AIR CANADA PLANS 2013 LAUNCH OF LOW-COST CARRIER

Thursday, 09 August 2012

AIR CANADA PLANS 2013 LAUNCH OF LOW-COST CARRIER

The Canadian Press

Air Canada says it is on the runway toward achieving the promise of sustained profits as it pursues new pension relief, aircraft maintenance savings and a plan to launch a low-cost carrier next year.

Details of the plan to start the new carrier are still being formulated, but the country's largest airline said that arbitrated labour agreements, especially one with its 3,000 pilots, provide it with the necessary flexibility to pursue the endeavour.

The Montreal-based carrier plans to transfer to the new low-cost airline 20 Boeing 767 planes and 30 Airbus A319s currently used in its mainline fleet when they come off lease. The move comes as Air Canada is set to receive the first of 37 Boeing 787 Dreamliners beginning in 2014.

Calvin Rovinescu, CEO, Air Canada, said the low-cost carrier model will allow Air Canada to grow its presence in markets where it can't now compete effectively with new entrants; return to markets previously abandoned; and enter new markets that are impossible with its mainline brand.

“We view this as a gradual process. [There's] not going to be 50 aircrafts operat[ing] by early 2013,'' he cautioned. “With a strong liquidity position and our principal labour agreements now behind us, and the potential for growth through the startup of a low-cost carrier airline, we believe we are well positioned to transform Air Canada into a more competitive, sustainable and solidly profitable airline for the benefit of our stakeholders.”

The new pilot agreement sets wages at similar levels to WestJet and Air Transat and would allow the new low-cost carrier to better compete on routes to Las Vegas, Florida, Mexico, the Caribbean and Europe.

[However], the addition of more capacity worries industry observers.

“Our fear is that Air Canada will chase market share by operating these planes on low-yielding leisure routes where competition already exists, which ultimately would lead to lower yields for all players,” wrote Cameron Doerksen of National Bank Financial.

Overall, Doerksen said he is cautious about Air Canada's prospects because of intensifying competition, particularly as WestJet targets business travellers by adding premium economy seating and starts a regional airline next year.

Rovinescu said Air Canada is also studying the addition of a premium economy class, but wouldn't say when it might take flight.

“We continue to see our premium passengers as a key ingredient of our business and so we're not going to let the time pass before responding, if we feel we need to respond, on all of our fleet types,” Rovinescu said.

Air Canada is considering the removal of Embraer 175 aircraft from its mainline fleet and changes to its regional fleet in light of the new pilot agreement which Rovinescu described as “extremely reasonable.” It also expects to receive “significant” savings from new aircraft maintenance agreements.

The arbitrated labour agreements will cut its pension solvency deficit by about $1.1 billion. But it plans to seek regulatory and government approval for a 10-year extension for resolving its remaining $3.1-billion pension deficit.

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