WestJet cuts ‘just the leading edge’ if feds don’t provide aid to airlines: experts
As Canada grapples with a second wave of the novel coronavirus pandemic, experts say the airline industry needs aid from the government quickly, if it is going to recover.
On Wednesday, WestJet announced it would be “indefinitely” suspending flights across Atlantic Canada and to Quebec City as the COVID-19 outbreak continues to wreak havoc on the travel industry.
In total, more than 100 flights made to the region will be “eliminated.” WestJet says that is equivalent to nearly 80 per cent of its seat capacity to Atlantic Canada.
Ed Sims, president and CEO of WestJet, said the lack of travel demand “combined with domestic quarantines means that sadly we can no longer maintain our full Canadian network of service.”
Robert Kokonis, president of AirTrav Inc., said the announcement from WestJet is just a “precursor” of “much more dire news to come” regarding Canada’s aviation sector if the federal government doesn’t intervene soon.
“We’re going to see unravel what took our country’s top carriers not years, but decades to build, and it’s all going to unravel within a matter of months,” he told Global News. “It’s going to be a massive impact on jobs, interrelated ability of our carriers to connect Canada with the world unless we do something.
“So today’s announcement is just the leading edge, unless we do something fast.”
What’s more, WestJet is not the only airline in Canada to signal it is having difficulties as the pandemic continues.
On Tuesday, Toronto’s Porter Airlines announced it would be extending its flight suspension to Dec. 15.
In a news release on Sunday, Air Canada said it had agreed to revised terms with Transat AT — parent company of Air Transat — to pay $5 per share for the company.
The new deal marks a sharp drop from the $18 per share originally pledged in the takeover bid.
Kokonis said the industry will not be able to recover without the help of the federal government.
“We’ve seen $123 billion of aid provided by governments around the world directly to the airline sector,” he said. “We’ve seen zero in this country.”
“So unless the federal government thinks that we can rebuild the sector in a matter of a year or two, they’re dreaming.”
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The federal government did create the The Large Employer Emergency Financing Facility (LEEFF), which offers large employers loans starting at $60 million. However, Kokonis said the proposed interest rates — at six per cent in the first year increasing to eight the following year — were “not tenable” for Canada’s air carriers.
Earlier this month, three unions representing thousands of the country’s airline workers called on the government for $7 billion in aid for the industry.
Kokonis, however, said airlines are not looking for bailouts, rather “loan guarantees” at an “attractive rate of interest” of about one or one and a half per cent.
He said the industry also needs support from government when it comes to testing for the virus.
A monopoly in Canada’s airline industry?
Ambarish Chandra, associate professor of economics at the University of Toronto, told Global News that WestJet cutting its services back means the country’s other main airline, Air Canada, could monopolize on both domestic and international routes.
This means Canadians may have less choices when it comes to who they want to fly with once the pandemic is over.
“I’m sure it’s disappointing for travellers and for people who want choice and people are going to see service cut back in their communities,” he said.
“But, you know, you can understand why WestJet is making these decisions and why, you know, other airlines are making these decisions.”
A ‘new normal’
Airline pilot Dominic Daoust said he was “not surprised” by WestJet’s announcement.
“This news that we’re getting today, I think it’s a reminder of the state of the industry,” he told Global News. “And unfortunately, I think it tells us that things are going to get a little bit worse for the industry before it gets better.”
However, Daoust said he is “optimistic” that things will improve.
“I think that eventually the airline industry is going to pick up again,” he said. “Before all this, you know, if you go back a year ago the airline industry in Canada and worldwide was really booming.”
Daoust said before the COVID-19 outbreak there was a shortage of pilots, route frequency was increasing and demand was high.
“Now this pandemic hit, and everything kind of just ground to a halt,” he said. “And now we we have to weather that storm.”
He said until there’s some kind of “drastic change” in the pandemic, or the government is “willing to subsidize the airlines to get them moving again,” the industry will have to wait it out.
However, Daoust said he thinks the demand for travel “is still there,” adding that once a treatment or vaccine is developed to treat COVID-19, he is confident the industry will begin to rebound.
But it’s still unclear what exactly that will look like.
Kokonis said he doesn’t think the industry will return to how it was before the pandemic, adding that Canadians are likely to see a “new normal.”
“We’re going to see some downsizing permanently across the industry as some carriers around the world go bankrupt,” he said. “We hope we don’t see this in Canada.”
He said in the next three years, carriers that are lower in cost, and that focus on leisure travel are likely going to “do better.”
The long-haul premium travel market will likely be the slowest to recover, he said.
Chandra said some parts of the industry may never recover.
“There’s reason to believe that business travel in particular might never recover because many employers might realize that, you know, meetings online or on Zoom just as good as face to face meetings,” he said. “They might decide not to send their employees to trade shows or conventions or client meetings or site visits because they realize (they) aren’t needed, at least not in the numbers as before.”
He said these are all things the government should take into consideration when deciding if it is appropriate to bail out the airline industry.
— With files from Global News’ Alexander Quon and The Canadian Press
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