Air Canada, having overcome union resistance to the launch of a low-cost carrier, plans to start offering cheap flights to leisure destinations next year, slowly ramping up to a 50-aircraft operation that it hopes will return it to profit.
Air Canada revealed the timing of the launch on Wednesday after reporting weaker-than-expected quarterly results for the second quarter.
Air Canada, the country’s biggest airline, has touted a low-cost division as a way to cut its high costs and boost revenue and market share after years of stagnation.
The plan was a non-starter until nine days ago when a federal arbitrator imposed a new labour agreement on its pilots, who oppose the discount operation. Air Canada plans to pay less for pilots flying for the new carrier.
The company said on Wednesday the discount unit’s rollout would in part depend on the timing of deliveries of new, bigger planes for its mainline carrier, allowing it to move smaller aircraft to the new routes.
“It’s not going to be 50 aircraft starting to operate there by early 2013,” Air Canada chief executive Calin Rovinescu said. “This doesn’t happen overnight.”
PI Financial transport analyst Chris Murray expects the new airline to have only three to five aircraft by the end of 2013 and said it would surprise him to see 50 aircraft at the end of decade.
The new airline, which will use up to 20 Boeing 767s and 30 Airbus A319s, will fly to Sun Belt destinations in the United States, such as Florida and Nevada, as well as to the Caribbean and Europe. Rovinescu said there were no plans to fly within Canada.
While the low-cost carrier could help trim costs, it is “not a saviour of any sort,” said Morningstar analyst Neal Dihora.
The company’s net loss widened to CAD$96 million, from CAD$46 million a year earlier.
Air Canada’s passenger revenue per available seat mile RASM was particularly disappointing, analysts said. It rose only 2 percent compared with a 6 percent increase at competitor WestJet.
On some of the routes that produced lower yields, including flights to Montreal and New York, the carrier is experiencing more competition from WestJet and Porter Airlines.
With WestJet’s recent introduction of flights from Toronto to New York and the launch of its regional airline in 2013, “the competitive environment for Air Canada is only going to become more challenging,” National Bank Financial analyst Cameron Doerksen said in a note to clients.
Air Canada’s contract with its pilots, imposed by a government-appointed arbitrator on July 30 after the two sides couldn’t reach an agreement, marked the end of more than a year of fractious negotiations with its unions.
Aveos, once Air Canada’s maintenance division, halted operations in March as it ran out of money. A court-appointed monitor is trying to find buyers for parts of the company.
By the end of the second quarter, booking trends had returned to normal and Air Canada was making progress in securing long-term maintenance partners, it said.
SEEKS PENSION MORATORIUM
Air Canada said its pension deficit shrank slightly to CAD$4.2 billion as of January 1 from a previous estimate of CAD$4.4 billion, helped by reasonable investment returns.
The deficit “is the most critical issue facing the viability of the company”, a lawyer appearing for Air Canada said at a recent arbitration hearing. Payments to service the deficit nearly tipped the company into bankruptcy in 2009.
Rovinescu declined to give details on talks between the Canadian government and the airline, which wants a new moratorium on past pension payments to replace an existing one that expires in 2013.