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Air Canada caught between employees and customers in labour dispute

Air Canada flight attendants walk to the departures gate at Toronto Pearson airport on Oct. 10, 2011.

tim fraser The Globe and Mail

As its flight attendants prepare to strike this week, Air Canada finds itself squeezed between staff in revolt and consumers demanding lower fares, casting a cloud over the country's largest airline.

The root of the conflict is Air Canada's plan to create a new low-cost division, hiring up to 1,400 flight attendants at reduced wages and offering discounted fares on leisure routes to Europe, Mexico and the Caribbean.

Workers fear that the budget airline operation threatens their wages and job security. Industry analysts, meanwhile, suggest the plan is crucial to the carrier's survival.

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A walkout by 6,800 staff, who are members of the Canadian Union of Public Employees, could begin at 12:01 a.m. Thursday. Federal Labour Minister Lisa Raitt is expected to respond promptly with back-to-work legislation. But no amount of intervention can untie the tangle of conflicting interests buffeting Air Canada and its workers.

Consumers have grown accustomed to easy comparison shopping through online ticket buying, feeding cutthroat price competition among carriers. They resent the hefty fuel surcharges that remain on long-haul international routes, even though oil prices have softened. And while they expect high standards of cabin service, they don't want to pay much of a premium.

Air Canada executives believe part of the solution is to offer bargain airfares by chopping labour costs. The company has already experimented with a similar formula, the Zip Air discount fleet in 2002-2004, but the new proposal is more ambitious.

"The airline industry has become a commodity business competing on price, and that means the low-cost operator wins in the long run," Stephen Smith, former chief executive officer at Zip, said in an interview Monday. "The flight attendants know that if management creates another airline, Air Canada doesn't hold any magic potion over doing the flying. Many routes could be shifted to the low-cost carrier."

Mr. Smith said Air Canada employees are underestimating the competitive threat posed by Air Transat, WestJet Airlines, Sunwing Travel Group and Sunquest Vacations. "Air Canada has no way of fighting back because they don't have the lower cost structure of rivals," he said.

On social media, employees have criticized the proposal to launch a discount operation, which would pay new flight attendants $18,000 a year to start, say union officials. They warn that cabin crew at the low-cost unit will have similar duties to current flight attendants, yet the top rate would be only three-quarters of the $46,400 in annual pay for veteran Air Canada attendants.

About 460 pilot jobs could also be created at the new operation. Air Canada has repeatedly offered assurances that the low-cost division will only target new or underserved leisure markets, but such promises didn't impress the flight attendants. More than 65 per cent of voting Air Canada CUPE members rejected a tentative agreement on Sunday after 10 days of balloting, marking the second time that flight attendants have spurned a proposed contract in the past three months.

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In both instances, union negotiators recommended accepting the offers. Now more than 2,200 flight attendants have signed a petition to oust their top three union leaders.

Ms. Raitt said she's disappointed by the outcome and is poised to introduce back-to-work legislation. "All options are being considered, including proceeding with the legislation proposed in September, which remains on the House of Commons' notice paper," Ms. Raitt said in a statement Monday.

Air Canada spokesman Peter Fitzpatrick said the airline is questioning the legitimacy of CUPE negotiators. "The CUPE leadership has failed to secure ratification of two separate tentative agreements, despite the company providing industry-leading compensation and benefits," he said in an e-mail.

Karl Moore, a professor at McGill University's Desautels Faculty of Management, said the rank-and-file uprising against union leaders make matters more difficult for management. A Facebook discussion page has attracted 3,600 Air Canada flight attendants who are venting their anger at both executives and union leaders.

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