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Air Canada opens up bidding for Jazz’s cross-border routes

Air Canada has cited lower airfares because of growing competition as its reason for looking to cut costs.


Air Canada is looking to transfer the operation of some Canada-U.S. transborder regional flights from Chorus Aviation Inc.'s Jazz to another regional carrier, in an effort to cut costs.

Air Canada announced Monday that it is asking for proposals from regional carriers to take over the operation of some existing, short, cross-border routes.

Unspecified in the announcement, however, is that these routes are currently being flown by Jazz under the Air Canada Express banner and that Air Canada is seeking a new partner to fly them. They are not routes flown by Air Canada's mainline fleet, confirmed Air Canada spokesman Peter Fitzpatrick.

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Debra Williams, a spokeswoman for Chorus, said that Jazz hopes to still be able to compete in the bidding process to keep operating these flights.

"Air Canada has always had the ability to offer RFPs [requests for proposals]. Nothing new there. And from a Jazz perspective, we'd certainly welcome the opportunity to bid on this work," she said.

Jazz currently has an agreement with Air Canada lasting until 2020, which carries a number of guarantees. These include the mark-up that Chorus charges to Air Canada, a guarantee that Air Canada use 122 of Chorus's 127 aircraft, the amount of time in which they are used, and other contractual obligations.

However, the arrangement – known in the industry as a capacity purchase agreement – allows Air Canada to determine the routes, schedules and the kind of service provided by Jazz and other Air Canada regional partners.

Although Air Canada, for example, has to use 122 of the Jazz planes, it can stipulate which routes they fly and how often. So it can divert Jazz planes from the cross-border routes without undermining the capacity purchase agreement.

"The launch of a request for proposals is an important next step in our regional airline diversification strategy and ongoing cost transformation program," said Kevin Howlett, Air Canada's senior vice-president for regional markets.

"Over the past two years, Air Canada has made significant changes to its strategy and relationship with its regional partners, now all operating under the Air Canada Express banner … It is critical for Air Canada to take the necessary steps to ensure its cost structure in these markets is also competitive," he added.

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Air Canada has been in arbitration with Chorus to lower the mark-up that is charged to Air Canada. The newly announced request for proposals is not part of that arbitration process.

As regional competition grows, pushing airfares lower, executives at Air Canada have continued to unambiguously stress the need to get costs down throughout its regional operations.

Last October, Air Canada transferred its fleet of 73-seat Embraer 175s to Sky Regional because Sky could operate the aircraft more cheaply. It's part of a push to create a heightened sense of competition among Air Canada's regional operators and bring in new ones to keep bidding competitive.

In addition to Jazz and Sky, Air Canada's other two current regional partners are Air Georgian and EVAS.

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