Air Canada is mulling new ways to deploy its leisure Rouge unit should ultra low-cost carriers launch service to compete for budget-minded travellers.
Rouge started its leisure operations in July, 2013, with Boeing 767s and Airbus A319s. So far, the discount division has been focused on Europe and an array of U.S., Mexican and Caribbean destinations.
Two upstarts, Vancouver-based Canada Jetlines Ltd. and Calgary-based Jet Naked, are seeking to raise money to begin operations in the spring of 2015. Their goal is to fly domestically and also serve routes to U.S. vacation markets such as California and Florida, and also sunny getaways such as Mexico.
Air Canada chief executive officer Calin Rovinescu said his airline is up to the challenge and will compete aggressively. “We have positioned Rouge to be capable of serving the leisure markets. And so we are confident that we’re going to have a good product if we wanted to deploy it in any market that has the characteristics of a leisure market and obviously many of these so-called ultra-low cost carrier markets are leisure markets,” he said Thursday during Air Canada’s quarterly conference call with industry analysts.
He made the comments after the Montreal-based carrier announced that it swung to a profit of $223-million, compared with a $23-million loss in the same period last year.
Still, Air Canada’s share price fell 8.2 per cent on Thursday as investors took note of the company’s decline in overall yield, or the average price paid by one passenger to fly one mile. Air Canada’s yield slipped 2.1 per cent to 18.9 cents year-over-year in the second quarter. Analysts had been expecting an improvement, noting that rival WestJet Airlines Ltd. enjoyed a 4.5-per-cent increase in its second-quarter yield to 18.87 cents.
Mr. Rovinescu said there are no assurances that either of the two fledgling ultra low-cost carriers will lift off next year.
“To the extent that any of the strategies come to fruition, and obviously there’s a lot of debate in the marketplace as to whether or not they can, we certainly would expect to be an able competitor for that,” he said.
In theory, subject to changes in collective agreements, Rouge could eventually operate domestically, but Air Canada would first look to its partners such as Sky Regional and Jazz to combat Jetlines and Jet Naked within Canada, if needed. “There’s nothing preventing us from using Rouge in the domestic market and we’ll look at on a market-by-market basis the impact that might have on the rest of our operations,” Mr. Rovinescu said.
Robert Kokonis, president of airline consulting firm AirTrav Inc., said Air Canada is running more efficiently than a year ago, with the country’s largest airline seeing its cost per available seat-mile decline. “By getting its cost structure down, Air Canada will be better positioned to meet the potential future threat of the introduction of ultra low-cost carrier service to Canada,” he said.
Canaccord Genuity analyst David Tyerman said Air Canada faced higher fuel bills and a weaker loonie in the second quarter, but the carrier’s bookings appear to show strength. Air Canada’s load factor, or the proportion of seats filled by paying customers, climbed to 86.7 per cent last month, up from 85.6 per cent in July, 2013.
Air Canada’s positives include its reconfigured Boeing 777s that have more seats installed and the delivery of new Boeing 787 Dreamliners, which have lower operating costs than the planes they’re replacing, Mr. Tyerman said.