WestJet Airlines Ltd.’s pandemic-related struggles are back in the headlines this week. The airline’s dramatic decision to significantly scale back in Atlantic Canada dealt a major blow to the region and to workers.
And yet, at the end of the day, the move is hardly surprising when you look at today’s sobering business reality.
Canadians are simply not flying.
“We are down 90 per cent to 97 per cent on a passenger basis, month-over-month. That is unlike any drop we have ever experienced before,” Mike McNaney, president and CEO of the National Airlines Council of Canada and a former executive with WestJet, told BNN Bloomberg in a television interview Thursday.
As WestJet CEO Ed Sims noted in prepared remarks, the airline typically flies more than two million passengers each month.
Since the pandemic disrupted operations in March, it has sold roughly one million tickets.
And there are few signs today that those trends will change anytime soon.
Government restrictions continue to limit flyer activity. One of the biggest challenges remains the lack of business travellers, who are reluctant to hop on planes until the rules around self-isolation change and make work travel more worthwhile.
As for tourism – a major driver for the industry – there are few indications of a fast turnaround there either. Beyond our own borders, look at the countless resort businesses around the world that remain in a holding pattern.
So at the end of the day, if you’re running a business and cannot make money, you’ve got tough choices to make.
In fact, a bigger question to ask might be why Air Canada and WestJet have continued to operate so many flights with such limited revenue coming in?
Take, for example, their smaller regional rival Porter Airlines. Porter has essentially eliminated 95 per cent of its staff in the hopes that it can bring back its teams when people start flying again. For now, though, it continues to push out its return to service date.
The answer to the bigger question could simply be that airlines are essential. They provide a public service and the country requires access to transportation even if it’s not being used.
This, of course, makes things tricky when you’re a for-profit company.
Take Air Canada’s messy operating strategy these last few months. The airline loads its schedule with flights, only to shift passengers around and consolidate flights as fly times approach.
The takeaway from that strategy seems to be that the airline has been hoping the virus will subside and flyers will be given the all-clear to get back in the air.
No airline wants to miss that opportunity. Again, these are for-profit businesses.
But with no holiday season boost for the airlines, executives are already worrying about the first quarter of next year, which is well-known to be the least profitable in the best of times.
As one industry executive, who isn’t being named for this story because they weren’t authorized to speak on the record, told me: “Normally in our industry, you can track demand. But right now, it’s like starring into a black hole.”
And so, in the days ahead, there will no doubt be questions about whether airlines – perhaps even emboldened by WestJet’s saddening step – will look to cut more service, in particular to smaller cities.
That possibility could play a role in some of the behind the scenes conversations between the government and the airline industry.
Keep in mind the idea of having the federal government subsidize regional flights was referenced in the Liberal government’s recent throne speech.
Keeping cities and airports connected might be an easier political sell compared to bailouts. The government has been generally reluctant to use the word “bailout” and something perceived as such in the airline industry would no doubt fuel similar demands in other hard-hit sectors.
Of course, that strategy could force the government to pick cities, which could in itself be a political hot potato.
Outside of that option, though, it’s hard to know where all sides will find common ground.
McNaney says more support for rapid virus testing projects is needed, as is liquidity support through loan guarantees. In his interview on BNN Bloomberg, he also emphasized the the need to address recent increases in taxes and fees in the aviation industry.
“We need to change the fact that as a result of government policy right now, we are actually making it more costly to fly in Canada, which, of course, is complete anathema to trying to get a restart,” he said.
While the airlines that are operating are burning through cash, they understand balance sheets better than politicians. They are already familiar with debt and not all that eager to take on more of it as part of some kind of government deal.
And so we’ll wait to see what kind of arrangement all sides can reach. And the airlines will continue to hope – just as we all do – that the virus goes away.