Legacy carriers around the world are spinning off low-cost subsidiaries, but Air Canada has moved well beyond that phase - in fact it has gone full circle.
When Air Canada's costs were higher, it created low-cost carriers Tango and Zip for the same reasons that other airlines still do it. Last September it reabsorbed Tango and now Zip is headed for a similar fate. Thus ends the Canadian carrier's experiment in segmenting brands and markets.
Robert Milton, Air Canada's chief executive, first mentioned in May the possibility that Zip might be reabsorbed. In June Air Canada confirmed that Zip will be merged into the mainline carrier later this year. As with Tango, Air Canada may continue to offer discount fares named Tango or Zip, but Zip will disappear as an airline.
The impetus for this decision is the recent agreement by all seven of Air Canada's unions to accept a further C$200 million ($148 million) in annual concessions to meet a C$1.1 billion target negotiated a year ago. These additional concessions, set for ratification votes in mid-June, are required by Deutsche Bank and GE Capital Aviation Services (GECAS) as a condition of their financial commitments to the airline.
The decision to merge Zip back into Air Canada represents a change in Milton's view from last September. At that time he told Airline Business: "Over time Zip will become the scheduled offering of Air Canada. Just like Jazz - with their own culture, management, and paint job - but part of Air Canada." That was before Air Canada found that further labour concessions brought its own costs as low or lower than Zip's.
WestJet will be pleased to see its rival disappear as a separate entity. It complained Zip justified below-cost fares only by hiding part of its costs in its parent.
DAVID KNIBB SEATTLE
Source: Airline Business
