Should the Government Bailout Air Canada?

I have been debating whether to write about this topic for a while now. At Pointshogger, we try to focus on positive topics rather than negative.

That being said, I think this is a very important topic to discuss, so I will try to be thorough. But more importantly, we would like to hear from our readers in the comment section below.

Air Canada to Layoff 20,000 Employees

What triggered this post is that Air Canada has been swinging back and forth. It started with laying off employees. Then re-hired them. Now laying them off again.

Confusing? Due to the limited time Canadian wage subsidy, it caused the flip flop, which we not be getting into detail today.

What we do want to discuss are the pros and cons of a government bailout, which has become a hot topic in the travel industry. At the moment, Air Canada has been reporting that they are only operating at 5% capacity. Any business that loses 95% in sales will definitely have a hard time surviving without some changes or help.

Reasons to Bailout Air Canada

So let’s begin with listing some reasons for the Canadian government to bailout Air Canada.

Some people are saying that Air Canada is baiting the government to bail them out by threatening to cut 20,000 employees to force the government’s hand.

Some people would prefer the government to call their bluff, but other may want the government to step in with a bailout for the following reasons:

• Save Air Canada jobs.
• Air travel is an important service to the overall Canadian economy, so it could hurt the country long term if Air Canada went bankrupt.
• There are no other major Canadian airline that can pick up the void left by Air Canada if they do not survive.

Of course all the reasons above are debatable on whether they are even a valid reason, but I am thinking, if the above reasons are not enough to bail them out, then I find it hard to justify bailing them out.

Reasons Not to Bailout Air Canada

This list of reasons not to bail them out is probably endless, so feel free to share more reasons in the comment section below. But I am going to highlight some of the more common ones.

• Not fair to other companies who will not receive a proportional bailout. Why is Air Canada being treated differently from another business?
• Not the time to use taxpayer money to bailout when there are other pressing matters to fund.
• This is a private sector company, not the public sector. So they should be treated like a private sector company and only receive the regular bailout that all other companies are entitled to.

What will Happen if No Bailout?

There are only really two possibilities:

• Bankruptcy
• Leaner and smaller airline

I’m not sure I would like to see a bankrupt airline, so is it really so bad for Air Canada to come out a smaller airline?

Realistic Solutions

In reality, the Prime Minister is probably not just simply thinking about whether to bailout Air Canada. There is the whole political suicide aspect of the decision, in other words, will it help him gain or lose votes depending on what he decides.

So politics aside, what’s a realistic solution? Government Take-Over

The government can step in and take ownership of Air Canada. Many countries have state-run airlines, so why not Air Canada too? I do hope that if the government does decide to take it over, that they only hire people who will have work to do. It would defeat the purpose of paying people to sit at home.

In the long term, the main benefit of this option is that the government does not have to answer to shareholders. So there are no high executive salaries and bonuses, nor dividends to shareholders. The Government would run the airline at cost and not for profit just like any other government department.

Thoughts

Personally, I have a hard time supporting a bailout because our country is already being sunk into extreme debt and there are so many pressing matters that also need funding. However, I think it’s fair for Air Canada to qualify for the regular business loans that all other companies are entitled to, but not special treatment.

I am slowly leaning towards the Canadian government taking over the airline and cut out the part where the airline needs to make profits to pay executives and shareholders.

But if that’s not an option, then I would prefer to see Air Canada adjust their business model to keep up with the changing times instead of depending on the government.

Normally, I like more competition in the airline industry, but the reality is that the demand is going down for a while, so the competition needs to be proportional to the demand. So since demand is down, maybe it’s time for some airlines to merge to consolidate services to find savings to keep going.

Share Your Thoughts

More importantly, what are your thoughts about a possible Air Canada bailout? Or should the government consider alternative solutions like taking over the airline? Please let us know in the comment section below!