Scare, Publicity Hurting Air Canada

Although Summer typically holds Air Canada's gravy days, the world's ninth-largest airline is planning on reducing its capacity this year. Why? Because of a disease that was unknown half a year ago: SARS.

Although many more people die of other infectious diseases (tuberculosis and flu come to mind), and you have a better chance of being killed by lightning, the nouvelle-boutique cachet of SARS, and the World Health Organization's hyping of Canada as a good place to catch it, have devastated Canadian tourism.

Wednesday's Globe and Mail says, "Air Canada is grounding 40 aircraft, scrapping a dozen routes and slashing capacity during the peak summer season, largely because of the 'ruinous effect' of the SARS outbreak." Keith McArthur, the paper's reporter, said that Toronto traffic alone is down 25%; and Asian traffic is down to 40% of what it should be.

Robert Milton, Air Canada CEO, told assembled reporters, "SARS will clearly have a sustained impact in every affected area of the world and has already had a ruinous effect on our summer, 2003... I do not expect international travel demand to Canada to recover in the near term."

The long-term effect, McArthur reported, will be a year's hiatus on Air Canada's Toronto-Tokyo/Narita flights and its Vancouver-Nagoya flights, as well as a Summer suspension of its Chicago-Calgary route. Other routes will be cut, some indefinitely, as the carrier cuts seats on its US-Canada routes by a further 25% in the next few months.

Air Canada, already under the Canadian rough equivalent of Chapter 11, is also planning radical changes: smaller aircraft, a simplified fare structure, and changes in catering are among the top non-labor items that keep coming up.

Air Canada's first quarter was miserable, the airline showing an operating loss of C$354 million (US$256million). The April rate of loss, just disclosed, was 25% worse.

FMI: www.aircanada.ca