NORTHERN ECONOMIST 2.0

Sunday, 10 March 2019

Some Recent Posts, Activities and Other Musings

Along with Northern Economist, I also contribute to two other blogs - the Fraser Institute and Worthwhile Canadian Initiative. I try to post material related in some way to Northern Ontario on this blog - albeit with a fair number of exceptions. My posts on the other two blogs tend to be almost exclusively on either provincial, national or international economic issues and often with a strong economic history bent.

I just did a post on Worthwhile Canadian Initiative comparing the most recent employment numbers to what transpired in the early 1980s. The inspiration for this was a number of media reports that gushed positively to no end about how well employment was performing and that there was plenty of steam left in Canada's economy. Indeed, a number of stories noted that Canada's January-February employment growth in 2019 was the best since the same two months on 1981. Of course, all of these stories neglected to add what happened after February 1981 which was one of the most severe recessions in the postwar period that saw unemployment rates peak at nearly 13 percent. For this post, click here.

And then there are my last two posts on the Fraser Institute blog. As part of the lead up to the March 19th Federal Budget, I take a look at federal government finances and note that large deficits are on track until 2022-23. A key point is that there has not been a revenue slowdown. While these deficits might be understandable during a recession or as part of a strategic investment mandate, it is not really the case here. It is just more spending. For this post, click here.

Finally, a post on the evolution of the United States federal debt looks at the the contribution to the debt to GDP ratio ranked by president all the way back to George Washington who incidentally was pretty good at fiscal management given the hand he was dealt in the wake of the American Revolution. Overall, wartime presidents have seen the largest increases in their debt to GDP ratios with Franklin Roosevelt and Woodrow Wilson topping the ranking. For this post, click here.

Overall, it has been a pretty busy time between blogging, the occasional media interview (did The Current in December with an interview after Stanley Fischer) working on research papers in health and historic wealth inequality, public presentations - did Port Arthur Rotary in November and on the books for Fort William Rotary in April - and other assorted research projects. Of course there is never enough time to do everything and my historical projects on Lakehead Port Statistics pre-1950 and constructing a fiscal series for Ontario pre-1960 are going to take a lot longer than anticipated...

In other news, I am off on some travels this month. Have a trip to Regina coming to visit their Economic Department and I will be heading off to Sudbury and Laurentian University next week for a couple of presentations during their Research Week. My first presentation is a paper co-authored with Rob Petrunia (Lakehead) as follows:

Monday March 18th: 1:00 – 2:35 pm Economic Inequality and Crime Rates in Canada (Governors’ Lounge, 11th floor, R.D. Parker Building)The Department of Economics will present a talk by Dr. Livio Di Matteo (professor of Economics at Lakehead University) on a critical issue in an age of globalization and technological change: the rising trend in income and wealth inequality and its adverse social effects.

My second presentation is titled "Arrested Development: Northern Ontario's Economy in the Past, Present and Future and is part of the following session:

Tuesday March 19th: 10:00 – 11:30 am The Economy of Northern Ontario: Structural Changes and Implications for the Labour Market( Governors’ Lounge, 11th floor, R.D. Parker Building)The Department of Economics will present a seminar on the changing economic landscape and the effects of long-term structural changes on the labour market of Northern Ontario

The latter talk with be a pretty expansive overview of the history of Northern Ontario's economy in terms of its development, the host of government initiatives and plans over the decades, what has worked or not worked, and thoughts about the future.

If you are in Sudbury for Research Week, feel free to attend!

Saturday, 2 March 2019

Air Canada and Thunder Bay: The Saga Continues...

Well the Air Canada service story out of Thunder Bay has gotten more interesting. After announcing they were going from six to three flights a day to Toronto out of Thunder Bay – albeit on larger jets – they have also announced that they are ending direct Thunder Bay Winnipeg service. There was a 5:35am flight to Winnipeg and one back at 10:15 in the evening. While you can still get to Winnipeg from Thunder Bay via Toronto, it is effectively a reduction in Air Canada capacity out of Thunder Bay and the surrender of that direct route to Westjet which still has direct Thunder Bay-Winnpeg service.

The more interesting part of the story that was reported on TBNewswatch was that it states the airline said that on the changes being made to the Thunder Bay-Toronto run, the total number of available seats “will increase from 390 to 408 daily because the A319 is a much larger plane”. This was a bit of a head scratcher given that as you know I had estimated in a previous post that there was going to be a reduction in capacity from 468 to 408. The capacity for the Q400 was assumed to be at the max – 78 seats – which multiplied by the current six daily (weekday) flights – gives you 468. So, going from 468 to 408 is a -13 percent drop which to me is a capacity reduction.

If you take the current number as 390 and divide by 78 you get five – that is as in five flights a day. However, Air Canada has six flights a day on weekdays – but currently five direct flights a day on the weekend. If you take 390 and divide by six you get 65 which is well below any of the figures I have seen for seat configuration for a Q400 on SeatGuru for either Westjet, Air Canada or Porter. Indeed, often the configuration is for 74 seats – a bit below the maximum capacity.

So, it appears that Air Canada in stating (according to the TBNewswatch story) that daily capacity is growing from 390 to 408 – an 18 seat increase which in percent terms is about 5 percent – is referring to its weekend capacity. Its weekday capacity is still going down from 468 to 408 (or 444 to 408 if you want to use the 74-seat configuration) which represents a decline of 13 percent (or 8 percent using the 74-seat configuration).

Overall, if you use 78-seats as the measure for a Q400, total weekly capacity on the Thunder Bay-Toronto run will be going from 3,120 seats a week (5 times 468 plus 2 times 390) to 2,856 (7 times 408). This is a reduction of 264 seats on a weekly basis or a drop of about 8 percent. If you use the 74-seat measure, Air Canada on the Thunder Bay-Toronto run is going from 2,960 seats to 2,856 seats – a reduction of 104 seats on a weekly basis or a 4 percent drop.

Whatever way I look at the numbers it seems to point to an overall capacity reduction by Air Canada out of Thunder Bay – even without including the elimination of the Winnipeg runs.

A special thanks to my Northern Economist reader out of Dryden who alerted me to the numbers at the end of the Feb 26^th TBNewswatch story!

Sunday, 24 February 2019

And Here it Is! The New Air Canada Thunder Bay-Toronto Schedule

Well, you can now book starting May 1st on the new schedule Air Canada has for the Thunder Bay-Toronto run. As noted in my last post, much was made of the move to larger A319 jets that would shave off 20 minutes off a flight from the current turboprops but the more frequent schedule of six flights daily has now been replaced by three flights a day. One thing remains the same however, the earliest flight out of Thunder Bay to Toronto is still at 5 am.

Going from Thunder Bay to Toronto, Air Canada now has three flights a day and every day: 5am, 11am and 5:15pm.

Coming back, its 8:20am, 2:30pm and 9:10 pm.

So there you have it, the new Air Canada out of Thunder Bay. It will be interesting to see how it does compared to the competition from Porter and Westjet. Going to Toronto on a weekday, Porter in early May currently has seven flights from Thunder Bay to Toronto Island (as opposed to Pearson for Air Canada): 6:45am, 9:00am, 11:10am, 12:40am, 2:10pm, 4:05pm and 7:15pm. As for the return, another seven flights at 8:30am, 9:55am, 11:25am, 1:25 am, 4:35 am, 6:45pm and 8:20pm. As for Westjet (which goes to Pearson also), from Thunder Bay to Toronto it is 6:10am, 11:50am and 5:50pm while the returns are departing at 9am, 3:10pm and 9:50pm.

Air Canada has cut capacity starting in May by 13 percent going from 468 to 408 seats. Porter at seven flights a day with a Turboprop (assuming 78 seat capacity) will have 546 seats available while Westjet with three 78 seat Turboprop flights will have 234 seats. So the smallest local player here is Westjet and given that they appear to be having some issues that have caused it to lag Air Canada nationally, one wonders if they will be the airline hit hardest by these changes in the Thunder Bay market and as a result be the most likely to exit. Or will they counter with their own jet service and business class to compete directly with Air Canada on the Thunder Bay run?

Stay tuned.

Friday, 15 February 2019

From Air Canada to Thunder Bay with Love...Well Maybe Not

Air Canada chose Valentine’s Day to announce a number of route changes that consist of removing older, slower, more frequent and smaller regional propeller planes (the Q400s) currently operating under Jazz and substituting newer, faster (by about 20 minutes in Thunder Bay's case) less frequent but larger jet aircraft (A319s) operating under the Rouge banner. In the case of Thunder Bay, this means that the current six flights a day to Toronto (with 78 seat capacity for each flight) will be replaced with three flights a day (with 136 seat capacity each). If you do the math, daily capacity on the Thunder Bay-Toronto run for Air Canada will actually fall from 468 to 408 – a drop of about 13 percent. That means you can expect a price increase at some point in the future even though the newer planes and crews Rouge uses are likely lower cost per passenger mile.

I guess I am now old enough to remember the preamble to the era of airline deregulation when Norman Bonsor, my Transportation Economics professor, would intone that deregulation was a plus for small regional markets like Thunder Bay because more expensive jet service would be replaced by more frequent and cheaper albeit slightly slower turbo-props – which is indeed what came to pass in Thunder Bay. Air Canada’s announcement is a bit like back to the future but the new jets today are much more fuel efficient and cost effective than they were in the 1970s and 1980s.

Still, I am looking forward to seeing how this transition proceeds and the passenger response. Going from six flights a day to three will reduce passenger travel flexibility and one expects that Air Canada will schedule its three daily flights to Pearson similar to what Westjet is doing (which incidentally also in the last while went to three from four flights daily but still uses Q400s). For May, Westjet is showing departure times to Pearson from Thunder Bay of 6:10am, 11:50am and 17:50 pm and returns to Thunder Bay from Toronto departing at 9am, 15:10 and 21:50. One suspects that given Air Canada is more directly competing for passengers to Pearson with Westjet, it will have its flights in slots pretty close to Westjet.

Air Canada’s move pretty much consolidates the alternatives from Thunder Bay into two – going to Pearson at nearly the same times at three times a day or going to the Island Airport. Of course, Porter is still maintaining its Q400 6-7 flights a day service to Toronto Island which means it may pick up even more business travel from Air Canada. It is unfortunate that Porter was not able to bring regional jet service to the Toronto Island airport because 5-6 flights a day from Thunder Bay on smaller yet faster regional jets such as a CRJ550 or CRJ700 (50 and 78 passenger max respectively) would definitely have smoked the competition out of Pearson. Still, I suspect that Porter will see a pickup in its bookings given its greater flexibility as well as its downtown location for business travellers. It will however probably need to reinvest in its aircraft stock as its fleet begins to age.

The other claim that was made was that the Rouge airplanes were roomier and more comfortable. Perhaps I am missing something here but having flown on some of the newer jets and flown Rouge overseas, I found the seating in the Q400 was actually a bit roomier compared to my last Rouge flight. But it will be roomier in business class (the 136 seat version of the A319 has a business class) and that may also be part of Air Canada’s strategy to hold onto business travellers who are much more lucrative to airlines than the rest of us.

So, the changes have pros and cons and it will be interesting to see how everything comes out in the wash. The increased competition may eventually spark some real consolidation on the Thunder Bay route - after all, if Air Canada adopts Westjet time slots with larger and faster planes to Pearson, one might see an exit by Westjet and going down to only two airlines out of Thunder Bay. That really would be going back to the future. Or Westjet may respond by bringing in jets which will spark a pretty competitive period until the inevitable departure by one or more players brings back monopoly and higher prices. Interesting times are ahead.

For those of you who have travel with Air Canada booked in May from Thunder Bay to Toronto, you can look forward to a message soon rescheduling your flight. Have a wonderful long weekend.

Tuesday, 12 February 2019

The Incredible Shrinking Newspaper and the Decline of the Forest Sector

Going through some old stuff, I came across a full newspaper from 1981 – a copy of the Tuesday June 30^th edition of the Thunder Bay Chronicle-Journal. Examining it, one is struck by how hefty the paper was in terms of both paper volume as well as article content compared to what is currently being published. Indeed, I put this old copy of the Chronicle-Journal on my dining room table alongside the Monday February 11^th, 2019 edition for a comparison (see the photo) and the differences are quite striking.

Newspapers have indeed shrunk. The 1981 version of the Chronicle-Journal was 15 5/8 inches (39.7 cm) wide and 22 5/8 inches (57.5 cm) long while the 2019 version is 11 ½ inches (29.2 cm) wide and 22 5/8 inches (57.5 cm) long. More important is the thickness. The 1981 newspaper consists of two section – each 32 pages long while the 2019 version is in two sections – each 10 pages long. The long and short of it is that the amount of newsprint required has shrunk by over two-thirds. Even more interesting is the fact that until the mid 1990s, Thunder Bay actually had two papers published – a morning edition which was the Chronicle-Journal and an evening edition known as the Times-News.

When what looks at what has happened to the Canadian forest sector over the last fifteen years, one only needs to take what has happened at our own local paper and extrapolate it across North America. Newspapers have been either shrinking in size or simply going out of print completely. There was certainly a lot more advertising in the pages of the 1981 version of the Chronicle-Journal and competition from electronic media and the internet have been important factors in the decline in the demand for newspapers.

Along with changing consumer preferences when it comes to news sources, there have been other shocks to the pulp and paper industry. The recession of 2008-09, international newsprint and pulp competition from lower cost suppliers, a high Canadian dollar, aging capital stock and high electricity prices were all factors which helped decimate the Northwestern Ontario pulp and paper industry in the first decade of the 21^st century. Across Canada, employment in logging, pulp and paper and wood dropped by over 40 percent between 2004 and 2014 while the number of paper mills fell from 50 to 30 – also a 40 percent decline.

It is really quite remarkable that newspapers have been able to survive at all given the size of the demand and technology shocks hitting them over the last thirty years. I must admit, that while I have adjusted to the era of e-papers, I do occasionally miss having a more hefty newspaper in hand.