obvious that Air Canada can't work with its own union because there's a disconnect between rank and file workers and management."

Though he says the airline is likely to survive the current labour mess, he worries for the airline's future in its present form. The coming holiday travel season will be key, he says. If passenger numbers stay strong, and if the global economy can avoid any other setbacks between now and the New Year, the company should be fine.

"But life in the airline industry is always about the next shock," Lazar says. "You never really know what it's going to be, so I wouldn't necessarily be surprised to see Air Canada in [bankruptcy protection] again at some point, and that's going to affect employees a lot more."