DAVID KNIBB / SEATTLE
Responding to a C$108 million ($70 million) second quarter loss and predictions for an unprofitable year, Air Canada plans to cut costs and capacity, and launch its own discount airline.
Air Canada has been hit hard by its traditional reliance on business travel and is being forced into changes by a business traffic plunge that chief executive Robert Milton calls "steep and without precedent". Cost reductions focus on cutting 4,000 jobs on top of the 3,500 employees who have already accepted voluntary buyouts. Managers also face salary cuts of up to 5%; Milton's will drop 10%. Together, these moves will save C$135 million in annual labour costs. To avoid travel agent commissions, the airline also has started online bookings.
Because of Air Canada's changing market, it is replacing business class seats with more economy class on Airbus A319s and 320s flying within North America. It is also revising fleet plans. After freezing this year's capacity, it aims to shrink next year's by 2%. Some of this will come from a transfer of 20 Boeing 737s to its discount airline.
So-called "Air Canada Lite" - possibly to be named "Jetz Airdirect" a tradename reportedly reserved by the carrier - is the most controversial part of Air Canada's plans. Milton has pushed hard for a discount airline, although its launch has often been delayed. July brought a breakthrough when pilots finally accepted a discount carrier in exchange for concessions. But Air Canada still needs agreement from other unions, so take-off could be delayed until spring after Canada's typically difficult winter.
Clive Beddoe, chief executive of WestJet, the nearest potential rival, still scoffs at Air Canada's plan. "Getting one labour group, the pilots, to agree to a 5% reduction in pay does not get you a low-cost carrier," he says. Beddoe seems confident that Air Canada's discount unit will never match the costs of his non-union WestJet. Milton concedes labour costs will be higher, but predicts Air Canada Lite will more than offset that with savings on insurance, finance and other expenses because of Air Canada's economies of scale.
But this could prove a double-edged sword. Because of Canada's competition law, which bars an airline from matching rival fares if they fall below its own costs, the question of which costs are Air Canada's and which are Air Canada Lite's could be critical and, with one wholly owned by the other, even more tricky.
Source: Airline Business
