AIRLINE HOPES TO CUT COSTS, REGAIN MARKET SHARE
Air Canada unveiled its long awaited discount carrier yesterday,but warned that customers shouldn’t expect fares to immediately belower than those already offered by Air Canada. Steve Smith,president and chief executive officer of Zip Air Inc., said the newairline is being created to cut Air Canada’s costs – not to reducefares. ‘Right now, the price is already low, particularly in thismarket,’ he said, adding that prices could fall over time as thenew airline reduced expenses.
Observers see the wholly owned subsidiary as a way for AirCanada to lower labor costs and win back market share it has lostin recent years to Calgary-based WestJet Airlines Ltd. Mr. Smithsaid a new business model is emerging in the airline market – as ithas in retailing – where lower-cost, no-frills service becomes thenorm. He said the full-service model for short flights is ‘goingthe way of the dinosaur.’ Zip is aimed at meeting that challenge inthe low end of the market, he said.
Zip’s costs will be at least 20 per cent lower than those at AirCanada’s comparable mainline flights, in part because Zip’semployees will be making less money than their counterparts at AirCanada. Mr. Smith said wages will be competitive with Zip’scompetitors in the low-cost market. ‘For the employees, they haveto understand that they will be working for zip,’ he joked. PamelaSachs, president of Air Canada component of the Canadian Union ofPublic Employees, said the union will mount a legal challenge toAir Canada’s attempts to pay so-called B-scale wages to Zipemployees. ‘Air Canada gives zip by zapping its employees. They arehurting the very people who have worked so hard for them and for solong,’ she said.
Other cost-cutting measures at Zip include offering snacksinstead of meals, providing no in-flight entertainment andoperating only one kind of plane. There will also be less roombetween seats – 32 inches or 33 inches – although the seats willstill have more leg room than the smallest seats at WestJet. Thereduction, along with the elimination of business-class seats, willallow Zip to add 17 seats to the 100 seats in the Boeing 737-200.(WestJet has 120 seats in its Boeing 737-200s). The company willoperate independently of Air Canada, although it will buymaintenance services from its parent, as well as using the largercompany’s pilots.
Based upon your own work experience, or upon your studies oforganizations, answer the following with respect to the case.
1. (a) Do you think the organization has realized the importanceof human capital? Justify your answer
(b) As an employee what are the sources throughwhich you can add value to the organization. (CLO: 1)
