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Air Canada considering launch of new leisure LCC as competition in leisure market intensifies

14-Apr-2011
Air Canada CEO, Calin Rovinescu
Air Canada CEO, Calin Rovinescu

Air Canada is drawing up a business plan to launch a new leisure LCC as a competitive response to its low cost rivals in the Canadian market, according to reports in the Globe and Mail. LCCs, led by WestJet and including Porter Airlines, Air Transat and Sunwing Vacations, have been growing at a faster pace than Air Canada in recent years, eroding the market share of the nation’s largest carrier. Air Canada has launched two other LCCs, Tango and Zip, in the past, both of which operated for less than two years.

LCC to operate on routes that are not financially viable for parent

The details have emerged as part of a tentative agreement reached with the Air Canada Pilots Association (ACPA), which represents 3,000 pilots at the airline. “The mandate of the LCC will be limited to the market segment seeking low-cost air travel. The LCC is not intended to replace mainline routes the company considers financially viable. The LCC’s success and viability depend on the parties ability to fulfill this mandate on a competitive basis,” a letter of understanding signed by ACPA’s leadership states.

Services will operate on leisure routes to Europe, Mexico, the Caribbean and other popular vacation spots. The move will increase the competitive pressure on other LCCs and tour operators in the market, including Transat, Sunwing Travel Group, WestJet Vacations and Thomas Cook Canada Ltd's Sunquest Vacations. The new carrier is also likely designed to maintain the market share of Air Canada Vacations against tour operator rivals.

The LCC project marks the latest strategic development in the carrier’s recovery efforts following the global financial crisis. The carrier also recently stated it would return to Billy Bishop Toronto City Airport, a decision aimed at recapturing market share among business travellers that it has lost to Porter Airlines.

As Air Canada seeks to increase its presence in the leisure market, WestJet is increasing its presence in the business market. The carrier is expanding its interline and codeshare network with carriers including American Airlines (launched on 29-Mar-2011), Delta Air Lines (launched in Feb-2011), Air France-KLM and Air China. WestJet aims to continue to expand this codeshare network to "enhance our reach and value proposition to business and corporate travellers".

Air Canada has a domestic market share of 51%. The carrier had around a 70% market share at the end of 2002 and an 83% share of the market in 2001. 

Canada domestic capacity share by carrier*

Fleet model: used aircraft. Seeking to operate fleet of 50 aircraft in future

The initial fleet for the proposed LCC would consist of four B767s and six A319s, net of Air Canada’s existing fleet. Eventually, it aims to include 30 A319s — 20 of which will be transferred from the mainline fleet — and 20 B767s. The delivery between the end of 2013 and 2017 of 37 B787s would enable the mainline airline to transfer older aircraft to the low-cost unit. The LCC aircraft will have an all-economy and/or premium economy configuration.

To crew 462 new pilot jobs

Air Canada stated the latest foray into the low-cost market, which it says will create 462 new pilot jobs – 238 captains and 224 first officers at the airline by 2015 for the discount unit. The new pilots will become part of ACPA, and will be given “competitive rates and working conditions” to other LCCs. Air Canada’s management will present the plan to the Air Canada component of CUPE, which represents 6,500 flight attendants at the airline, next week, a spokesman said. The plan is still subject to approval by the ACPA membership.

Zip Air and Tango – both failed Air Canada LCC subsidiaries

Air Canada has experimented with LCC subsidiaries in the past, notably with Zip Air Inc in Western Canada, which was launched in 2002 as the LCC rival to WestJet. The carrier was closed in 2004, just two years after its launch. Air Canada also operated Tango as an LCC subsidiary for less than two years prior to its closure in 2003. The name Tango lives on as the label for the airline’s lowest-fare category.


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