Zip, Air Canada's long-debated discount unit, will launch in western Canada this summer, while WestJet, Canada's number two airline, has started flights into Toronto, Air Canada's hub.
For the past 18 months Air Canada has proposed and delayed its low-fare western Canada subsidiary several times. As recently as February transport minister David Collenette criticised the proposed airline as not in the best interest of transport policy because it was "deliberately focused at WestJet".
Air Canada's decision to launch Zip despite this seems to have been influenced by the sharp contrast between its first quarter loss and the on-going profit at rival WestJet. Air Canada's C$219 million ($140 million) loss was wider than expected, while WestJet showed a profit for its twenty-first straight quarter.
This prompted Robert Milton, Air Canada's chief executive, to tell analysts that the traditional mainline airline model "is broken" and the only way to return Air Canada to profit is to mimic discount carriers such as Southwest, WestJet, and Ryanair. This is a significant concession for a major airline.
"Zip is focused on the success of WestJet in the low fare arena," Milton says. "We know we've got to reduce costs and based on Tango's success, we're confident we can do that." Some analysts warn that Air Canada will erode the strength of its brand with a proliferation of subsidiaries named Zip, Tango, Jetz, and Jazz. They warn it will take years of profits before Air Canada can pay off its C$5 billion debt and another C$7 billion in capitalised operating leases. The only near-term solution, they claim, is asset sales.
WestJet's entry into Toronto has also been an on-and-off affair that seemed at times to be a bluff. WestJet will only operate 13 weekly flights to Toronto and will not use it as a hub. Clive Beddoe, WestJet's president, says turnaround times at the busy airport are too slow for short-haul, low-cost flights.
As WestJet's Toronto debut and plans for more eastern Canada routes, coupled with Zip's western Canada launch, signal more head-to-head competition between the two rivals, another name associated with the low-fare scene may re-emerge. CanJet, which disappeared along with owner Canada 3000 when it went bankrupt last year, is hoping to re-start operations with four Boeing 737-200s on its former routes in the east of the country in June.
Source: Airline Business
