WHITEHORSE, YT - 17 April 2020 - Message to Shareholders and Yukon Stakeholders
As Yukoners work their way through the many challenges and changes to our daily lives resulting from the coronavirus pandemic, I want to take this opportunity to reach out to our shareholders and other Yukon stakeholders, firstly to wish you all well and secondly to provide you with an update on how your airline is coping with economic challenges associated with COVID-19.
Like most airlines, we have seen demand for air travel evaporate almost overnight. Once the initial rush of people trying to get home ended, we were faced with two major economic challenges, the first of which was overcapacity as we had more flights in the market than there was traffic to fill them. In this scenario, many flights were not meeting their direct operating costs (DOC's). The remedy for this was to immediately reduce capacity by consolidating flights. We did this by reducing our schedule from thirty flights per week to just five flights per week. We suspended our gateway service to Edmonton, Calgary, Kelowna, and Victoria and we reduced our service to Vancouver to just three days per week. On our regional routes we suspended our service to Mayo and we reduced our service to Dawson City, Old Crow, and Inuvik to just two days per week. Our strategy has been effective so far as most flights are now meeting their DOC's.
The second challenge is that the reduced flying and reduced margins on the flying we do, have severely limited our ability to meet overhead expenses. In response to this we have taken steps to slash our overhead costs wherever possible. To date we have managed to reduce our overhead budget by 33% with more reductions to come. Overhead costs include wages for maintenance personnel, safety personnel, cargo personnel, reservations personnel, IT personnel, marketing personnel, and administrative personnel as well as facilities costs, including property leases, insurance costs, heating and utility costs, and asset ownership costs. It is easy to see that while some overhead costs can be easily reduced or eliminated when business slows down, others are still required. Despite our best efforts, it is very unlikely that with just five flights per week, we will be able to generate sufficient operating margin to meet even our reduced overhead costs so our goal is to find ways to keep losses manageable until air travel demand starts to return.
Most airlines are currently losing money for one or more of the following reasons:
- They have ceased flying entirely, but still have overhead expenses to pay;
- They are still flying but with far less flights than before so they can't pay all of their overhead expenses from the operating margins on the reduced number of flights;
- They are operating flights at less than DOC's in response to a need for a minimum level of essential service.
Air North is impacted by both (ii) and (iii) as we have recently increased our gateway frequency from 3 flights per week to 5 flights per week, and our regional frequency from 2 flights per week to 3 flights per week, both in response to a request from the Whitehorse General Hospital (WGH) and the Yukon Government (YG) for enhanced frequency in order to facilitate the transportation of medical related passengers and cargo.
Almost all Canadian businesses are struggling at this time and many, including airlines, are reaching out to the Federal, Provincial, and Territorial governments for help. We anticipate that the Federal 75% Wage Subsidy program, the Yukon Government Business Relief Program, and the recently announced Northern Essential Air Services Relief Program will all provide much needed assistance. Additionally, because airlines have long been a significant source of revenue for the Federal Government through the payment of fees and taxes including the excise tax on jet fuel, navigation fees, airport landing and terminal fees, airport leases, and the Air Traveler Security Fee, the industry has asked for the temporary abeyance of these fees, and in some cases, the refund of fees (or their equivalents) previously paid where the air carrier has temporarily ceased or significantly reduced operations. The industry has been clear in asserting that while financial assistance is required, it should be formula based, fair, transparent, easy to audit, and quick to implement.
We are confident that through our own hard work and perseverance, along with some help from our Federal and Territorial Governments, we will get through the worst of the coronavirus pandemic but, like many businesses we will come out of this much smaller than when we went in and, we will come out of it after sustaining many months of financial losses. For the airline industry in particular, recovery will be slow. As the country begins to overcome public health and safety risks, we anticipate that as local businesses are permitted to open and as domestic travel restrictions are relaxed, people will slowly begin to return to more normal lives but consumers, many of whom will have been out of work for months, will have far less money to spend than they would in a healthy economy. This is not a good recipe for economic recovery, so for Yukoners this will be a great time to support your community by making as many purchases as possible from local businesses.
Local purchasing has been a huge factor in our success during the last eighteen years as it has allowed us to compete with mainline air carriers who are many times our size. At the same time, by providing locally based integrated passenger and cargo service, and by sharing overhead costs between regional and gateway services, we have been able to provide Yukoners with gateway airfares which are about 60% of where they were before we started our gateway service in 2002, and regional airfares which are less than half of those found on similar routes in the NWT and Nunavut. In addition to this, we currently employ close to two hundred Yukoners and almost one in fifteen Yukoners holds an equity stake in the airline, including the Vuntut Gwitchin First Nation. With so many Yukoners counting on us, this is not a time for competition as there is only room for one air carrier in this market while we wrestle with the coronavirus challenges. Travel on the local grid causes valuable dollars to remain in or flow into the Yukon while mainline travel purchases represent "leakage" at a time when we can least afford it. For all of these reasons, and now more than ever before, Air North, our Chieftain Energy subsidiary, and all other Yukon businesses need the purchasing support of individual Yukoners, Yukon businesses and the Yukon Government in order to navigate through these difficult times and, when the health challenges are behind us, to get our economy back on its feet again.
On behalf of myself and all of our employees who are doing such a great job of keeping things going during some very tough times, thanks for your support.
J Sparling, President