Air Canada intends to cut labor costs
Bloomberg News
TORONTO — Air Canada must trim labor costs, its single biggest expense, as the country's dominant carrier tries to restore profits in a slow economy, analysts said.
Chief Executive Robert Milton is preparing Air Canada's work force of about 44,000 for job cuts or reduced hours by first asking for voluntary action, said Yorkton Securities Inc. analyst Jacques Kavafian, who has a "reduce" rating on the stock.
Milton urged employees in a recorded telephone message yesterday to reduce their hours voluntarily or take a leave of absence to help the Canada's biggest airline weather the economic slowdown.
Montreal-based Air Canada is losing customers to discount rivals such as Toronto-based Canada 3000 Inc. and WestJet Airlines Ltd. of Calgary.
"There have to be more job cuts at Air Canada," said Raymond James Ltd. analyst Ben Cherniavsky, who has a "market perform" rating on the stock. "A modest cut in labor can make a significant difference to the bottom line, almost enough to swing them to a profit from a loss."
Air Canada, which had a loss from operations of C$221 million ($146 million) in the first quarter, bought financially troubled rival Canadian Airlines last year. To gain government approval, it agreed not to fire people until March 2002. The airline also agreed to job guarantees in labor contracts. In the first quarter, salaries, wages and benefits were C$768 million, or 29 percent of total expenses.
"In March, all bets are off," said Kavafian. "Labor costs have gone up 16 percent, or C$400 million, since the merger last year."
Workers fear that Air Canada will take increasingly drastic action, including firing staff and seeking wage concessions like those at Canadian Airlines in the 1990s, said Sean Smith, president of Canadian Auto Workers Local 2213, which represents 4,200 reservation and ticket agents.
Earlier this year, Air Canada offered voluntary severance packages to about 3,500 workers, with 1,350 departing in the first quarter. It expects most of those people to be gone by the end of the year, leaving it with a total of 42,700 workers.
