Air Canada wins the war, acquires Canadian Airlines

By Staff -- Logistics Management, 2/1/2000

Is the Air Canada/Canadian Airlines soap opera finally over? The airlines and the Canadian government say yes, but consumers and airfreight shippers are not so sure.

Just before Christmas, Minister of Transport David Collenette approved Air Canada's proposed acquisition of Canadian Airlines. (See Logistics, September 1999, Page 74, "Air Canada, Canadian Airlines stage dogfight over merger.") For the time being, the two airlines will continue to operate under their own names with Canadian Airlines legally a subsidiary of Air Canada. At a press conference announcing the government's approval, Air Canada President and CEO Robert A. Milton said the carriers would consolidate several administrative functions, purchasing, aircraft deployment, and some routes right away, but acknowledged the possibility that they could completely integrate sometime in the future.

Critics deride the plan as a charade, noting that a single company will own virtually all of Canada's passenger air service and suggesting that the government is sanctioning the creation of a near-monopoly. To counter concerns about the potential for anti-competitive behavior, however, Collenette and a parliamentary committee imposed a series of conditions on Air Canada that are intended to ensure fair pricing and opportunities for other airlines to compete. Under these terms:

- The government will have oversight of pricing to prevent price gouging.

- Air Canada must put subsidiary Canadian Regional Airlines up for sale.

- Air Canada may not offer discount service in Eastern Canada until Sept. 30, 2000. If a competitor begins such a service before that date, then Air Canada must wait until Sept. 30, 2001.

- Air Canada must relinquish a certain number of peak-traffic landing slots at Toronto's Pearson International Airport.

- The airlines must continue to provide domestic service to communities that they and their subsidiaries now serve.

- There will be no involuntary layoffs or relocations of unionized employees of the two airlines and their subsidiaries.

In February, Collenette will introduce legislation that will contain mechanisms making those and other conditions legally enforceable. In addition, the government announced that it would revamp its framework for international air service. Any Canadian carrier may now bid to serve international markets that generate 300,000 or more passengers annually. The government also will review and liberalize its international air policy, including air charters, beginning early this year.

The changes already have begun: Last month Air Canada said it would merge its Air Nova, Air Ontario, and AirBC regional airlines. Canadian Airlines' board of directors also has been revamped to include Milton and several other Air Canada officers. And in January, Air Canada's Senior Vice President- Business Development Paul Brotto was installed as Canadian Airlines' executive vice president and chief operating officer.