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Air Canada plans to introduce up to 50 aircraft at the new division, including 20 wide-body Boeing 767s for overseas service.

J.P. MOCZULSKI/The Globe and Mail

The creation of Air Canada's low-cost carrier will expand choices for Canadians in 2013 while providing a lift to the country's tourism sector by luring more foreign visitors, travel experts say.

Air Canada plans to introduce up to 50 aircraft at the new division, including 30 narrow-body Airbus A319s for flights to Mexico and the Caribbean, and 20 wide-body Boeing 767s for overseas service.

While the discount leisure unit plans to target Asian destinations initially in the spring of 2013, the new venture will also be keen to fly to sun destinations, said Nina Slawek, co-founder of travel industry website OpenJaw.com.

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She made the comment on Tuesday, one day after arbitrator Douglas Stanley imposed a five-year contract on the Air Canada Pilots Association (ACPA). Mr. Stanley, who ruled that new pilots must be placed on less costly pension plans, cleared the way for Air Canada to launch a discount carrier with a foreign partner.

"Air Canada needs to compete," Ms. Slawek said. "I feel for the employees, but you have to look at it as a businessperson. Legacy carriers have a ball and chain with high pension costs."

Rivals such as WestJet Airlines Ltd. and tour operators Transat A.T. Inc. and Sunwing Travel Group have been eroding Air Canada's traffic to sun destinations, said National Bank Financial Inc. analyst Cameron Doerksen.

"ACPA's greater challenge is not protecting pilot jobs from management decisions, it is protecting them from this competitive challenge," Mr. Stanley wrote in his decision released late Monday.

David Goldstein, chief executive officer at the Tourism Industry Association of Canada, said new flights will be introduced to attract Canadians, but also bring in foreign visitors from under served markets.

"This Air Canada plan is an encouraging sign," Mr. Goldstein said Tuesday. "We're optimistic about increased access from secondary gateways in Asia and Europe that could help propel inbound travellers to Canada."

Union leaders say employees are being squeezed. ACPA complains that pilots working at the low-cost division will receive reduced wages and face flying more hours every month, but Air Canada counters that pilots at the new venture will be paid at competitive rates.

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While current ACPA members will remain on defined benefit pensions, new pilots will be placed in lower-cost defined contribution plans.

The change is part of the airline's efforts to reduce its $4.4-billion pension solvency deficit. In June, arbitrator Michel Picher imposed a contract on International Association of Machinists and Aerospace Workers. Analysts note that newly hired workers going into an IAMAW-sponsored multi-employer pension will enter plans that are defined benefit in name, but similar to defined-contribution programs.

ACPA president Paul Strachan said he is disappointed by the new collective agreement for his 3,000 members, describing the contract as worse for pilots than a tentative agreement rejected in May, 2011.

Captain Strachan said management could increase outsourcing under the new contract, allowing it to phase out 643 pilot jobs related to flying Embraer jets and chop another 473 positions from assignments on Airbus aircraft. Air Canada stressed that there are no plans to lay off pilots.

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