Air Transport World

Maplephlot? Air Canada thinks it has the answer to what ails the industry. (includes related article on the U.S.-Canada airline bilateral) (Cover Story)

To hear Claude Taylor tell it, Canada's airline industry is in imminent danger of being buried by one of the "five to six megasystems" being formed among the world's airlines. As if that were not trouble enough, there is the ever-present peril that a new bilateral will open the floodgates to the U.S. behemoths, who will steal traffic and funnel it through Chicago or Denver or any of the half-dozen superhubs south of the border. To make matters even worse, his only remaining domestic rival, Canadian Airlines International (CAI), may be on the verge of a linkup with American Airlines, a state of affairs that, when combined with the U.S. carrier's inherent advantages, could "well lead to the end of the airline industry in Canada as we know it today." Whew!

Fortunately, the chairman of Air Canada believes he has a simple solution to all of his problems: Acquire CAI and merge it into Air Canada. Thsi will have the dual result of keeping American at bay while allowing Air Canada to become a "senior North American partner in one of the developing megasystems." It also will allow Air Canada to get into the Pacific Rim, something it has been unable to do up to now.

This "Mapleflot" scenario has a few problems, however: It will tend to undo the concept of competition that the government thought it was creating in the late 1980s, when it privatized Air Canada and deregulated the domestic-airline industry. The government has given no indication that it is prepared to approve a merger and Taylor has not convinced everyone that his solution is the only answer to what ails Canada's airlines. Furthermore, given Air Canada's recent losses and its high leverage, whether it is in a position to buy anything is questionable.

Nevertheless, Taylor has managed to touch on a sensitive issue for Canadians--whether having a national airline, even if it is a monopoly, is better or whether the interests of the country are better served by allowing competition and foreign investment, even if it results in the loss of an indigenous airline industry.

Underlying this debate is the question of whether a nation of only 30 million can support two competing national airlines in a deregulated environment. Air Canada does not think so. "Very few countries now have more than one major airline and we don't believe Canada can support its current industry for much longer," Taylor said in February.

While declining to speak on the merits of one vs. two airlines, CAI Chairman Rhys Eyton stated recently: "There is no question that significant restructuring is required."

John Eichner, chairman of Simat, Helliesen & Eichner, the New York-based aviation consulting firm, agrees with Taylor's assessment. "You have two good-sized airlines [Air Canada and CAI] being supported by the population of New York State. …

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