Air Canada’s Aboot-Face
Lamar Durrett, who recently took over as president and chief executive of Air Canada from his good friend, longtime colleague and fellow Georgian Hollis L. Harris, has heard the grumbling and the jokes:
* In the media and on the cocktail party circuit, Canadians ever vigilant to what they consider undue U.S. influence here ask: Why another American at the helm of this country’s flagship air carrier, the one whose planes sport the Canadian maple leaf on their tails?
* One industry insider, noting Durrett’s and Harris’ Southern roots, calls Air Canada “the Confederate Air Force.”
* A man takes to the microphone at the company’s annual shareholders meeting in Toronto to declare himself a “proud Canadian” who one day hopes to see a countryman in Air Canada’s top job, prompting scattered applause.
The complaints were even louder in 1992, when Harris became the first American to head the newly privatized airline. That they have since been somewhat muted is testimony to the success of Harris, Durrett and their management team in transforming Air Canada from a flabby and unprofitable carrier into an aggressive and ascendant player in the wide-open North American market.
These days, Durrett, tall, taciturn and unflappable, can afford to turn aside concerns about his American origins. Just last month, a Canadian director, John Foster Fraser, was named the airline’s nonexecutive chairman. And Durrett notes wryly that Donald J. Carty, president of Dallas-based American Airlines, was born in Canada.
“So it’s really just a trade-off,” he jokes.
Since Harris’ retirement Aug. 1, Durrett has been devoting his energies to the tasks ahead: widening Air Canada’s lead in the rapidly expanding cross-border market, easing the concerns of shareholders restive about the company’s torpid stock performance and beating the principal competition, Calgary-based Canadian Airlines International.
Despite Air Canada’s profitability the last two years, the long view at company headquarters here is that it’s a life-and-death struggle with money-losing Canadian Airlines. The gospel in Air Canada’s executive suite is that a country with 30 million people--less than the population of California--is not big enough to support two international airlines.
“How in the world can this country have two international airlines when only the United States and Japan field two international flag carriers?” Durrett asked in an interview in his office. “Sooner or later we’re going to have to face up to that. And by ‘we,’ I mean the government, the industry.”
Executives at Canadian Airlines, and probably a lot of policymakers in Ottawa, the capital, wouldn’t agree with that assessment. But if only one Canadian-owned airline is to remain in the air by the end of the decade, Durrett is determined it will be Air Canada. He will be building on Harris’ legacy of change. In the past four years, Harris’ determination to rebuild and redefine Air Canada has been manifest in everything from shrinking payrolls to redesigned crew uniforms.
Perhaps most important, Harris--like Durrett, a veteran of Delta and Continental--has been widely credited with bringing what Toronto transportation analyst Ted Larkin calls “an entrepreneurial spirit” to a company steeped in the pampering ambience of its previous government ownership.
“Harris served an extremely useful purpose in bridging the company’s change,” Larkin said. “ . . . He brought with him a style of operation that was quite different from what was usual at the head office in Montreal.”
He even won the grudging respect of many union officials, who figured they would lose the airline altogether if jobs weren’t cut.
“I think most people would say he did a lot of good things to turn the airline around,” said Cheryl Kryzaniwsky, president of a Canadian Auto Workers Union local that represents 3,300 Air Canada workers.
The airline reported a $38.2-million profit last year, a decline from 1994 but still the second straight profit after four years in the red. It recently reported an $81.6-million second-quarter profit, a turnaround from the first-quarter loss, as international routes boosted passenger revenue 13%.
In contrast, Canadian Airlines International, which is one-third owned by AMR Corp., parent of American Airlines, lost $143.3 million last year and has reported losses for seven years running.
Air Canada’s decision to rapidly expand the number of its U.S. destinations last year offers a good case study of the full-speed-ahead attitude Harris and Durrett have brought to the airline.
The U.S.-Canada “open skies” agreement approved in February 1995 lifted most previous restrictions on cross-border air traffic, resulting in a 30% increase during the first year of the pact. The agreement includes a three-year phase-in period for U.S. airlines increasing flights to Canada’s three largest markets, Toronto, Montreal and Vancouver, giving the two smaller Canadian carriers a head start.
Air Canada moved quickly to take advantage of that, seeking to establish itself as the airline of choice before facing the full weight of U.S. competition. It has added 29 new destinations, most in the central United States. It also added flights from Los Angeles to Montreal and Vancouver. The airline now claims 25.7% of the cross-border market, compared with 16.7% for second-place American.
On many of these added flights, Air Canada is using new 50-seat Canadair jets manufactured by Bombardier of Montreal. The planes provide passengers with jet speed but, because of their smaller size, give Air Canada a cost advantage over competitors that fly the same routes with older, larger jets.
The remaining question is whether Air Canada can hold its lead when the restraints come off U.S. airlines.
“We’ve been competing with the Americans for 30 years,” declared Durrett. “ . . . I’ll put our product up against any U.S. airline.”
Durrett, 56, and Harris, 62, came up together through the ranks at Delta Air Lines, where Harris was president and chief operating officer before leaving in 1990 to take the top job at Continental Airlines. Durrett followed him to Continental, but the two could not stop that airline’s slide into bankruptcy.
Harris moved to Air Canada in 1992, and Durrett arrived shortly afterward, and the two set to work cutting the payroll, expanding flights, upgrading and increasing the fleet, and raising worker productivity.
Although they are friends and their careers have moved almost in lock-step, the personal styles of the two men could hardly be more at odds.
Harris is voluble and outspoken, compared by one magazine here to a Bible-thumping preacher.
Durrett is the kind of man Hollywood might cast as a law professor at a small Southern university. His speech is measured and precise and his manner relaxed.
More notably, when it comes to soothing nationalist sensitivities in Canada, whereas Harris maintained his home in Atlanta and returned there on weekends, Durrett, his wife and two sons moved to Montreal, and he has taken the first steps toward eventual Canadian citizenship. Although he cannot yet claim fluency in French, the dominant language in Montreal, he has learned enough to navigate both the city and the appointment book kept in French by his bilingual secretary.
Perhaps most telling of all, this graduate of Auburn University, where football is king, has become a hockey fan, embracing Montreal’s beloved Canadiens.
Although Harris bequeaths Durrett a born-again airline, the future will be far from problem-free.
The low-fare airlines that have proliferated in the United States are moving into Canada, augmenting already healthy competition from major charter airlines. Durrett has pledged to meet the price competition.
Durrett and Harris expect Air Canada to show a profit for the full year, but they refuse to be drawn into making a prediction.
Meanwhile, Air Canada’s stock price continues to falter. When shares first went on the market in 1988, they were priced at $12 Canadian. On Wednesday, the stock closed at $4.28 on the Toronto Stock Exchange, about $3.15 in U.S. currency at current exchange rates.
Durrett and Harris heard plenty about the stock price at the May shareholders meeting.
After Harris bragged about the profit Air Canada scored on the sale of its Continental shares, one shareholder mused that maybe he should have invested in Continental rather than Air Canada.
Durrett said that shareholder unrest is understandable and that the company must post higher earnings to drive up the market price. A full-year profit of about $110 million (U.S.) should be enough to raise the share price to “where it belongs,” Durrett said. However, he won’t forecast when that might happen.
