May 5, 2017 / 10:43 AM / 3 years ago

UPDATE 2-Air Canada says has capability to compete with rival Westjet

(Adds comments from CEO, president passenger airlines)

By Allison Lampert

May 5 (Reuters) - Air Canada has the means to compete with a new ultra low-cost carrier planned by smaller rival WestJet Airlines and has not ruled out expanding its own discounted offering, a company executive said on Friday.

Air Canada will use its existing low-cost Rouge service, among other tools to “compete effectively in the domestic market,” president, passenger airlines Benjamin Smith told analysts, after the country’s largest carrier reported a quarterly loss that was much smaller than expected.

WestJet said it would launch an ultra low-cost carrier and buy up to 20 Dreamliner planes from Boeing Co that will enable it to offer new routes in Asia, South America and Europe.

Smith told analysts Air Canada would watch the evolution of ultra low-cost service both in Canada and in the United States when considering a lower-fare label.

“We have that capability. We have not chosen to do that, and we’ll be watching very closely how that plays out in the U.S. domestic market and whether that ever makes sense to go down that path in Canada,” he said.

Smith also said he does not expect new Canadian passenger legislation to have “a material impact” on Air Canada’s operations. Canada was planning to announce a “bill of rights” this spring, even before a U.S. passenger was thrown off a United Airlines flight in April, generating a flurry of negative headlines.

“My expectation is that legislation is not made based on yesterday’s headline in the United States,” added Air Canada Chief Executive Calin Rovinescu on the call.

Passenger revenue at Air Canada rose 8.1 percent to C$3.1 billion ($2.3 billion) in the first quarter ended March 31, as passenger traffic rose 14 percent.

The company said adjusted cost per available seat mile (CASM) — a measure of how much an airline spends to fly a passenger — fell 5.7 percent in the quarter.

Air Canada said it expects adjusted CASM to fall 3-5 percent this year.

Fuel costs jumped 48 percent on comparatively higher oil prices.

Air Canada said its net loss was C$37 million, or 14 Canadian cents per share, in the quarter, compared with net income of C$101 million, or 35 Canadian cents per share, a year earlier.

Excluding one-time items, the company lost 32 Canadian cents per share. Analysts on average had expected a loss of 61 Canadian cents per share, according to Thomson Reuters I/B/E/S.

$1 = 1.3776 Canadian dollars Reporting by John Benny in Bengaluru; Editing by Sai Sachin Ravikumar, Bernard Orr

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