Stock Options

Stock options are often misunderstood. If you are granted options (say as part of a compensation package), you don't actually have stock in the company. You simply have a contractual right to purchase stock in the company at a set price. If the company takes off and the value of the shares soar, that option can be extremely valuable. Everyone is happy and everyone gets where they want to be. If the company fails to go anywhere, those options are likely worthless.

It's exactly the same as purchasing a ticket to fly anywhere on Air Canada. This is because you don't actually get a ticket to be taken to Cleveland or St. John's or New York. What they really issue you is a voucher vaguely representing the airline’s promise to try.  It's basically an option to fly.  This bet may pay off, or it may not. For instance, in my last 20 flights, 12 have had unexpected equipment changes, unexpected maintenance, or cancellations for unexpected reasons. It's worth adding that at a 60% failure rate, none of these things should continue to be characterized by Air Canada as "unexpected". The idea of a refund is equally unachievable. Instead, you receive an obscure voucher to try flying again at a future date.  Provided you can dig it out of your inbox, and separate it from all the ads, offers and surveys, it's simply another option to fly.

I don't blame the fine people at Air Canada any more than I would blame a team at a startup who failed to elevate their share value. It's hard stuff after all, and we should possess the sophistication to understand that investments don't always work out.  Along those lines, however, I would encourage Air Canada to curb the use of blatantly misleading advertising showing happy people jetting off to their destinations in quiet luxury. If they are going to offer the general public such a rosy prospectus, it should include disclaimers warning you of the statistically significant probability they will downgrade the equipment and be forced to bump 19 people off the flight at the last minute. This would better prepare travellers to take the best course of action when the passengers start to riot at the gate while the staff defensively huddles in a spartan phalanx formation behind the counter.

As I mentioned earlier, holding an option is basically a bet. A bet that the share price will increase and you will be rewarded. Sophisticated investors and executives in companies will each have their own way to understand the odds or the estimate risk associated with accepting an option as a fair exchange. The average traveller, however, does not. When they cancel your 5 pm flight out of LaGuardia on a Friday night, and then apologetically reschedule you for the 7:55 PM, what are the chances that flight won't also be cancelled for yet another unexpected reason? Do you wait to find out? Do you run to another airline and book the next available fight? Do you immediately mortgage your house and book a hotel room in Manhattan for the night before they all vanish? ( by the way this scenario is so common that it was dubbed "Escape from NewYork" by regular AirCanada business travellers ). Each person is in their own individual hell with this decision. The now beleaguered staff at the gate has no answers for you. Their reliance on information updates via the Air Canada computer virtually guarantees they are the last to be told what is going on. By the time they know, it's already too late for the rest of us.

However, I am  convinced that Air Canada knows. True,  the airline business operates on thin margins with constantly shifting variables.  But they are also good enough at it to have developed sophisticated ways to calculate the combined odds of malfunction, weather issues over O’Hare, and staffing shortages. There are actuarial models for this stuff, so none of these unexpected things are a surprise to them. So why not simply share the probabilities with us travellers:

"Thanks for buying your ticket. As it stands right now there is 57% chance we will not be flying that morning, so if your meeting is important to you, we suggest renting a car and driving for the next 36 hours."

 At least then we can all understand what the bet is. At least then we can make informed investment decisions.

There is a huge opportunity here for Air Canada to turn this into a feature that differentiates their offering and provides for a unique lineup of catchy future slogans:

Air Canada - risk your next vacation with us!

Air Canada - we’re feeling lucky today, are you?

Air Canada - at least we didn't lie to you…