No this is not a post about how my 9:00 pm flight out of Pearson was canceled last Thursday. Mind you – it’s a pretty good story. (Have you ever had a flight canceled because the plane’s parking brake refused to release? I have. I finally made it to Las Vegas, only 15 hours later than planned.)
It’s not about Jason Kirby’s excellent cover story from last week either.
This is about my friend Derek DeCloet’s column in today’s Globe and Mail. Derek takes a hard look at the unbelievably low market values ascribed to major airlines today. Seems like just about everybody is expecting the industry to tumble right back into the bankruptcy disaster it only emerged from a couple of years ago. My favourite snippet: “Right now, Southwest, Delta, Northwest, American, United, JetBlue and US Airways combined aren’t worth as much as Canadian National Railway.” Amazing.
Derek asks why Air Canada is being priced as a distressed company when it is not (yet) is any real financial danger. He goes on to answer the question, looking at debt, leases, warrants, break-up value etc. (Seriously – you should read it.) But there is one aspect of the flight experience that he doesn’t mention: customers are being asked to pay substantially more, for a service that is getting substantially worse. Nobody knows that better than the business guys who are flying these airlines on a regular basis. We tend to take for granted that we’re all hooked on air travel and that will not change, but price and service have a funny way of messing with our habits. If oil prices stay above $100 a barrel for an extended period, I believe people will fly a lot less than they do now. The stories are already beginning to emerge of people opting not to fly home for holidays, and companies looking for ways to avoid sending people to distant meetings and conventions. People tend to assume that demand for air travel is inelastic and eternal. But then, we used to think the demand for SUVs was pretty inelastic too.