Air Canada low-cost arm to launch 2013, ramp up slowly

Wed Aug 8, 2012 4:38pm EDT
 
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By Nicole Mordant and Bhaswati Mukhopadhyay

VANCOUVER/BANGALORE (Reuters) - Air Canada ACb.TO, having overcome union resistance to the launch of a low-cost carrier, plans to start offering cheap flights to holiday 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, news that sent the stock down nearly 10 percent during the day. It blamed a slump in bookings in the wake of wildcat strikes by some employees, and the collapse of its maintenance contractor.

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 labor 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 on a conference call. "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.   Continued...