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Let Us Fly or Bail Us Out, Airlines Say in Fight With Canada’s Trudeau

BLOOMBERG, JULY 31, 2020

With airports deserted, Air Canada pushes to loosen rules | Opening to travel from Asia or Europe could embarrass U.S.

By Sandrine Rastello for Bloomberg – Canadian airlines saw their hopes for an industry rescue plan dashed by Prime Minister Justin Trudeau. Now they’re trying to get his government to relax travel restrictions it imposed in the early days of the pandemic.

So far, they are losing the fight. Canada has exited many of the lockdown measures it adopted in March as the outbreak eases, killing fewer than a dozen people a day in the country of 38 million. Airports, though, remain deserted. Data from security checkpoints show passenger traffic in the first 26 days of July was 10% of last year’s levels, compared with 26% in the U.S.

The slow recovery is because Trudeau’s government has kept up the barricades, Air Canada says. Unlike in Europe, Canada’s travel restrictions have changed little since March. Foreign tourists are not allowed, even from places with few virus cases. Most business travel is banned and everyone coming in must stay isolated for 14 days, including returning Canadian residents with no symptoms, under threat of potential jail time if they break quarantine.

Some provinces even require Canadians visiting from other regions to self-isolate for two weeks.

“We need to start being able to earn some revenue,” Air Canada Chief Executive Officer Calin Rovinescu said in a video call this month with the Canadian Chamber of Commerce. “Right now it is the government that’s preventing us from doing that.” Analysts expect a 91% revenue drop when the carrier reports second-quarter earnings Friday, according to data compiled by Bloomberg.

The Montreal-based carrier has been spearheading a campaign urging the government to follow Europe’s gradual reopening. France and Spain allow Canadian residents to enter with few restrictions, for example.

But Trudeau has resisted changes in the name of safety, the latest sign of a strikingly distant relationship between the airline and the government during the industry’s crisis.

‘Desperation’

In contrast to most U.S. and European countries, Canada opted against an airline-specific plan as part of its crisis support package. Air Canada, which burned C$22 million ($16 million) a day in March to keep operating, laid off 20,000 employees, suspended 30 domestic routes and retired 79 jets.

“There’s a sense of desperation on the part of Air Canada,” said John Gradek, a former executive at the company who teaches at McGill University’s Global Aviation Leadership Program in Montreal. “They’re burning through so much cash that they need to put the pressure on the government to loosen the restrictions.”

Air Canada’s fate is tied to the recovery of international travel, a key part of its growth strategy in recent years as it added overseas routes, banking on flying foreign customers through Canada on their way to other destinations. Yet the uptick in global passenger demand in June was driven almost entirely by domestic flights, according to data from the International Air Transport Association.

Strict isolation rules like Canada’s remain a concern for airlines worldwide. Only 17% of people surveyed in 11 countries by IATA last month saw quarantines as a measure they’d be willing to take to travel during or after the pandemic, against 39% who were ready to take a test at their departing airport.

In a letter to government officials this month, Air Canada suggested Ottawa follow the U.K. and the European Union in exempting some countries from quarantine. For higher-risk countries, Canada could mirror places like Iceland, where testing on arrival is an alternative to quarantine, it said.

Businessman. Seated. Suit. Water bottles.
Calin Rovinescu, president and chief executive officer of Air Canada.
Photographer: Zach Gibson/Bloomberg

Yet such decisions are politically sensitive and could potentially cause Canada to embarrass the U.S., by far its largest trading partner. The border between the two countries has been closed to non-essential travel since March 21, and will stay that way until at least Aug. 21. The U.S. has recorded about 13,400 Covid-19 cases per million people, more than four times Canada’s infection rate. Polls show Canadians support the border restrictions with the U.S., making it harder for the government to open up to travelers from other places.

“I understand how difficult it is to see these travel restrictions in place but Canadians understand that keeping our cities, our municipalities, our elders, our front-line workers safe by preventing international travel is a continued thing we need to do,” Trudeau told reporters when asked about the letter.

‘Stage Zero’

While airlines are now focused on getting Canada to crank the door open, they may pivot back to their initial request of seeking financial support, according to an industry group.

“If we’re not going to move forward and we’re to keep the industry ostensibly operating at stage zero, then we do believe it will be reasonable to have conversations with the government about moving away from this non-sectoral approach they’ve taken,” said Mike McNaney, CEO of the National Airlines Council of Canada, which represents the largest carriers, including Air Canada and WestJet Airlines Ltd.

As of July 24, government financing for the airline industry totaled almost $122 billion globally, from Australia to Germany to the U.S. according to Ishka, a consultancy. Support has ranged from grants and loans to equity stakes in exchange for cash.

Ottawa has created a wage subsidy and a loan program that large companies can use. But the latter comes at a high cost — an interest rate on unsecured debt that rises from 5% to 8% after the first year, plus warrants.

A traveler wearing a protective mask uses a mobile phone at Toronto Pearson International
A traveler wearing a protective mask uses a mobile phone at Toronto Pearson International Airport in March. Photographer: Cole Burston/Bloomberg

“We know that airlines are facing significant challenges, and we will continue to engage with them and closely monitor the situation in the hard-hit aviation sector,” Transport Minister Marc Garneau said in a written statement.

Air Canada entered the crisis with a balance sheet “probably in the best shape it’s ever been,” said Chris Murray, an analyst at ATB Capital Markets. The company, which has raised C$5.5 billion in new equity and debt since the pandemic began, probably doesn’t need government funding at this time, he said. The bigger question is “at what point you get a recovery.”

That depends on when and where the airline can fly. McGill’s Gradek doesn’t think Air Canada will be able to sway the government, which has “significant leg to stand on when it comes to public health.”

“I think Rovinescu is fighting a battle that he’s not going to win,” he said. “You don’t mess around biting the hand that feeds you.”

— With assistance by Alan Levin, Kait Bolongaro, and Theophilos Argitis

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