July 26, 2008 / 12:57 PM / in 9 years

Air Canada and Continental ink code-sharing pact

TORONTO (Reuters) - Air Canada aims to expand its reach to new destinations through a partnership with Continental Airlines that will put the carriers’ passengers on each other’s planes while maintaining their frequent flier benefits, it said on Thursday.

<p>Air Canada planes sit on the tarmac at Pearson International Airport in Toronto in this June 17, 2008 file photo. Air Canada aims to expand its reach to new destinations through a partnership with Continental Airlines that will put the carriers' passengers on each other's planes while maintaining their frequent flier benefits, it said on Thursday.REUTERS/Mike Cassese</p>

The proposed code-sharing deal would offer Air Canada passengers more options for connecting flights while keeping its own operating and marketing costs down against a backdrop of soaring fuel prices, the country’s biggest airline said.

It coincides with plans by Continental, the No. 4 U.S. airline, to join the Star Alliance group of carriers, which includes Air Canada, United Airlines, Lufthansa and others.

“Air Canada, United and Continental, between us, will have probably the most comprehensive network you can have in North America,” said Ben Smith, executive vice-president and chief commercial officer at Air Canada.

“On another track, we are working with Lufthansa, United, Continental, to form a quadrilateral joint-venture trans-Atlantic alliance, and we’ve applied for immunity to start working on that.”

The alliances come as the airline sector struggles to stay aloft amid record fuel prices and a struggling U.S. economy.

Air Canada said in June it would cut 2,000 jobs or 7 percent of its 28,000-member workforce. Continental said on June 5 it would cut 3,000 jobs, or about 6.5 percent of its 45,000 staff.

Code-sharing benefits airlines by allowing them to expand their networks while keeping costs in check, said Rick Erickson, managing director at independent aviation consultant firm RP Erickson and associates in Calgary.

“Continental would offer Air Canada a number of destinations on the (U.S.) Atlantic seaboard, some in the Caribbean that they don’t serve themselves,” Erickson said.

Continental also serves several Mexican and Central American destinations that Air Canada does not, while Air Canada would open up Canadian and Asian routes to Continental.

Air Canada has similar agreements with other airlines, and the extra traffic adds significantly to sales, Erickson said.

“About 18 to 20 percent of their total revenues come out of these kind of code-sharing arrangements. So if you’re a C$10 billion outfit, a couple billion dollars is a lot of additional revenue that is coming from this,” he said.

Continental, formally filed a request with the U.S. Transportation Department to join the Star Alliance on Wednesday, and also sought immunity from antitrust restrictions on scheduling, fares and service.

Other alliance members include Singapore Airlines and Air China.

Smith said he expects the trans-Atlantic venture will be approved some time next year.

The agreement follows on the heels of a similar pact between low-cost U.S. and Canadian carriers Southwest Airlines Co and WestJet Airlines Ltd last week.

Shares of Air Canada were down 13 Canadian cents, or 2.5 percent, at C$5.15 on the Toronto Stock Exchange.

Continental shares were down $2.45, or 16.6 percent, at $12.35 on the New York Stock Exchange. The company’s stock has been under pressure due to high fuel costs, which have helped push it into the red in the past few quarters.

($1=$1.01 Canadian)

Reporting by John McCrank; editing by Rob Wilson

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