The terrorist attacks carried out in September 2001 weakened consumer demand for air travel by instilling a feeling of fear and worry within airline passengers.
Following this event, many individuals lost the peace of mind and sense of safety that had accompanied previous flights. In order to restore consumer confidence and prevent another tragedy from occurring, airlines have taken on a host of new security outlays mainly revolving around more intense passenger screening.7 Consequently, the industry has faced a pattern of falling demands and rising costs which have created large financial losses. In fact, Air Canada has lost $2 billion since 2001, in addition to billions in losses that built up during its years of competition with Canadian Airlines.8Another major factor that has limited demand for air travel in Canada involves the outbreak of SARS.
Air Canada was particularly affected by this as its flights extend both to Hawaii and to Asia. Consequently, its Pacific business fell off, and people stopped traveling to Toronto when it was the biggest SARS center outside the Asia-Pacific region. In fact, the airline incurred an operating loss of $400,000 a day in June, down from $5-million a day in April.9 Similar to the terrorist attacks, this disease created psychological effects that instilled panic and hesitation in flight passengers, leading to a decrease in bookings and revenue.The losses faced from reduced air travel are also being coupled together with excessive hidden costs and taxation that are creating even greater problems for air operators. These excessive fees levied on air travel in Canada are increasingly difficult to pass along to a group of citizens who are traveling less and already fed up with high travel costs. Some of the major hidden charges include: Airport Rents: Rents have increased by 430% in seven years according to the Canadian Airports Council.These fees are passed along to travelers through airfares, however, they represent straight cash generators for the government, as they are not reinvested into the air transportation sector.
Air Traveler’s Security Tax: Airline security in Canada has recently been enhanced with the use of strengthened cockpit doors, armed sky marshals, as well as more intense policing at airports. However, these additions represent taxes that are among the world’s highest for Canadian airlines. Air Canada passengers face a $24 fee for international flights.
Federal Excise Tax On Fuel: This represents a devastating blow to the airline industry, as it extracts between $70 – $90 million each year from the system. The final factor that is impeding the growth and success of Canada’s airline industry focuses on the ongoing existence of barriers to entry. Airlines are desperately calling upon the government to relax or remove such obstacles in order to create a competitive and efficient environment. The major problems centre around the limited number of take-off and landing slots at certain airlines, restricted foreign ownership of Canadian airlines, as well as tight rules regarding the size a foreign market must be in order for a second Canadian airline carrier to serve it.Overall, these factors have merged to create significant losses and challenges for the Canadian air industry. Air Canada has already filed for and been granted bankruptcy protection from its creditors.
It claims that it is determined to do all in its power in order to restructure itself during this process and evolve into a profitable and internationally competitive airline. The airline has already obtained $700 million US in “debtor in possession” financing to continue operating while it is restructuring. Overall, this is a critical period for the industry. The problems and challenges are evident and it is now the responsibility of the government and the airlines to cooperate in order to find a compromising solution that will allow for progress.References1. Competition Bureau-Government of Canada http://cb-gc.ca/epic/internet/incb-bc.
nsf/vwGeneratedInterE/ct02181e.html2. Stevenson, James. Discounter WestJet adds flights Toronto Star: 12/23/20033.
Paddon, David. Air Canada’s woes follow years of problems at the airline, experts say The Canadian Press: 02/06/2003