Air Canada's challenge is to compensate for revenue dilution triggered by unit cost reduction moves

Air Canada during the past year has undertaken a raft of cost-cutting initiatives to reach it goal of a unit cost reduction of 15% in the mid-term. The most high profile projects are the launch of its low-cost subsidiary rouge, which is approaching its first anniversary in operation, and the introduction of higher density Boeing 777 widebodies on select high volume long-haul routes.

Next on the airline's agenda is expanding seats on its existing 777s through the addition of a new premium economy section. Air Canada believes adding seats on those aircraft ensures product commonality and should ultimately generate unit cost savings, which is an unwavering focus for the airline.

Air Canada's cost performance during the past couple of years is commendable. But as it works feverishly to slash its unit costs, will its plans to bolster density on its aircraft dilute unit revenues over the long term?