Canadian aviation executives gave their perspectives on passenger traffic recovery on the weekly industry call hosted jointly by the Airport Restaurant & Retail Association (ARRA) and the Airport Minority Advisory Council (AMAC). Listeners heard from James Cherry, former president and CEO, Aéroports de Montréal and strategic aviation advisor for ARUP; and Barry Rempel, president and CEO, Winnipeg Airports Authority.
Both executives noted that the current COVID-19 pandemic has packed a far worse wallop than any previous upheavals, including the 9/11 terrorist attacks and other, more regionalized health crises.
“As horrible as 9/11 was, it affected North America and really didn’t have much of an effect outside of North America,” noted Cherry. “SARS had had a huge impact on China and a couple of airports in [Canada]. The difference this time around is that this is global.”
Rempel noted that the world is currently seeing a second pandemic wave. “We’ve never seen anything like this, and I’ve been in the industry a long time, both on the airline and airport side,” he said. “If we look out four to five years there is there is a strong future for all of us again. I also believe firmly, particularly here in Canada, that as much as we need government help, [recovery] will not be led by government. It will be led by the private sector, doing what we need to do.”
Canada’s airport’s are facing different challenges from those of their U.S. counterparts. While U.S. governments are run by the public sector, in the early 1990s Canada did a quasi-privatization, transferring ownership of the airports to not-for-profit organizations. The government relinquished control and in exchange extracts an annual rent from each airport.
“The manner in which airports are financed is very important because they [are owned by] not-for-profit organizations and they are non-equity corporations,” Cherry said. “They are 100 percent financed by debt, no equity, no shares. The advantage of that is, of course, that if they generate net profits, the profits are reinvested in the organization.
“As long as things are going well, …everything is rosy,” he continued. “We have no trouble supporting the debt.” But with traffic reduced by 90 percent or more earlier this year and slow to return, the debt has become an extraordinary burden, Cherry adds.
“Today, I would say the Canadian airports have the worst of all worlds. They’re getting absolutely no government support,” Cherry said, adding that the government has not required airports to pay rent. Since rent is based on revenue and revenues have been cut dramatically, the offer has limited impact.
“It think it’s unconscionable the way the government has abandoned the industry, not only the airports but the airlines and everybody that is ancillary to the business,” Cherry said.
“The issue is, our model in good times is probably the best of models and in bad times, it’s the worst of models,” Rempel noted. “There is no access to equity and there’s no government that even wants to talk to you because there’s a risk they might have to actually buck up and contribute something. It’s a tough position for airports to be in.
“It does rely on us putting together an effective plan to use our only model – and that’s debt – to get out of it,” Rempel continued. “Or, as in the case of Winnipeg, to look for other models of diversification that will allow us to bring equity in.”
Both executives said a change in model for Canada could be necessary, but noted that would be a multi-year process that would not help solve today’s crisis.
Airline Difficulties
Cherry also expressed concern about the long-term viability of airlines in Canada if no bailout from the government is forthcoming. “We have two major airlines in our country – Air Canada and WestJet – and there’s a few small ones as well, but the bulk of the traffic is carried on those two,” he noted. Without government support, one or both may be forced to file for bankruptcy. While they may survive, there is risk. “The biggest concern we have is how are we going to guarantee air service to our country?” he asked, noting that Canada is, physically, much larger than the United States but with about one-tenth of the population.
U.S. and other foreign carriers aren’t allowed to fly point-to-point within Canada, leaving small communities vulnerable to losing air service if Canadian airlines scale back or fail. “Even prior to the pandemic, we started to see the consolidation of services in Canada,” Rempel noted. Without alignment of airlines and airports on trade and travel, smaller communities “risk becoming the next of the victims of the pandemic.”
In fact, Rempel said that in addition to rent relief and efforts to instill confidence in travel, he favors open skies policies that would allow foreign carriers to compete in the market. “If Canadian airlines are not willing to serve markets like Winnipeg on a non-stop basis, then the foreign carriers should be allowed to,” he said. “And that applies both for cargo and for passenger service.”
Cherry pushed for new approaches to reopening economies. “We have to get the world opened up again…,” he said. “The airplanes in the airports can be as clean as you want them to be. But if there’s nothing for [people] to do [at their destination], then they’re not going to get on a plane.”
The former Aéroports de Montréal executive also urged listeners to connect with Canadian government officials to push for relief for airports and concessionaires. He noted that several U.S. concessions companies operate in and employ significant numbers of individuals in Canada.
Both executives predicted a slow return to 2019 passenger numbers for Canadian airports. Assuming a COVID-19 vaccine is available in 2021, Cherry predicts that VFR (visiting friends and relatives) traffic will ramp up in the latter half of the year, and there will also be “huge, pent-up demand” for leisure travel. But business travel will remain stalled. “I would be surprised if we’ve got to 50 percent by next summer,” he said.
Rempel predicts a return to 50 percent of traffic levels somewhat quickly “but it’s going to take us a lot longer to climb from that 50 percent up to 80 percent to 100 percent.”
