Air Canada suspends talks for low-cost Pacific carrier over timing concerns

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Air Canada's strategy to branch out into discount international service to and from Vancouver has stalled after the airline suspended talks for a joint venture with Virgin Group Ltd. to launch Pacific flights.

Air Canada had retained Boston Consulting Group to help develop a low-cost carrier for service between Vancouver and Asia. But after months of studying and planning, Canada's largest airline has opted to shelve the initiative amid concerns about whether the timing is right to strengthen Pacific routes.

Ben Smith, Air Canada's chief commercial officer, spearheaded planning earlier this year for the joint venture, which had the code-name VP – short for Virgin Pacific.

Montreal-based Air Canada would have owned a 40-per-cent stake, Virgin Group 40 per cent and an undisclosed financial partner 20 per cent, said an industry insider. Boston Consulting Group and Air Canada executives held a corporate retreat at Mont Tremblant, Que., last spring in an effort to forge ahead with the Vancouver-based project, he said.

Air Canada officials also met with B.C. government representatives in June to express optimism about bolstering the airline's Asian flight schedules. The carrier also lined up a public relations firm to help market the joint venture's Pacific flights.

An Air Canada spokesman declined comment Monday. Air Canada chief executive officer Calin Rovinescu said at the company's annual meeting last June that "we are evaluating various low-cost carrier business models."

Later in the summer, however, the airline began turning its focus back to in-house planning for its wholly owned discount unit eyeing Europe and sun destinations.

Air Canada already has its hands full with its own proposal to start an international low-cost division next year that will target European and sun destinations. With the airline adding longer-range Boeing 777s to its fleet in recent years, Toronto's Pearson International Airport has proven to be a surprisingly strong hub for flights to and from Asia, said Robert Kokonis, president of airline consulting firm AirTrav Inc.

Because Toronto has been able to attract healthy traffic on Asian routes, the growth in demand in Vancouver has been slower than expected for overseas flights, Mr. Kokonis said.

The joint venture with Virgin Group would have deployed Boeing 777s initially and later added Boeing 787 Dreamliners. Some of the destinations on the wish list for the venture included Hong Kong, Tokyo, Seoul, Beijing, Shanghai, Guangzhou, Taipei and Manila.