Analysis: Unions ground Air Canada's low-cost carrier plan

Tue Nov 8, 2011 12:56pm EST
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By Allison Martell

TORONTO (Reuters) - Months of labor conflict have stalled Air Canada's plans for a low-cost carrier, but Canada's biggest airline says it has not given up the idea.

Air Canada, which teetered on the edge of bankruptcy two years ago, has struggled to bring down costs and turn consistent profits, and Chief Executive Calin Rovinescu says the low-cost leisure market is too good an opportunity to ignore.

"We remain of the view that participation in the low-cost market is critical to achieving sustainable profitability at Air Canada," he said on last Friday's earnings call.

The new business, proposed last spring and initially tipped for a mid 2012 start, would compete on low-yield, high-volume international destinations like Amsterdam, Dublin and Nice, as well as southern vacation spots.

But Rovinescu has said repeatedly that he will not go ahead unless he can ensure the new business will be genuinely low-cost. For that, he will need concessions on wages or benefits from Air Canada's unions.

Established airlines have often sought to launch separate brands to compete with low-cost entrants like Southwest Airlines or EasyJet. The newer arrivals operate with fewer workers, lower pay or a single type of plane, reducing maintenance costs.

But Air Canada, whose previous low-cost airlines were quickly folded into the mainline carrier, has struggled to persuade its four major unions to support its plan.

A new collective agreement for flight attendants includes no mention of the low-cost carrier. The attendants rejected an earlier contract that included provisions on the new carrier.   Continued...