Competition complaints are confronting Air Canada in eastern Canada, where two start-ups are set to challenge its pricing. In the west it faces a related revolt.
JetsGo, led by the former owner of Royal Airlines, Michael Leblanc, and CanJet, which started two years ago but was bought by Canada 3000, both launched in eastern Canada in June. Both are discount start-ups with one aircraft type, one class of service, no frills, and heavy reliance on Internet bookings. Together they only have five narrowbody jets, but both plan to grow.
Sparks are already flying over cut-price fares offered by Tango, Air Canada's discount unit, before the newcomers' launch. Tango cut its fares in the busy Toronto-Montreal-Ottawa triangle and on other routes the start-ups plan to serve, but only for periods preceding their launch. Tango says its lower prices were a result of extra seats following Canada's motor racing Grand Prix in early June, but Leblanc accuses Air Canada of issuing a warning to its new rivals. His view complies with the forecast of one analyst, who says: "I guarantee some people will interpret their actions as anticompetitive."
Kenneth Rowe, chairman of CanJet parent IMP Group, says he is banking on Canada's competition law to protect his revived airline. Penalties under that law, which CanJet invoked two years ago against Air Canada, have since been toughened. Disputes are likely to centre on a rule that may be unique to Canada. A major airline may match a lower fare, but only if, in doing so, it does not go below its own costs.
Costs thus become critical to Air Canada. The revolt by its flight attendants threatens to hamstring plans for Zip, its discount unit in western Canada. Cabin crews have reached a tentative agreement, but they still insist that Zip is part of Air Canada, not a separate unit. They have petitioned the industrial relations board to declare that Air Canada and Zip are a common employer.
Two other unions may raise the same issue. Every concession Air Canada makes to restore labour peace threatens to undermine the economics of its discount units and drag it closer to this ban on below-cost pricing.
Source: Airline Business
