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Air Canada looks to 'premium economy' class

A person walks by Air Canada planes at Toronto Pearson Airport on Friday, April 13, 2012.

Michelle Siu/Michelle Siu/THE CANADIAN PRESS

Air Canada is considering offering cramped economy passengers more room – for a price.

The country's largest carrier is contemplating adding a "premium economy" section, with wider seats and more legroom, to its two-class cabin layout of business and economy.

The new section would allow the Montreal-based carrier to attract passengers who would like more comfort but don't want to pay business-class fares. More importantly, it would give Air Canada another weapon in the battle with WestJet Airlines Ltd. and Toronto-based Porter Airlines Inc.

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WestJet said last August that it is considering installing premium economy seats to make itself more attractive to business travellers, who are Air Canada's bread and butter.

Air Canada, which has been facing stiff competition from its two smaller rivals, reported Friday that its loss widened to $210-million in the first quarter, compared with a $19-million loss a year earlier.

Robert Kokonis, president of airline consulting firm AirTrav Inc., said Air Canada management has been busy dealing with labour strife over the past year, but it's time to "get back to basics" by re-examining the carrier's seating configuration and route network.

A premium economy section could be part of that reconfiguration. "That is something that we are actively studying," Air Canada chief executive officer Calin Rovinescu said during a conference call with analysts Friday. "And we're very well familiar with some of the benefits that you can have from having premium economy. The big factor, of course, is measuring the capital costs to transform airplanes. But that's under study right now."

The revenue raised from travellers in economy class who move up a notch, especially on long-haul routes, would more than offset the slippage from passengers in business class who downgrade, said Mr. Kokonis, who booked a premium economy seat this summer on Cathay Pacific Airways Ltd. between Toronto and Hong Kong. He paid 23-per-cent more than the lowest-available economy fare, but 58-per-cent less than the lowest-available business ticket price.

Mr. Kokonis said WestJet would benefit from adding premium economy to its single-class economy cabin, especially by capturing corporate travellers in the Eastern Triangle of Toronto, Montreal and Ottawa.

On Friday, Air Canada reported it had a pension solvency deficit of $4.4-billion on Jan. 1, 2012, or twice as high as the deficit a year earlier. Its first-quarter EBITDAR (earnings before interest, taxes, depreciation, amortization and aircraft rent) fell to $175-million from $207-million.

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Air Canada said the March shutdown of Aveos Fleet Performance Inc., which repaired Air Canada planes, led to a $120-million charge.

Mr. Rovinescu acknowledged that Air Canada faces challenges to improve labour relations. Thousands of employees have taken to social media, posting messages on Facebook pages and private online forums, to protest their own union negotiators who had recommended acceptance of tentative agreements that were later rejected by the membership. "That creates the equivalent of an opposition party that is there to undermine whatever the [union]leadership has recommended," he said.

Mr. Rovinescu's compensation totalled nearly $4-million last year, down from $4.55-million in 2010, according to the airline's management proxy circular released late Friday.

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About the Author

Brent Jang is a business reporter in The Globe and Mail’s Vancouver bureau. He joined the Globe in 1995. His former positions include transportation reporter in Toronto, energy correspondent in Calgary and Western columnist for Report on Business. He holds a Bachelor of Commerce degree from the University of Alberta, where he served as Editor-in-Chief of The Gateway student newspaper. Mr. More

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