Air Canada still for low-cost plan despite hostility

Mon Jun 4, 2012 3:29pm EDT
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By Scott Haggett and Nicole Mordant

CALGARY/VANCOUVER (Reuters) - Air Canada remains committed to entering the low-cost segment of the airline industry, possibly by starting its own low-cost carrier or through a partnership, the company's chief executive said, despite employee concerns about such a venture.

A low-cost carrier will help the 75-year-old airline, which is Canada's biggest, cut costs and make it more competitive with increasing numbers of low-cost carriers around the world, CEO Calin Rovinescu said at the airline's annual meeting on Monday.

"I have said repeatedly that we need to participate in this segment of the market in one manner or another. And to this end, we are evaluating various low-cost business models," Rovinescu told shareholders at the meeting in Calgary.

He said there are "three or four very successful models out there" that Air Canada is studying, including the possibility of launching a low-cost airline to fly to leisure destinations. "There are also "opportunities that exist on some portions of the long haul market", he said without elaborating.

Airlines such as Air Canada that have been in existence for many years have cost structures that are 30 percent to 50 percent higher than those of low-cost airlines, Rovinescu said. That gives the latter an "unquestioned ability" to capture market share.

He said airlines around the world, including Japan Airlines, Thai Airways and Singapore Airlines, have all either opted to start their own low-cost carriers or formed partnerships with others to "defend against erosion at the mainline carrier or exploit new market opportunities, which would otherwise not be viable."

Air Canada was not intending to turn the entire airline into a low-cost carrier, Rovinescu said. "We look at the successful hub operators... They kept their legacy model and we certainly intend to do that," he said.

Rovinescu declined to specify a timeline for a low-cost venture but said the airline was taking into account ongoing labor talks with its employees, notably its pilots, who have come out strongly against the airline's low-cost carrier plans.   Continued...

Passengers walk past Air Canada planes on the runway at Pearson International Airport in Toronto April 13, 2012. REUTERS/Mike Cassese