Archives: Harmony ends all scheduled flights, will lay off 350

Wednesday, March 28 2007

Vancouver-based Harmony Airways will permanently shut down all scheduled flights on April 9 and lay off most of its 350 employees as it struggles to find a business model that makes money.

The private airline, owned by sometimes-media-shy Vancouver entrepreneur David Ho, made the dramatic announcement Tuesday, just five days after Harmony spokesman Norman Stowe insisted it "has never had any financial problems."

The Vancouver-to-Toronto service will end on Friday.

Flights to Las Vegas and Hawaii will cease on April 9. The move will affect about 10,000 passengers who will have to make alternative travel plans.

Ho did not attend the Vancouver news conference and airline representatives said he would not be available for comment -- a marked departure from his front-and-centre appearance at Harmony's ballyhooed launch in 2002.

Harmony spokesman Peter Buecking said the small airline's strategy of being a niche player providing high-end service simply didn't work in today's high-cost competitive environment.

He noted fuel prices have more than doubled in the past five years and Harmony has a limited capacity to raise prices while competing with larger carriers like WestJet and Air Canada.

"It's hard to provide high service and still remain competitive," Buecking said. "It's possible but you really need a big network and the scale of this business was just too small."

At its peak, Harmony operated a fleet of four Boeing 757 aircraft and flew regularly to New York, San Francisco, Calgary, Palm Springs, Las Vegas and Hawaii. It now operates between Vancouver and Toronto, Las Vegas and Hawaii.

Buecking said two of the Boeing planes will be returned to the leasing company while Harmony will keep the other two and consider other uses for them, including their possible use as charter aircraft if Harmony re-emerges as a charter operation.

Ho insisted in a statement that Harmony will look at "new opportunities and business models" this year.

"This is the restructuring of a going-concern company that will continue to treat its customers, suppliers and employees fairly," he said in the statement. "I want to be very clear -- this is not a bankruptcy. This is not a creditor protection arrangement and this is not a company dissolution."

Buecking said Harmony officials will "catch our breath" on April 10 and carefully consider the company's future options.

"The economics of this business are brutal," he said. " . . . The current model isn't working so there's no possibility of rushing out and putting another business model in quickly. Everything needs to be considered carefully."

Buecking said some Harmony flights between Vancouver and Toronto were only 20-per-cent full while others between Vancouver and Hawaii were more than 80-per-cent full.

He noted much of Harmony's future growth depended on gaining access to the Chinese market, but delays in Canada and China agreeing on an approved-destination-status deal forced the airline to reconsider its future. ADS will allow more Chinese tourists to fly to Canada and increase the demand for air service between the two countries.

Harmony customers will receive full refunds for unused tickets and those who booked through Harmony Vacations and complete their trip before April 30 will be rebooked on other flights by Harmony Vacations. Details about refunds and rebooking flights will be available through the airline's call centre and website.

Global Travel managing partner Scott Clute said Harmony offered a good product but suffered from an "inconsistent" business plan.

"They'd operate into a destination like New York or San Francisco and then pull out again," he said. "It frustrated people and after a while, they became reluctant to try them out."

Clute said the public is more informed about airline operators now and wary of private airlines since Montreal-based JetsGo went bankrupt two years ago.

"You can't see a private airline's financial statements so you have to take their word for it that everything is fine," he said. "JetsGo said they were doing fine and then shut down a few days later."

University of B.C. associate professor Marc-David Seidel agreed Harmony provided a good upscale product but it didn't suit the needs of business travellers who could pay for it.

"The service was nice but business travellers need more than one flight a day to choose from," said Seidel, who teaches at the Sauder School of Business.

Queen's University school of business professor Doug Reid said it's hard for new airlines like Harmony to offer customers a "massive benefit" that will make them switch from existing airlines.

"Unless you have some kind of guarantee of what the experience will be like, people will pay a bit more money to fly on a carrier they know and trust," he said. "You have to have something incredibly special to compete."

Reid doubts Harmony's departure from scheduled service will have a big impact on the Canadian market, although there might be a "slight upward tick" in prices on the routes it flew.

Harmony operated 1,780 flights from Vancouver International Airport last year, with a total capacity of 280,000 seats -- compared with 985 flights and 188,000 seats in 2005. Airport officials said Harmony flights accounted for about one per cent of domestic traffic this month and 1.5 per cent of international traffic.

News of Harmony's business plight comes less than four months after former B.C. finance minister Gary Collins quit the airline after two years as president and CEO.

Collins said at the time his departure did not signal trouble at Harmony and that he just wanted to explore new business opportunities. Collins becomes the new senior vice-president of Belkin Industries on April 1.