Air Canada to launch cut-rate carrier

[ModerateChop]

Air Canada to launch cut-rate carrier

Brent Jang, Globe and Mail, April 12, 2011

Air Canada plans to create a discount leisure airline to compete on routes to Europe, Mexico, the Caribbean and other popular vacation spots, a move that will ratchet up the competitive pressure on tour operators such as Transat A.T. Inc.

The country's largest airline is actively drawing up a business plan to launch a low-cost carrier (LCC) with four Boeing 767s and six Airbus A319s, with the potential to increase that fleet to 50 planes, according to a letter of understanding attached to the tentative labour pact between the company and the Air Canada Pilots Association.

"The mandate of the LCC will be limited to the market segment seeking low-cost air travel," according to the letter. "The LCC is not intended to replace mainline routes the company considers financially viable. The LCC's success and viability depends on the parties' ability to fulfill this mandate on a competitive basis."

The project is the latest sign of the airline's aggressiveness as it claws its way back from the financial difficulty it got into during the recession. In addition to the new discount carrier, Air Canada recently said it would return to Billy Bishop Toronto City Airport, a decision aimed at recapturing market share among business travellers that it has lost to upstart Porter Airlines Inc.

Air Canada envisages having 30 Airbus planes and 20 Boeings in the new division. Those planes can carry between 120 and 213 passengers in their current configurations, but business class would be removed for the discount airline and replaced with "premium economy" seating.

The airline and the pilots' union have agreed to negotiate a pay structure for the discount unit.

"Air Canada and ACPA wish to establish a labour relations structure covering the pilot-employees of the low-cost carrier," said the letter. A new lower-wage classification of pilots would be started, though the letter cautions that "the full scope and details of the terms and conditions governing the LCC cannot be realistically contained in this LOU [letter of understanding]."

Transat is the country's largest tour operator, followed by fast-growing Sunwing Travel Group, which merged in 2009 with Signature Vacations.

Other tour operators vying for Canadian leisure travellers include WestJet Vacations and Thomas Cook Canada Ltd.'s Sunquest Vacations. Air Canada competes in the charter market through its wholly-owned division, Air Canada Vacations.

Air Canada Vacations already operates in markets such as Mexico, the Caribbean, U.S. sun destinations, Europe, Central and South America and Asia, but its tour packages generally target mid- to higher-end travellers in the charter sector.

ACPA spokesman Paul Howard declined to comment on the letter of understanding, which is dated March 17, noting that union negotiators only began to publicly unveil the tentative agreement Monday in Vancouver, the first stop in a cross-country tour this week to provide details to more than 3,000 Air Canada pilots. ACPA's master executive council has authorized an April 15-27 ratification vote for the tentative labour pact reached last month.

"We wouldn't comment on the substance of a collective agreement before we've even briefed our own members on it," Mr. Howard said, noting that additional meetings with pilots will be held this week in Winnipeg, Montreal and Toronto. "We're in the process of explaining what's in the agreement."

Air Canada declined comment.

ACPA is the first of the airline's unions to agree to tentative contract terms.

The Canadian Auto Workers union, which represents customer service agents and call centre staff, resumed bargaining last week aided by a federal conciliator. Management proposals on table include the creation of new classifications in call centres, says the CAW, whose collective agreement expired Feb. 28.

The Canadian Union of Public Employees began labour talks last week on behalf of flight attendants, while the International Association of Machinists and Aerospace Workers has scheduled introductory bargaining meetings this month with Air Canada.

Labour pacts at ACPA, CUPE and IAMAW expired March 31.

What are the chances that this is going to actually fly ?

[Kip Powick]

What are the chances that this is going to actually fly ?

One should never answer a question by asking one ....................but......what are the chances the TA will pass?

[deicer]

And if it does happen, do you think the chances of another merger aren't on the horizon?

Do we really need to turn that into a three way arguement

[skyline]

HUMMMMM, I smell overcapacity. Who's going to win this LCC battle? Very slippery slope for unions. If this doesn't work for the recovery at AC, it will go from a slippery slope to a sheer cliff.

[Seeker]

One should never answer a question by asking one ....................but......what are the chances the TA will pass?

Slim to nil...pilot group very angry.

[AME]

deleted....sometimes it's better to keep ones opinions to ones self

[Super 80]

Have this "airline within an airline" ever worked oh... anywhere?

[Fido]

Have this "airline within an airline" ever worked oh... anywhere?

Lufthansa and Condor

[rudder]

Lufthansa and Condor

That would be in ................Europe? Hasn't worked in North America.

[hollywud]

Have this "airline within an airline" ever worked oh... anywhere?

QANTAS - Jetstar. Guess who is growing and who is shrinking? First guess doesn't count. It really doesn't matter if it has worked in North America or not, fact is it has worked. If the unions cave in, mark my words it will be an all new beginning for Air Canada.

[Super 80]

I was more speaking along the lines of "working" entailing the "airline within an airline" successfully holding the line or encroaching on aggressive competitors as opposed to merely re-balancing traffic amongst itself to the lower cost subsidiary.

[skyline]

Good one Super 80

[CanadaEH]

What is stopping Air Canada from launching a subsidiary with new work rules, no ACPA representation, new employees, etc.?

[dagger]

What is stopping Air Canada from launching a subsidiary with new work rules, no ACPA representation, new employees, etc.?

Federal labor law, for one. The unions would be able to argue that their jurisdiction covers any AC-owned enterprise where the employees perform similar functions to their members.

[CanadaEH]

Gotcha.

[Miles]

I'll place my bet on Sunwing as the first to go if this flies.

[Guest]

Federal labor law, for one. The unions would be able to argue that their jurisdiction covers any AC-owned enterprise where the employees perform similar functions to their members.

Frank Lorenzo reads this, scratches his head and says "looks like I'm out of ideas!"

[thor]

Frank Lorenzo reads this, scratches his head and says "looks like I'm out of ideas!"

So what will the variables be? Fuel, Nav fees, Landing fees, leasing fees, maintenance costs, are the same as the mainline. the only variable is ...pilot wages!!!

[mrlupin]

So what will the variables be? Fuel, Nav fees, Landing fees, leasing fees, maintenance costs, are the same as the mainline. the only variable is ...pilot wages!!!

You can outsource all of your heavy maintenance work, saving quite a substantial amount of money. Much like all the other carriers of the world.

Éric

[skyline]

Not just pilot wages but maintenance, customer service agents, ground services, upper management and the list goes on. AC has a very long way to go before competing with the LCC's. This is another attempt by another CEO to keep the company afloat before cashing in.

[CanadaEH]

So what will the variables be? Fuel, Nav fees, Landing fees, leasing fees, maintenance costs, are the same as the mainline. the only variable is ...pilot wages!!!

It has a lot less to do with "pilot wages" and more to do with productivity improvements, performance based compensation, and wholesale changes in the airline culture (on both sides).

[MD2]

It has a lot less to do with "pilot wages" and more to do with productivity improvements, performance based compensation, and wholesale changes in the airline culture (on both sides).

You are too generous, skyline simply has it right. This is reminiscent of "Tango" and especially troubling for those at C3 who were put out of work by this scam - conveniently a day before competition bureau spoke out against it - have since ended-up at WestJet, Sunwing and Transat, only to be attacked by version 2 and another quest of a 20 million dollar bonus! All the while ACPA is busy eating its young, Very sad state of affairs at the nation's "flag carrier"!!

[FA@AC]

You are too generous, skyline simply has it right. This is reminiscent of "Tango" and especially troubling for those at C3 who were put out of work by this scam -

Maybe we should oust Calin and make you Air Canada's CEO. I'm sure you'd soon have us earning record profits.

Please explain how AC should go about competing with the industry's Canjets, Westjets, Sunwings, Transats, etc.

[MD2]

Maybe we should oust Calin and make you Air Canada's CEO. I'm sure you'd soon have us earning record profits.

Please explain how AC should go about competing with the industry's Canjets, Westjets, Sunwings, Transats, etc.

FA@AC, it's just that for long you have been extolling the virtues of Air Canada and summoning the downtrodden and the destitute at other airlines to walk in your footsteps. Please enlighten us how the battle of the proletariat is progressing at Air Canada, not to mention at its sister companies such as Sky regional and "Tango 2" O thou sage one!

[FA@AC]

Huh? I don't know of any airline employee in Canada whom I'd describe as downtrodden or destitute. I don't claim to know much about the ins and outs of working at carriers other than AC, but I do know that WS is a great place to work. I hear that Air Transat is a good employer too.

I offered you a chance to state what AC should do to compete with carrier that have lower labour costs, and you ducked. Instead, just keep the snipes about the plans for a lower cost division coming if it makes you feel better.

As for the rest of your post, if it's the best you can do it won't surprise anybody that a company you run continues to torch boatloads of money.