CANADA-LABOUR: Airline Industry Faces Turbulence Under Deregulation

By Paul Weinberg Reprint | | Print |

Paul Weinberg

TORONTO, Dec 30 1996 (IPS) - North America is being held up as a model for unregulated private markets and privatisation in the air transportation industry.

Montreal-based consultant and McGill University marketing professor Louis Gialloreto describes the deregulation as “an organic process” spreading to Europe, Latin America, and beyond.

“The U.S. did it overnight, while this is being done in Europe over five years,” Gialloreto says.

Aviation is generally a volatile, capital-intensive business, where the financial returns are minuscule, adds Wayne Skeene, author of the 1994 book, ‘Turbulence: How Deregulation Destroyed Canada’s Airlines.’

“Almost every airline is thrashing about in red ink,” says Skeene. But “nowhere has deregulation been as destructive as in Canada and the U.S.” In both countries, he says, uncontrolled competition has led to established airlines losing enormous amounts of money and to lay-offs and rising fares, despite predictions to the contrary.

Following the U.S. lead, the Canadian government in 1988 embarked on a similarly “disastrous” process of aviation deregulation, notes Jim Stanford, an economist with the Canadian Auto Workers (CAW), which represents thousands of workers in the industry and recently resisted wage concessions demanded by the troubled Canadian Airline International.

Prior to deregulation, says Stanford, author of a CAW paper on the subject, there existed a viable airline industry, “despite the economic and technical difficulties imposed by Canada’s long distances and sparse population density.”

“Today, the industry is in a very difficult economic situation,” says Stanford. “The two remaining major scheduled airlines (down from six in 1986) are mired in red ink, and both are looking south of the border for salvation: a share of Canadian Airlines International has been bought by American Airlines, while Air Canada is building strategic alliances with Continental, United, and other U.S. airlines, and pinning its future hopes on greatly expanded U.S. service.”

The Canadian aviation industry employs about 50,000 Canadians, down by 20 percent or 15,000 since 1990 as a result of layoffs, bankruptcies, mergers, and other forms of industry restructuring.

The boom-bust elements of aviation deregulation in Canada, according to Stanford, has shrunk the work week to less than 30 hours, made little overtime available, and sparked an increase in part-time work. Also, wages are low, averaging 14 dollars an hour, having fallen by 15 percent in the past 10 years.

It was the matter of pay that sparked a recent battle that pitted the CAW against Canadian Airlines and the federal government.

At the beginning of November, Canadian Airlines president Kevin Benson demanded a 10 percent cut in employees’ wages, totaling 70 million dollars. The other choice presented was that the company would be forced out of business, with the loss of about 16,000 jobs mainly in western Canada. Most of the unions at Canadian Airlines succumbed to the pressure and went along with management.

But the CAW was the last holdout, arguing that this was the fourth time the employer had insisted on wage concessions, with apparent improvement in its financial position. CAW president Buzz Hargrove contended that 70 million dollars in concessions alone would not keep Canadian Airlines alive.

The airline owes about 2.8 billion dollars to its creditors, the largest of which is the Royal Bank of Canada. That bank recently posted the largest company profit in Canadian history, a total of 1.4 billion dollars. Some critics have noted that the financiers are the only parties who have made money out of the difficulties of Canadian Airlines.

Hargrove and his union called for a new form of “re- regulation” to end an unstable situation of predatory pricing by competing airlines seeking to drive each other under. The CAW wants rules in place to prevent airlines from starting up new, obviously unprofitable routes within Canada.

After previous wage concessions, the union watched as members’ lost wages were eaten up by empty seats. “Each time they lose money, we are expected to pay,” Anne Davidson, head of the CAW’s bargaining committee for about 3,250 ticket and baggage handlers at Canadian, told the Toronto Star.

The six weeks of brinkmanship on the part of the CAW, resulted ultimately in wage cuts of less than five percent. In addition, th} federal, Alberta, and British Columbian governments contributed to about half of the 70 million dollars demanded in wage concessions, with reduced fuel taxes for Canadian Airlines.

Also, the federal minister of transportation, David Anderson, has agreed to chair a committee, made up of all interested parties, to examine the impact of deregulation in the Canadian aviation industry, using the CAW’s research as a starting point. Anderson has repeatedly stated that “re-regulation” is not an option.

Analysts like McGill University’s Gialloreto doubt that anything substantial will come of the committee’s work. But Hargrove counters that the federal Liberal government, facing an election next year, will be under considerable political pressure, particularly in western Canada, if Anderson does not respond positively to any recommendations.

The CAW managed to put the re-regulation of air transportation on the political agenda at a time when opposition to deregulation, privatisation, and other features of globalisation is scarce in Canada, says Charlotte Yates, associate professor in the labour studies programme at McMaster University in Hamilton, Ontario.

Up to now, adds Yates, “unions have not been successful in raising issues around deregulation because of the way the argument has been pitched in terms of competitiveness. It has been hard for unions to be part of the debate.”