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An Air Canada Rouge plane prepares for a flight to Las Vegas at Vancouver International Airport in Richmond, B.C., on Monday, April 28, 2014. (DARRYL DYCK/THE CANADIAN PRESS)
An Air Canada Rouge plane prepares for a flight to Las Vegas at Vancouver International Airport in Richmond, B.C., on Monday, April 28, 2014. (DARRYL DYCK/THE CANADIAN PRESS)

Air Canada may expand Rouge to compete with new low-cost airlines Add to ...

Air Canada is assessing whether to expand its Rouge discount airline within Canada as a way to compete with new low-cost carriers that are preparing to enter the market, chief executive officer Calin Rovinescu says.

“As competition comes into the marketplace, by definition we need to have a tool to respond, so we will consider that,” Mr. Rovinescu said Monday. “Obviously Rouge has given us an opportunity to do things that we didn’t have in the past.”

Mr. Rovinescu spoke on Air Canada’s third-quarter financial results conference call, less than a week after the federal government announced that it plans to increase the limit on foreign ownership of Canadian airlines to 49 per cent from 25 per cent.

The change announced last week includes exemptions from the 49-per-cent limit for Canada Jetlines Ltd. and Enerjet, two carriers that have been struggling to get up and running. The exemption is expected to allow them to offer scheduled service as soon as next year.

Mr. Rovinescu’s comments and an announcement made by WestJet Airlines Ltd. on Monday indicate that Canada’s two established carriers are already preparing for the challenge they will face from new domestic competition.

WestJet said it will begin offering flights between Vancouver and Hamilton, Ont., beginning next April. Hamilton is one of three southern Ontario airports being targeted by Vancouver-based Canada Jetlines as a potential hub for its domestic network and trans-border operations.

Air Canada will do what is necessary to stay competitive, said Mr. Rovinescu, who criticized the government Monday for allowing the exemptions to Canada Jetlines and Calgary-based Enerjet.

Rouge, which has lower costs than Air Canada’s mainline service in part because of specific contract provisions with pilots and flight attendants, has been used mainly on overseas destinations as Air Canada’s method of competing with such low-cost rivals as Air Transat.

But “having built Rouge, we now have a tool that is much more cost-competitive and we feel that, especially in some of the longer-haul missions, including inside Canada, Rouge could well be deployed at the right time to be competitive, as needed,” he said.

Rouge planes flew five domestic routes last summer, including Calgary-Halifax and Toronto-Charlottetown.

This winter, Rouge Airbus A319 planes will fly between Toronto and Kelowna, B.C., and Toronto and Deer Lake, Nfld.

Rouge contributed to record third-quarter financial results for Air Canada as measured by earnings before interest, taxes, depreciation, amortization and aircraft rent (EBITDAR). That figure was $1.25-billion, compared with $1.08-billion a year earlier, which was the previous record.

Net income stood at $768-million or 2.74 a share, compared with $437-million or $1.48 a year earlier. The third quarter is Air Canada’s most profitable quarter because of the summer travel season.

The EBITDAR figure “is clear testimony to the success of our fleet investment strategy and the profitable expansion of our international network,” Mr. Rovinescu said.

Air Canada’s capacity grew in the third quarter, notably in flights to the United States and across the Atlantic and Pacific Oceans. Domestic capacity grew 6.3 per cent, U.S. seats and flights jumped 4.5 per cent, capacity across the Atlantic grew 28.1 per cent and availability of seats to Pacific destinations soared 34.8 per cent.

But in each of those markets, passenger revenue per available seat mile fell.

The drop in revenue per available seat mile also exceeded the decline in costs per available seat mile.

Investors cheered the news, however, sending Air Canada’s shares up 7.45 per cent to $12.83 from $11.94 in trading on the Toronto Stock Exchange.

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