Guest

AA Is Looking At Canadian Regional

Wed Mar 15, 2000 3:14 am

American Airlines apparently wants to get its hands on more of Canadian Regional - and the Canadian market. And possibly build a new Canadian competitor to Air Canada from CRA as a platform! All AA has to do is find Canadian partners who could own up to 75% of CRA in addition to its 25% ownership stake.(due to federal laws, no foreign owner can take up more than 25% of either AC or CP or any other Canadian carrier.) Meanwhile, Canadian Regional is not even up for sale yet because they're still bickering over a fair price! All of this would have some very serious implications for the Canadian airline industry, no doubt!

This was according to an article today from the National Post, Canada's second national newspaper.

My guess is that if AA is successful, CRA could well go on to become a new second major airline competing against AC. Great news for consumers, but bad news for AC!

Does anyone have any thoughts or opinions on this?
 
AC183
Posts: 1496
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RE: AA Is Looking At Canadian Regional

Wed Mar 15, 2000 5:22 am

The National Post article also mentioned Canadian North. That would indeed be interesting, especially because CP provides crew for Canadian North.

Now as for CRAL. I don't think AA would want a real full service mainline national carrier. It would be more like AA wanting them to fly a few routes to feed AA's operations. YEG-YYC comes to mind as probably the biggest one. Or maybe YOW-YYZ and YUL-YYZ. But really for what it's worth, I don't think it would be very smart for AA to buy CRAL. For one thing, CRAL is really set up as a CP feeder, and as such is not aligned to feeding AA. Routes like Lethbridge or Thompson wouldn't really fit into AA's requirements. Another thing is that CRAL's ramping, reservations, and other functions are basically handled by CP. Thus is CRAL's life as a feeder. Tearing it away from that wouldn't work. Also, CRAL's F28 fleet is pretty old right now. Any partner they could find to take on a 75% share probably wouldn't want to be stuck with the costs of updating the fleet as well. And I can't see F28's as being something AA would want to keep feeding it with in the long run. Personally my view is that AA should rely on its existing connections, use Horizon Air connections in the west, and its Business Express connections in the east to feed its network, and should welcome any new independant regional carriers in Canada to do likewise. Carriers like Athabasca Airways, Air Alma, Air Labrador, and others could be grown to feed AA adaquetly, with the eventual goal of them buying RJ's.
 
ywg777
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RE: AA Is Looking At Canadian Regional

Wed Mar 15, 2000 6:59 am

AA flying domestic routes? Doesn't work because of AC. I can see AA doing routes such as YWG-YVR-SFO.
YWG777
 
Guest

To AC183

Wed Mar 15, 2000 1:06 pm


AC183 wrote:
-------------------------------


//Now as for CRAL. I don't think AA would want a real full service mainline national carrier. It would be more like AA wanting them to fly a few routes to feed AA's operations. YEG-YYC comes to mind as probably the biggest one. Or maybe YOW-YYZ and YUL-YYZ. But really for what it's worth, I don't think it would be very smart for AA to buy CRAL. For one thing, CRAL is really set up as a CP feeder, and as such is not aligned to feeding AA. //

Why then, does AA want to buy CRA in the first place!? Remember how AA and Onex got burned in the bid to buy AC?

//Routes like Lethbridge or Thompson wouldn't really fit into AA's requirements. //

I'd agree with you on that. But how come I see AA flight codeshares(AA flight numbers) on some CRA flights to smaller cities like Fort McMurray, for example? I see that all the time on departure/arrival screens!

//Another thing is that CRAL's ramping, reservations, and other functions are basically handled by CP. Thus is CRAL's life as a feeder. Tearing it away from that wouldn't work.//

How so? See, CRA's going to be sold. But what if the new owners want to turn CRA into a mainline? There's nothing anybody can do about that, unless they want to do battle in court. True, you can't tear CRA from its current functions right away - these things take time!

//Also, CRAL's F28 fleet is pretty old right now. Any partner they could find to take on a 75% share probably wouldn't want to be stuck with the costs of updating the fleet as well. And I can't see F28's as being something AA would want to keep feeding it with in the long run. //

Not if the new partners have enough cash and enough will to risk losing money in the short run! MEL first told me that and I agree with him on that. But I do agree with you about F28s not being the ideal RJs for AA to keep in the long run! As a matter of fact, anyone who tries to buy up an airline and doesn't bother to replace an aging fleet is insane in today's cut-throat air industry, because that means money gets eaten up by huge maintenance costs and lost passengers who would rather fly in a newer a/c. I have seen a Maclean's article about CP's financial plight in which they say passengers would rather choose to fly in AC's newer planes than CRA's F28s and CP's older 737s, as they're not that stupid to not know the difference. CP tried hiding this by offering up improved food service and business class seats, which is great, but not in the long run. In short, customers can be a fickle bunch and can vote with their feet! So, I see CRA in either direction - as a carrier with modern a/c at least the size of CRJs or EMB135/145s - or it will be bankrupt and therefore no longer a viable airline.

//Personally my view is that AA should rely on its existing connections, use Horizon Air connections in the west, and its Business Express connections in the east to feed its network, and should welcome any new independant regional carriers in Canada to do likewise.//

This one I agree with you totally - but only if these carriers have the resources to do so.

//Carriers like Athabasca Airways, Air Alma, Air Labrador, and others could be grown to feed AA adaquetly, with the eventual goal of them buying RJ's.//

Frankly, do you really honestly think that AA would even bother looking at these tiny airlines? I think that's why AA is looking at CRA in the first place as a way to get a handle on the Canadian market.
 
Guest

RE: AA Is Looking At Canadian Regional

Wed Mar 15, 2000 2:13 pm

The one advantage that CRA has over Air Alma, etc., is national brand name recognition. That's got to be worth a few million dollars as opposed to starting an airline from virtual obscurity. I'm wondering if AA isn't looking for a partner in Canada to be for them here what American Eagle is in the US. Horizon flies to only a couple of points in Western Canada (YEG, YYC, any others?) so they wouldn't offer the same "catch basin" for pax that CRA does with its service to many small Canadian communities. AA would need to service only a few points in Canada as it now does (YVR, YYZ, YYC etc.) and could draw on Canadian traffic that CRA would fly to those centres with fairly short hops. I expect AA's interest in Canada stems mostly from the feed of US-bound traffic that they don't wany to lose to AC / UA etc. For that, they would not need CRA to be anything other than a regional feeder. There would be no need for CRA to compete with AC as a mainline carrier on an East-West basis. Rather, AA would want to compete for marketshare on North-South crossborder traffic. CRA feeds into YVR, YYZ, etc. would let them do this. As for aircraft, I agree the F28 needs to go. Fortunately a fleet of EMB-145's or Canadair RJ's are relatively modest in price (isn't it about $19 million per aircraft?). $400 million would buy 21 of them, and that kind of cash infusion is something that AA has deep enough pockets to make. According to the National Post article, the codeshare that AA had with CP was quite lucrative for them (generated something like $300 million in additional revenues), so perhaps the payback on a $400 million investment is short enough to be attractive to them. And there's always the alternative of leasing. This is all idle speculation on my part, but who knows -- perhaps the group that was behind the aborted Canjet startup will want to buy in to CRA if they have the prospect of AA backing.
 
XNV
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Wet Lease Option?

Wed Mar 15, 2000 3:04 pm

If AA wants only a few routes served, why wouldn't they just wet lease an operator to run the routes they want? Like Greyhound did with Kelowna Flight Craft, or Air Canada did with Central Mountain Air and Alberta Citylink?
 
ywg777
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RE: AA Routes Served

Wed Mar 15, 2000 11:30 pm

AA flys into a few Canadian cities. AA flys into YYZ,YUL,YYC,YVR. I would think that AA would want to expand into YEG,YOW,YWG,and YHZ. Those are the other major cities that AA is missing. Thats where I think they will fly to.
YWG777
 
CannedSpam
Posts: 449
Joined: Fri Feb 04, 2000 8:18 am

YWG777....

Thu Mar 16, 2000 12:29 am

Why do consistantly spout off about AA expanding into Canada when you lack any insight into the economics of running an airline? I consistantly tell you that AA is not looking to expand into YWG, YEG, YOW and YHZ (been there done that), and you insist that it is something that would be good for AA since it is something they are missing. Using your logic, AA should go back into PBC (Puebla, Mexico) simply because it is something that AA lacks. Sure PBC has a good deal of industry and is close to Mexico city...but the route still stunk! That's why AA doesn't fly into it anymore. The same holds true for the cities you mentioned. Maybe if these cities ponied up some cash as a minimum revenue guarantee, it might be worthwhile.

YWG-YVR-SFO? AA couldn't fly it! Besides, what benefit would AA get from flying YWG-YVR? NONE!
 
flygirl
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Walk Softly CS

Thu Mar 16, 2000 4:14 am

Fact is Canned Spam that AA has been in Ottawa, has expressed interest in purchasing CRA, and has been lobbying to have the foreign ownership rule raised to 49%. Due to Colenette's unwillingness to allow cabatoge, AA, to keep a presence in Canada (which they make no bones about wanting), are scrambling for a feeder to serve up traffic to the cities they now have landing rights to. Although there is no cut off date for the CDN/AA co-share, they have to plan for the inevitablity. This is what has triggered the speculation expressed in the posts in this thread. These posts are just trying to suggest justifications for AA's interest and attempting to second-guess how AA will proceed.

In my opinion (and not based in fact) CRA would not be an ideal choice due to the complications that would arise extracting them from the AC family but they are "sitting ducks" and available for the taking right now due to the forced sale. As pointed out, AA could replace the F28 fleet cheaply with new metal if the economics proved to be viable to their goal.

Events in relationship to Oneworld and Canadian are moving so fast, AA does not want to find themselves shut out from exposure to all of Canada by sitting on the sidelines. BA is also interested in aligning with a feeder airline in Canada. They have been to Ottawa too with a similar agenda. With all the bickering between England and the US can you see the advantage both carriers would gain using Canada as their geographical link? At the same time, being able to transport their passengers from their respective countries to their final destination such as Kelowna or Quebec City? Anything to keep potential money out of AC's pocket.

Ther' s even scuttlebut that Swartz will arise from the ashes as the money man in Canada to support the purchase. Makes for interesting times...< >

 
Guest

RE: Walk Softly CS

Thu Mar 16, 2000 4:40 am

That's what I've been thinking, Flygirl! Onex would likely arise once more along with AA. Remember that AA has a large ownership stake in Onex(or is it the other way around?). Sounds to me like Gary Schwartz's - and AA's already trying to get back at AC in an underhanded way, even though Onex's not obviously referred to in the article!
 
ywg777
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RE: Walk Softly CS

Thu Mar 16, 2000 4:47 am

Well when CP goes, than there won't be any one world allience carrier in Canada doing doemestic routes. I think that AA is thinking about that. I can see AA flying into Canada to compete with AC. Maybe not doemstic routes but for sure Transborer routes. Especially routes out of ORD,and DFW.
YWG777
 
AC183
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For Boeing777

Thu Mar 16, 2000 10:34 am

OK, well, it looks to me like we're looking at this from a different set of basic assumptions. You are assuming CRAL would be made into a national carrier. The logic behind that being that it would generate more connecting traffic, would increase the schedule and would increase the attactiveness of the oneworld frequent flier plans. On the flip side, I'm thinking that CRAL would mainly be a feeder for north-south flights over the border. Feed to a handful of cities on routes like YOW-YYZ, YEG-YYC, or YXE (Saskatoon)-YYC, or even YYT (St. John's)-YHZ (Business Express flies to YHZ I believe). This would be lower risk than a national carrier.

Now, on your reference of Fort McMurray codeshare with AA. I am surprised. Good example, but I've never seen AA code on Lethbridge, Thompson, Medicine Hat, and several others. Basically I see the middle sized cities I mentioned above and others (Thunder Bay, maybe, and Victoria?) as being of interest, but probably not smaller ones.

Now, on the question of fleet. There is a real problem there. Not that they wouldn't want new aircraft. But AA would already have a problem finding a 75% partner to buy the airline. How would it get that partner to put up the money to finance the fleet? They couldn't just add equity, that would go against foreign content laws. And I also believe AA's pilots contract don't allow it a lot of leeway to loan the money or to provide attractive financing. I remember that being a stumbling block to their backing of CP.

Now also I wanted to mention about something else. Take note of NW's route network to Canada. NW doesn't currently have any Canadian partners, and has a really comprehensive route network. Why couldn't AA just do the same?

Now about the little carriers. Yes they are small. And maybe I sound as though I've gone nuts. But why couldn't Athabaska operate a route from Saskatoon and Regina to Calgary to provide AA connections? And there are lots of other airlines AA could use. Also, you may realize that Air Alma and 4 other Quebec carriers are cooperating to create a Quebec regional called Air Quebec Metro. Also, in terms of past history I think it should be noted that Canadian carriers have indeed provided US feed. For example, Nordair (merged into CRAL now) used to fly Saskatoon and Regina to MSP. And Austin Airways (now Air Ontario) used to fly from Thunder Bay to Minneapolis. So to answer the question, why wouldn't AA take some interest in small regionals to provide feed?

One other thing. Has anyone else noticed that AA has been advertising in several full page newpaper ads, and on Canadian TV channels for their "coach has more class" marketing?
 
ywg777
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RE: Small Feeder Routes

Thu Mar 16, 2000 12:18 pm

Well I am not to keen on that idea because of Than that means that little airlines would need to by more planes. I can't them going to the U.S.A. I can see AA doing that. Maybe AA should take a idea from NW. Look at NWA'S network into Canada. Everything is connecterd through eathier MSP,DTW,BOS,or SEA. All those airports being with in a 1 hour flight of Canada. You don't see NW doing a YVR-LAX route do you? You do see Horizon Air(northwest Partner) doing a YVR-SEA route. Both Horizion Air and NW serve YVR,YEG,YYC. I would like to see AA starting to add flights up to Canada. If AA buys CRAL than there is goinng to be more AA flights to the smaller cities in Canada as well like YQR,YXE,YQT,YLW,YYJ. Just to name a few. As for AA flying up North I don't think its going to happen because the airports up there barely have enough runway room or terminals. Most of the termnals up North are very small and don't even have a jetway. I could only see AE(American Eagle) flying up there with sabbs. AA did say that they were interested in the Canadian market and possible new routes. It would be nice for AA to be up here than they will give NW,AC a bit of compititon.
YWG777
 
Guest

RE: For Boeing777

Fri Mar 17, 2000 3:00 am

Hm. You've said your piece. I must admit you've got some excellent points. And you're right, we were on very different wavelengths. I did not say that CRA would definitely become a national airline, but just a possibility.

Frankly, you know what? I think your view's much more realistic anyway. But I doubt AA's going to be content with just the same kind of route network as NWA's, because it's probably afraid of losing a Canadian customer base. That's why it wanted to get CRA in the first place.

The codesharing to Fort Mac IS real. Probably because of an unusually high number of AA frequent flyers going up to Fort McMurray. Of course, its economy is mainly based on oilsands projects. Think of how many businesspeople and workers from the oil companies based out of Calgary and Texas go there. (AA is based out of DFW) But I know that already it's true AA doesn't exactly do the same thing with Lethbridge or Grande Prairie. Next time you go to YYC, check out the CRA flights to Fort Mac on the departures/arrivals screen - that's where you'll often see AA flight numbers alongside CP flight numbers to Fort McMurray. You'll see what I mean.

Now about the small carriers in Canada - by themselves, they'd find it difficult to get a large US airline to look at it. But not if a few do band together in an alliance (or a merger) as you pointed out, or if they already have good connections to US airports. Yes, it does make a lot of sense for any small airline using props or RJs to provide feed, rather than have a major airline fly their larger jets into smaller markets, causing huge financial losses. That's practically what every major airline in North America has done - to let smaller regional carrier do the codesharing to smaller markets.

Still, AA may come up with the 75% Canadian partnership, but who knows? AC could take over CRA if no one wants to buy it, remember? Wait a few months, and things'll definitely begin to show up in detail regarding CRA's fate.