Air Canada Shifts Strategy

As it prepares to complete a court-supervised restructuring this spring, Air Canada is shifting focus to transborder and international routes while competing more vigorously on price versus discount carriers. These developments, along with a renewed marketshare-based contracting strategy and an emphasis on Internet distribution, will change the way Air Canada negotiates and builds relationships with corporate clients.

Though easily the dominant carrier in the Canadian marketplace, Air Canada is losing ground to such discount airlines as WestJet, Jetsgo and CanJet, each with their own transborder aspirations and designs on the corporate market.

Air Canada this winter completed more quickly than anticipated the transition to a simplified pricing structure in all 80 transborder markets, including codeshare flights operated by partner United Airlines (BTN, Feb. 9). Each of the new fare types represents a new fare bucket, meaning corporate contracts based on traditional fare buckets were not impacted, according to Air Canada corporate sales director Jack Wallis.

"We have not yet moved toward discounting the new buckets because they are high value," Wallis said, "but I would not say we are moving away from corporate contracts. One who is prepared to move marketshare or provide a market premium will be rewarded for it."

Aside from creating greater value for customers increasingly tempted by discount carriers, Air Canada's new fare initiative also targets lower distribution costs by leveraging cheaper Internet channels. Though the new fares in the transborder market are available through global distribution systems and the Internet, in the domestic Canadian market they are available only on Air Canada's Web site, which now accounts for 60 percent of all domestic bookings.

A portal on Air Canada's Web site enables travel agencies to make bookings, but the system still presents numerous problems, ranging from a reduction in travel agency productivity to difficulty in tracking travelers en route.

"It definitely needs some fine-tuning from a logistics point of view," said Patricia Pittiglio, travel manager at DeBeers Canada in Toronto. "The theory is great, but in practice it is not there yet. For both the travel agency and the corporation doing the booking, it is pretty difficult."

"There are glitches, and it is very time-consuming," added Vaughan Payne, president of ATCO Travel, a division of Calgary-based ATCO Group. "Still, 50 percent of our Air Canada bookings are done that way."

Wallis said the site constantly is improving and "rapidly approaching the service agencies are looking for." Larger travel management companies are pursuing direct access to Air Canada inventory, but Wallis acknowledged "we are not there yet."

The travel agency Web site also helps minimize leakage out of preferred booking channels, giving companies better reporting and therefore more accurate data as they resume marketshare contracting with Air Canada.

Wallis conceded, however, that Web fares in Canada "do not mesh 100 percent" with corporate online booking tools that rely on a GDS and therefore require screen-scraping capabilities. Some sources went a step further, suggesting the new Web fares undermine corporate deals and pose serious problems for corporate self-booking tools.

Others reported fewer headaches. ATCO's Payne, for example, said Cendant's Travelport "works well" with Air Canada's Web fares for ATCO Group's own corporate travel needs.

Air Canada's decision to transition to Web-based pricing in the domestic market also has created new challenges in dealing with GDS companies. Stephen Outerbridge, vice president for industry relations at Carlson Wagonlit Travel Canada, suggested the strategy is meant "to show GDSs they can move share away." Air Canada continues to negotiate with GDSs while the Canadian government continues to review GDS regulations.

Meanwhile, in moving away from revenue goals, Air Canada again is favoring marketshare-based corporate contracts. "Our move into revenue targets had to do with changes in distribution that made it hard to measure marketshare," Wallis said. "But what we found over the past year is that with the downturn in the business and the new business pricing structure, revenue goals are not relevant anymore."

Sources confirmed Air Canada's shift back to marketshare goals but also suggested the carrier during its restructuring has been less active in corporate sales. "They had to streamline their resources and focus on key accounts, rather than the run-of-the-mill," Outerbridge said.

"Air Canada very much is in survival mode," added another corporate travel professional. "They are not necessarily looking at corporate accounts the way they should be, and they seem to be limiting their salesforce. They haven't quite decided what they want to be."

Air Canada said it has been automating certain sales functions, but has not substantially reduced internal sales resources. It also pointed to the newly launched American Express AeroplanPlus Corporate Card as evidence of its renewed efforts to address the needs of small and midmarket companies (see story).

Though Air Canada's network decisions seem to favor transborder and international routes, at least for mainline flying, its stated sales strategy for larger companies is to create contracts based on all Canadian points of sale to all domestic and international destinations. "We don't deal on a route-specific basis and most contracts are not transborder-specific," Wallis explained.

Nevertheless, various travel agency representatives and consultants said Air Canada's renewed focus on the transborder market extends to corporate sales. "Air Canada is focusing on companies with lots of international and transborder traffic," confirmed Toronto-based AIM International consultant Sam Andraos. "The old mentality, that 'I can kill anyone that competes against me, especially in the [Toronto-Montreal-Ottawa] Golden Triangle,' is dead. They had neglected the transborder, and to be a major player in the Star Alliance they have to strengthen their position."

As always, Air Canada continues to leverage its domestic position to secure business in other areas of the network, according to Bob Brindley, vice president and general manager of Travel Procurement Solutions, a division of WorldTravel BTI. "For Canadian companies, Air Canada is saying, 'If you want a discount in Canada, you better give us your transborder traffic,' " he said.



Canada's Other Players

As Air Canada deflects mainline growth away from the domestic market, a group of discount carriers continues to add new routes, increase frequencies and court corporate clients.

Currently Canada's number-two carrier accounting for roughly one-quarter of the domestic market, WestJet has ambitious growth plans for 2004. It is ramping up its schedule in several business markets—including a dramatic increase in service in the Golden Triangle—and drawing more interest among business travelers without cutting any corporate deals, similar to Southwest's increasing relevance in the United States.

"WestJet has no corporate programs, but corporate Canada is utilizing it because it is a low-fare option and the underdog," said ATCO Travel's Payne. "They are doing a JetBlue: using leather seats and satellite television on the long-haul product and at least interfacing with companies."

WestJet, which continues to pay travel agency commissions, also is working on direct connections and other services for corporate Canada.

"The move into Toronto and the Golden Triangle puts us into a position where we can be a preferred carrier for some corporations," said WestJet corporate sales manager Judy Goodman.

"WestJet has been free from the pressure that Air Canada could normally put on for corporate accounts," added CWT's Outerbridge, referring to Canada competition rules that until next year prevent Air Canada from offering certain types of incentives to corporate clients and travel agencies. "They gained considerable marketshare at Air Canada's expense and now will actively compete in the Triangle, which is littered with the refuse of many airlines that have tried to take Air Canada on those routes."

WestJet also plans in October to begin much-anticipated transborder service to the United States. The first wave will include flights to Ft. Lauderdale, Los Angeles and Orlando, followed by seasonal service to Palm Springs, Calif., and Phoenix.

Unisys R2A consultants in their latest industry report said WestJet's estimated overall growth rate would make it the country's largest domestic carrier within six years, "unless Air Canada can reverse its own steady marketshare loss."

Despite such projections, Aim's Andraos, for one, suggested WestJet "already has peaked" and that it has stretched itself too thinly. "We are beginning to see history repeat itself," he said. "The Air Canada-Canadian Airlines fight showed that the market does not warrant two major carriers."

Meanwhile, discount carrier Jetsgo also is pursuing the corporate market and already has signed "a reasonable number" of clients to an Internet-based pre-payment program. "The product is centered around flexibility," said Jetsgo vice president of business planning Michael Granshaw. "Corporations get access to corporate fares through the Web site and then can make adjustments to the reservations and change names without incurring penalties."

Corporate fares are mid-range fares that can be booked at the last minute. "If a corporation only is interested in our very lowest fares, they can just come to the Web site and do a search when they need to travel," Granshaw said. "But a lot of companies are more interested in the costs associated with making changes."

Jetsgo last month announced an agreement to purchase 18 Fokker-100 aircraft from American Airlines, effectively doubling the size of its fleet. The first of the Fokkers will go into service in June and will serve both existing and new routes operated by the Montreal-based airline. The carrier, which uses Navitaire's Open Skies reservations system and sells more than 85 percent of its tickets through its Web site, now is focusing on developing connections with large corporate travel agencies and launching a travel agency portal.

For its part, CanJet on June 4 will launch daily flights between Toronto and both Chicago Midway and New York LaGuardia. It won't be the low-fare carrier's first foray into transborder operations; it already serves three Florida airports. CanJet this month also began providing inventory and fares through the Worldspan global distribution system.