Sunwing Airlines

Air Transat and WestJet face heightened pressure as Air Canada applies Rouge

Air Canada is sticking to its strategy for its new low-cost carrier Rouge by introducing service in Jul-2013 to untapped long-haul leisure markets and operating flights to sun destinations - with a presumably lower cost structure.

The carrier is taking aim at both domestic rival WestJet and its vacations package business and large Canadian tour operator Transat. Now that Air Canada has unveiled the initial routes for Rouge, its competitors appear to be making schedule adjustments in response to the decision by Canada’s largest carrier to compete more aggressively in the leisure market.

Air Canada finally gained the green light to move forward with the establishment of Rouge after the government in 2012 stepped into contentious negotiations between pilots and management and ultimately allowed the carrier to impose a contract on pilots that included elements for the establishment of a low-cost carrier.

Transat brightens its outlook as the company pushes new-found capacity discipline

Canadian tour operator Transat was back in the black for the fiscal quarter ending 31-Jul-2012 (3QFY2012) and remains bullish on its prospects for 4QFY2012 despite considerable challenges in its operations in Europe and the Caribbean. Tightening of capacity that began during 3QFY2012 is continuing throughout the remainder of this year and into early 2013 as the parent company of Air Transat seeks to achieve consistent profitability.

Company management believes capacity discipline, coupled with improved revenue management, should serve as a solid foundation for improving its financial performance even as macro economic conditions continue to remain shrouded in uncertainty. But while management stresses it is doing everything it can to ensure Transat’s turnaround, it is stopping short of declaring a reversal of fortunes has begun in earnest.

Air Canada wins approval for low-cost carrier but now faces the challenge of defining the operation

Air Canada’s plans to create a new low-cost subsidiary to better compete in leisure markets is far from a foolproof scheme to wipe away the legacy cost elements that management believes make Air Canada mainline uncompetitive on various levels. The airline faces the danger of disrupting those markets with additional capacity those routes are unlikely to absorb. In its planned slow ramp-up, the new carrier will also likely create upfront costs that might not be recovered until the low-cost carrier reaches full scale, which will further pressure Air Canada’s costs in the short-term.

Other than touting the establishment of the low-cost carrier as a significant growth platform to allow Air Canada to compete in the crucial low-cost space, few details have emerged about the new airline. Air Canada has not stated if it will seek a separate operating certificate for the carrier, if there will be a separate management structure, estimated aircraft utilisation levels, seat density or how network planning and optimisation between the two carriers will be carried out.