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The Air Up There

The Air Up There

Northern airlines face a host of challenges. High fuel costs. Staffing shortages. Intense competition for small markets. What can be done to make a critical industry more sustainable?
By Jimmy Thomson
Jun 25
2019
From the JUNE 2019 Issue

Elissa Boyd McGee is an effervescent sort. Her Instagram posts frequently find her on Swiss mountains or striking yoga poses on beaches in southeast Asia. Exotic, to be sure. But Yellowknife is home, and these days, you’ll often find Boyd McGee teaching yoga classes, not on a sunbaked beach, but at Anytime Fitness, a new 24-hour gym that opened this past summer.

Six months ago, yoga instruction was far from Boyd McGee’s mind. She was behind the stick of a Twin Otter, having spent two years working her way up the ranks on the loading ramps and as a flight attendant. “Flying is the perfect job,” says Boyd McGee, who grew up in Victoria, dazzled by the planes that swooped in and out of the harbour. “When I was actually doing it for work it was so rewarding that it was worth the wait and worth the struggle.”

But as the ice formed on the lakes, Boyd-McGee found herself grounded by the seasonality of her industry. She wouldn’t be flying again until business picked back up in the summer. A job back on the ramp was an option, but after two years of toil, it felt like a backward step. Boyd McGee resigned and now, between yoga classes, is upgrading her qualifications and applying for new flying jobs.

This story will be familiar to almost any aspiring pilot who’s travelled North to get their start. But it is tinged with irony, too. Boyd McGee is shopping her resume at a time when the aviation industry faces a looming, nation-wide pilot shortage. The North is not escaping unscathed. In November, Glenn Priestley, executive director of the Northern Air Transport Association told a parliamentary committee that his industry will need 70 new pilots a year by 2025 in the Northwest Territories alone. “It’s not just pilots,” he continued. “We also need mechanics. We need ground personnel because the airports are suffering as well.”

Unfortunately, Priestly's concerns are only the tip of an iceberg: A pilot shortage is just one facet of challenges for an industry that appears headed into a period of turbulence. The big story, of course, is the proposed merger between First Air and Canadian North, a controversial move that, depending on your perspective, will eliminate wasteful drag on Northern economies or create a frightening monopoly on air transportation in the NWT and Nunavut. Equally compelling is the sale this past fall of iconic Yellowknife-based companies Air Tindi Ltd. and Great Slave Helicopter Ltd. in bankruptcy proceedings of their parent company Discovery Air.

Beyond that are stories of routes added or reduced, new entrants stepping into a fragile market and more. What does it all add up to? We know this much: it's hard to make a buck in the air. Is there anything we can be doing—should be doing— to make a necessary industry more sustainable?

Freight contracts are core business for many Northern airlines. Photo by Jason Pineau

Dreams of flying over the vast expanse of the far North and Arctic have attracted adventurers for decades. And Northern lore is ripe with tales of aviators and their exploits. The reality of running an aviation business is a different story. The industry is squeezed from all sides by high overheads and stiff competition in a tight market. Fuel is significantly more expensive in the North than in the south, costing up to three times as much. So are the utilities for operating offices and hangars, not to mention the cost of attracting and retaining staff. Calm Air, a passenger and freight carrier that operates in Nunavut’s Kivalliq region and northern Manitoba, estimates it has to pay 30 per cent more for Northern employees than their southern counterparts.

Compounding such issues is the fact that many of the fleets operating in the Yukon, NWT, and Nunavut are getting old. First Air and Canadian North are both flying planes with an estimated average age of 25 and 24 years, respectively. Air North is flying even older equipment, according to aviation tracker Planespotters.net. All three airlines fly planes more than twice as old as WestJet’s fleet, and nearly twice as old as Air Canada’s. That adds fuel and maintenance costs to every flight.

The greatest challenge, however, may be capacity—more precisely, an abundance of it. The Northern aviation market is highly competitive, with government providing bedrock contracts to many companies for services such as business travel, medical travel, and forest fire-fighting operations. Freight services—including fresh food and produce— are a significant contributor, too, especially for supplying communities that can’t be accessed by road. After that comes passenger traffic, which can be a money-loser when it comes to providing services to small, remote settlements.

The competition is so intense it has led to the proposed merger of Canadian North and First Air, long-standing rivals that compete nose-to-nose on all key routes in the NWT and Nunavut. Residents of the territories are wary of the combination, fearing that a monopoly on air travel will increase already sky-high prices. The federal Competition Bureau shares those concerns. In a February report, based on independent economic models and stakeholder consultations, the board concluded that a merger would “likely lead to significant and materially higher prices and lower quality services for air passengers and cargo customers.”

Makivik Corp. and the Inuvialuit Regional Corp.—owners of First Air and Canadian North, respectively—promptly disputed the bureau’s findings in a press release, calling them “artificially restricted” and showing a “superficial” understanding of the North. From their point of view, the merger is a matter of survival. “The Bureau’s narrowed focus,” the corporations said, “ignores the economic realities (i.e. significant inefficiencies due to overlapping routes, insufficient demand, redundant schedules servicing small and sparsely settled remote communities over vast distance) which are driving the parties— who otherwise face the risk of being driven out of business—to do a deal.”

While First Air and Canadian North await a decision from the federal Cabinet on whether to approve the merger, smaller airlines continue to wrestle with the challenging dynamics of their sector. Success for many is tied to resource investment cycles over which they have no control. When times are good, exploration and camp charters flow in. When investment is lower, planes sit idle for longer.

Managing the impact of those swings is a fine balancing act, and misjudging the business environment can have devastating impacts, as the collapse of Discovery Air shows. The Toronto-headquartered company went public in 2006, two years after its founding, with a strategy of buying niche aviation companies to create profitable efficiencies and synergies by consolidating a fragmented industry. Among its first acquisitions were Great Slave Helicopters, which it bought in June of 2006 for $100 million, and Air Tindi, which it acquired for $20 million six months later.

More deals followed as Discovery snapped up outfits such as Discovery Mining Services Ltd. in Yellowknife, and Top Aces Inc., a Montreal-based provider of air-combat training services to the Department of National Defence, among others. Cracks in the business plan appeared after the financial crisis of 2008- 09 as a downturn in resource exploration investment slashed revenue. Despite a rebound, further declines in Northern mineral investment in the middle of this decade ate into the company’s earnings while it continued to make acquisitions. With $149 million in debt and unable to keep up, Discovery Air filed for bankruptcy protection in March of 2018, leading to the sale of Air Tindi and Great Slave Helicopters—a white- knuckle period for employees and NWT residents alike.

If the resource sector is challenging, government contracts are not secure, either. When Calm Air and First Air were ultimately required to split the lucrative Nunavut government’s medical travel contract for the Kivalliq region a few years ago, both airlines found themselves scrambling to make it work. Calm Air president Gary Bell, speaking before the Nunavut legislature in 2017, said nothing the airline tried was able to square that circle. It acquired warehouses to make freight a bigger part of its business, and bought aircraft that could be configured to carry freight at the same time as passengers. It bought equipment to be able to fly in harsher conditions and laid off more than 60 staff members. None of it could stem the tide. “At the end of the day, those changes were not enough,” Bell told the assembly.

The result was a codeshare agreement, a deal in which First Air and Calm Air would sell one another’s flights, decreasing the competition between them in order to weather the storm.

Air Tindi's hangar at the Yellowknife airport. Tindi was sold in the collapse of Discovery Air. Photo by Bill Braden

There’s little that airlines can do to overcome the harsh reality of the North’s high costs and tough operating environments. Nor can they influence resource-sector investment or require governments to give them favourable contracts.

Still, there are steps that can be taken to ease some of the challenges. One of them is about to occur at the Dawson City airport. Sitting in a long, narrow valley south of the city, the airstrip runs parallel to the Klondike River that brought the Gold Rush prospectors to the region in the late 1800s. It was built, in fact, not long after that heady time, and the runway has remained a lonely gravel strip for 90 years. That will change this summer when the runway is finally paved.

On its face, the $11-million project—plus nearly a million dollars a year in maintenance—seems like an aesthetic upgrade. It’s not. For aviation insiders, it’s a long overdue development that should be replicated across the North. For starters, gravel runways can only safely accommodate certain aircraft. Newer jets have their engines too close to the ground, so the largest commercial planes gravel runways can handle are the 737 200s, a 1980s-era model that has long outstayed its welcome in the sky. Joe Sparling, president and CEO of the Yukon’s Air North, says thanks to the tarmac, his company will be able to upgrade to the newer, more efficient 737 500s, saving 1,200 pounds of fuel per hour of flying time.

Fuel savings aren’t the only benefit. When planes operate on gravel runways, they kick up rocks that damage the aircraft. Brock Friesen, president and CEO of First Air, told the Nunavut assembly that the gravel was one of his primary economic hardships operating in the territory. “A couple of years ago I did some math and found out that $20 of every ticket price goes to pay for propeller repairs on our fleet up here because of gravel runways.”

Government policy changes might also help major Northern carriers support necessary but unprofitable routes. On any given night in the Yellowknife Airport, as the evening flights roll in from Calgary, Edmonton, and Vancouver, the airline industry would seem to be booming. Flight after flight brings in bureaucrats, Chinese and Japanese tourists, and mine workers. There appears to be more than enough passengers to go around.

There’s a snag, however, and it’s a significant one for Northern airlines. Many of the planes landing on Yellowknife’s long military-capable runway from points south bear the stylized maple leaves of Air Canada and WestJet, rather than the livery of Canadian North or First Air.

The big, modern planes are able to make the flight efficiently and carry more passengers. So it makes sense, for example, that Air Canada would want to hang on to the aurora tourists it's already flying from cities in Japan and China and bring them to their final destinations instead of dropping them off in Vancouver. (Indeed, the carrier launched year-round, daily direct flights from Vancouver to Yellowknife this past August.)

But what about Canadian travellers— specifically, travellers on federal government business—who usually have at least one Northern option to choose from? “The Ottawa bureaucrats don’t get on Canadian North,” says aviation consultant Rick Erickson, managing director of RP Erikson & Associates. And this is despite the fact that Canadian North—not to mention First Air—flies Edmonton to Yellowknife, every day.

The reasoning is the same as many consumer choices in the airline industry: points. Government workers, regularly flying to and from Ottawa, are allowed to book on any carrier they choose, and often do so based on rewards programs, Erickson says. He laments that lack of support, given that air travel is one way the government could be supporting the Northern economy. “The Northern carriers are based in the North; the labour income from their workforce circulates in the North,” he says. “Why wouldn’t you want to support that?”

Canadian North and First Air say their merger is needed to survive. Photo by Jason Pineau

Airlines were once restricted from adding whatever routes they wanted to their schedules. Prior to 1984, they had to operate in a particular geographic area. The new “free entry” system was part of a broad process of deregulation throughout the 1980s and has had extensive repercussions on how airlines operate. Air Canada and West Jet, for example, would previously have been required to prove that landing in Yellowknife was required by “public convenience and necessity.” Today, they only need to be “fit, willing and able” to do so.

Sparling of Air North says he prefers the deregulated system “on balance,” but he would like to see more cooperation between the national carriers and their Northern counterparts. “I think there is a win-win business case for the Northern carriers to work with the mainline carriers and feed them traffic in their home cities,” he says.

Hard as it is to lose customers to the national airlines, losing staff has been draining the resources of the Northern carriers as well. But it’s another issue where Northern operators can take steps to handle at least some of the challenge. Sparling, for example, says Air North is retooling its recruitment efforts and working harder to reach out to Northerners.

Jim Heidema, chief operating officer of Northwestern Air Lease in Fort Smith, is taking it a step further. His company has founded its own aviation school. Starting this spring, the first cohort of students will take to the skies. They’ll be under the tutelage of the company’s 86-year-old founder, Terry Harrold, for whom the school is named. Like Sparling, his desire to hire local is deeply practical. “Our goal in having the aviation school in Fort Smith is, we want to attract Northern kids to come into the industry, and then stay in the North,” Heidema says. Northwestern’s goal, he adds, is to “slow down that revolving door. We’re never going to stop it.”

It’s not all business, however. Heidema sincerely believes opening the profession to local young people will be doing them a service. Especially at this moment of international demand, piloting, he says, has never been a more attractive path to take. “This is an incredible career to get into.”

Back in Yellowknife, Elissa Boyd McGee echoes that sentiment when thinking about her time behind the controls of a Twin Otter. “I felt a happiness that I’ve only felt a few times in my life.”

 

Disclaimer: Up Here is partially distributed by Canadian North as the airline's in-flight magazine. Canadian North had no editorial input for this article.