Skift Take

Air Canada places the blame for a "grim" 2020 on Covid-19 and what it sees as onerous restrictions from the Canadian government. But it's betting that it can convince the government to replace quarantines with a testing mandate, and maybe even some financial relief for airlines.

Air Canada is lobbying hard for mandatory Covid-19 testing for air travelers to and in its namesake country, even as its peers in the U.S. balk at a similar proposal from the new Biden administration.

The Montreal-based carrier has partnered with various organizations to prove that broad testing protocols can control the spread of the coronavirus. In addition, Air Canada has put its money where its mouth is and is finalizing an order for rapid tests from pharmaceutical firm Abbott to administer to customers and staff. And it has also partnered with pharmacy chains to offer travelers pre-departure testing before flights.

All these moves are in the hope of one thing: that the Canadian government will drop its strict Covid travel restrictions in favor of mandatory testing. Currently, the country requires all international travelers to show proof of a negative Covid test and quarantine for 14 days after arrival. It also has closed the border with the U.S. to all but essential travelers, and asked airlines to suspend all flights to the Caribbean and Latin America through April 30. In addition, several Canadian regions and provinces mandate two-week quarantines for domestic flyers.

“The silver bullet here is a very, very effective testing protocol that replaces the blanket restriction, that replaces the quarantine,” Air Canada CEO Calin Rovinescu said during the airline’s fourth quarter and full year earnings call on Friday. Testing, he added, is the “most immediate and practical way to protect communities, restart the economy … and restore travel.”

The airline hopes a testing regime can be in place by the end of April, when the suspension of Caribbean and Latin American flights lifts.

Air Canada’s push for a mandatory testing regime — one that does not require three-day stays in a government selected hotel — comes as its peers south of the border pushback against the possibility of a similar policy in the U.S. Many of the country’s largest airlines, including American Airlines and Spirit Airlines, as well as labor unions and even some politicians have come out against a similar mandate. They argue that testing would douse the still weak recovery in domestic travel, and that implementation would be overly costly and complex.

But the truth is that mandatory testing would represent an easing of travel restrictions in Canada, whereas it would be an increase in the U.S. Canadian carriers are already struggling more than their American counterparts. In the fourth quarter, domestic capacity in the Great White North was down roughly 60 percent year-over-year compared to just a 40 percent drop in the U.S., according to Cirium schedules.

In his opening remarks, Rovinescu cited the pandemic and “onerous” government restrictions for an “undeniably grim” 2020.

What’s more, the Canadian government has not provided the airline industry any targeted relief. This coupled with the travel restrictions has forced some carriers, including Air Transat and Porter Airlines, to suspend flights altogether — with some wondering if at least the latter will ever resume flying — and strong criticism from airline leaders.

Relief Talks Accelerate

“We compete with the U.S. airlines, so we think that a similar program [to the CARES Act], maybe with some Canadian modifications, would best suit the airline industry up here in Canada,” Rovinescu said when asked what kind of Covid aid the airline would like from the government.

U.S. carriers received more than $65 billion in Covid-related relief. This includes $50 billion split between $25 billion in payroll support to keep staff employed and another $25 billion in direct loans for other purposes from the CARES Act that was passed last March. The payroll support aspect was extended with another $15 billion in December, and a third $14 billion extension appears a likely inclusion in President Biden’s proposed $1.9 trillion Covid relief package.

Discussions between airlines and the Canadian government began in November. However, they have only recently picked up speed to a point where Rovinescu said he is “more optimistic [of success] for the first time.”

Air Canada anticipates any financial relief from the government to come with strings attached. These are likely to include refunds for travelers and resuming flights to regional destinations that it has suspended since the pandemic hit.

The Canadian government has given Air Canada one piece of good news: it signed off on the airline’s acquisition of leisure carrier Air Transat on Thursday. Conditions include keeping the Transat brand and base in Quebec, supporting other airlines to take over former Transat routes to Europe, and committing to adding new destinations within five years of closing.

Rovinescu declined to comment on the approval, noting that discussions with European regulators and other parties are still ongoing. Air Canada has a February 15 deadline to close the deal.

The Air Canada-Air Transat deal would see a combo of the largest and third largest Canadian carriers. Competitors, notably WestJet, have opposed the merger citing a loss of competition.

“When Canadians look to explore the world and reunite with family and friends once again, they will face fewer choices and higher fares,” WestJet CEO Ed Sims said in a statement on the approval Thursday. The Calgary-based carrier is Canada’s second largest airline.

Grim Numbers

Air Canada posted a $913 million (C$1.12 billion) net loss in the final quarter of 2020. Revenues plummeted 81 percent to $651 million with passenger traffic down nearly 89 percent year-over-year. The airline’s daily losses, or cash burn, averaged $9.5 million.

For the full year, the airline’s net loss totaled $3.7 billion. Revenues fell 70 percent to $4.6 billion on a 45 percent drop in expenses to $7.6 billion. Passenger traffic was down 75 percent on a nearly 67 percent capacity cut.

Air Canada has used the pandemic to restructure its fleet. During 2020, it retired 63 jets — including all of its Boeing 767-300ERs and Embraer E190s — and accelerated plans to remove its 16 remaining Airbus A319s over the next few years. The airline is focused on emerging from the crisis with a narrow-body fleet built around the Airbus A220 and Boeing 737 Max, of which the latter returned to service on February 1.

“Air Canada is ready for the recovery and well positioned to compete in the post-Covid environment,” Air Canada commercial chief Lucie Guillemette said optimistically. However, she could not provide a timeline for that recovery.

Rovinescu will not oversee Air Canada’s recovery. He departs the airline after 12 years at its helm on February 15 when he passes the CEO reins to current chief financial officer Michael Rousseau.

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Tags: air canada, air transat, coronavirus, coronavirus recovery, westjet

Photo Credit: Air Canada will focus its post-Covid fleet on the Airbus A220 and Boeing 737 Max. Courtesy of Air Canada / Air Canada