Unharmonious Canada-China relation kills Harmony Airways?

Harmony Airways first casualty of Ottawa's anti-China policy?
"The Conservatives are not giving priority to China -- they're turning their backs on it." - Former managerCP, CBC, FP, CIV - Faced with empty seats and soaring costs, tiny Harmony Airways is headed for a forced landing early next month.
Harmony has had high hope in opening up more routes between Canada and China. However, the indefinite delay of the signing of the ADS (approved destination status) agreement between the two countries has crushed Harmony's hope to stay afloat.
The privately owned boutique carrier announced Tuesday it is ending its scheduled flights to Toronto on Friday and all other scheduled flights by April 9. Peter Buecking, a member of Harmony's advisory team, said the airline was not bankrupt and is restructuring as a going concern.
The four-plane, Vancouver-based carrier served popular U.S. holiday destinations such as Maui, Las Vegas and Palm Springs, Calif., and San Francisco.
But its expansion ambitions, including plans to fly into China, stumbled and billionaire Vancouver businessman David Ho, who founded Harmony in 2002, was unwilling to keep funding the operation.
Former manager: Ottawa's cold relations with China to be blamed
In May, 2005, Harmony received federal permission to fly code-share routes to China just months after Ottawa signed an agreement-in-principle with Beijing on giving Canada approved destination status.
A full agreement with Canada appeared imminent, and it looked like the perfect time for Harmony to begin flights to China -- especially after Australia saw its Chinese traffic explode by 80% almost overnight after it was added to the approved destination list.
But the Asia plans have since stumbled, both for Harmony and Canada, which still has not received approved-destination status.
In a letter to the Hotel Association of Canada this January, Pacific Gateway Minister David Emerson said, "The issues surrounding the negotiations are complex, and there are a number of matters that need to be resolved."
And Harmony has not yet been cleared to fly to China. The airline waited until last September to submit a request to the Canadian Transportation Agency for a required licence to code-share with China Eastern Airlines to Beijing and Shanghai. The agency then asked Harmony to provide additional paperwork proving that it is Canadian-owned, and has the proper insurance, safety clearances and financial resources to fly the route.
The airline missed a January deadline for those documents but, according to a spokesman for the Canadian Transportation Agency, was granted an extension until May 6.
The company has also reached an impasse with Ottawa after nearly two years of trying to secure permission to fly its own planes to Asia, said a Harmony manager who recently quit the company.
The manager blamed the delays on an impasse with Ottawa.
"It's a bit of a Catch-22 situation -- in order to get to China, [Harmony] needs long-range planes, but they don't want to commit to getting these long-range planes until they know they can get there," said the former employee, who spoke on condition of anonymity and said part of the blame lies with the new federal government.
"The Conservatives are not giving priority to China -- they're turning their backs on it."
The uncertainty over China has added to internal fears, said the former manager.
"That got a lot of people wondering. There was a lot of optimism there a year and a half ago, but they're still waiting to hear from Ottawa on [China] and I think until that's resolved there's some questions. The goal was always to go to China, and I think still is. But is that issue ever going to be, when is it going to be resolved, I think is a big question."
Neither Ho nor acting president Kirk Henderson, who replaced previous CEO Gary Collins in December, were at a news conference announcing the shutdown.
It was left to Buecking, an airline industry veteran who joined the company three weeks ago, to explain that Harmony would maintain full service until the last flight and issue full refunds for any bookings past its shutdown dates.
Most of the airline's 350 employees, who are non-union, will be laid off but given generous severance packages and strong recommendation letters, he said.
Rumblings at Harmony surfaced last week when it confirmed it was not renewing the lease on one of its Boeing 757 jets.
In an era of no-frills carriers such as Westjet and a restructured Air Canada, Harmony prided itself on offering passengers full-service flights.
Buecking said it became clear Harmony's business model could not be economically scaled up to an efficient size.
"It was a case of a full-service airline in a marketplace where it's difficult to price at a premium when you don't have the scale," he said. "It's possible to provide full service but you really need a big network, in my view."
Harmony also needed to attract a lot of profitable business travellers but did not fly to popular business destinations or offer frequent-flyer perks, he added.
Harmony had a clientele of about 10,000, said former general manager Brent Statton, who retired two weeks ago.
Its load factors ranged from more than 80% on its popular holiday flights to 20% on the Toronto run. Meanwhile, costs continued to rise, including a doubling of fuel prices since the airline was launched in November 2002, said Buecking.
WestJet vice-president Bob Cummings called Harmony's situation "sobering" and expressed sympathy for its employees.
It also announced it was extending seat sales to Honolulu, Maui and Las Vegas, Harmony destinations, and increasing its Vancouver-to-Vegas service.
Meanwhile, Air Canada CEO Monte Brewer touted its new, fuel-efficient Boeing 777 to shareholders at its annual meeting in Montreal, saying the long-range jet would allow it to expand its international service.
Harmony joins the list of defunct Canadian airlines, including Jetsgo, Canada 3000 and CanJet, which rose from Canada 3000's ashes but stopped scheduled service last fall and is restructuring as a charter carrier.
Airline industry analyst Warren Gill of Simon Fraser University said this announcement underscores the brutal nature of airline competition.
"Airlines are not generally profitable," he said. "You've seen the bloodthirsty competition of the truck carriers for the last 15 or 20 years."
The delay in Canada receiving approved-destination status from the Chinese government also cramped its plan for a partnership with a Chinese carrier to serve Beijing and Shanghai.
"It's an important reason," said Buecking. "I can't say it's the major reason."
Collins, former B.C. finance minister and onetime flying instructor, joined Harmony in December 2004 to oversee the airline's expansion. He quit last December to pursue other opportunities and later joined a private investment firm.
Analysts considered Harmony's plans risky at the outset and Buecking seemed to confirm that.
"This was a niche airline that if the operating costs in the environment were lower and there wasn't as much capacity put in by the competitors, it's possible it could have grown, particularly if it could have exercised its right to China . . ."
Buecking said Harmony will hang on to two of its planes while it considers various options, including resurfacing as a charter carrier or a provider of aircraft - crewed or uncrewed - to other airlines.
He declined to discuss specifics, saying Harmony wants to spent the next two weeks focusing on serving its remaining customers.
Buecking also declined to discuss Harmony's financial situation because it is a private company. He did say it dismissed the idea of seeking court protection from its creditors, mainly because Ho himself is the main creditor.
An heir to the Hong Kong Tobacco Co. fortune, Ho also owns a Vancouver luxury car dealership and a golf course.
He launched Harmony in 2002 as My Airways, named in honour of his mother, then changed it to HMY and finally Harmony.
Tags: harmony airways, david ho, vancouver, china, canada, ottawa, ADS, anti-china policy, airlines [Read More....]











