Air Canada Rouge CEO Update – Low Cost Long Haul Is A “Tough Business… But We Are Comfortable With Our Business Model”

Transcript

Duncan Bureau:Well, you know, Air Canada Rouge is accretive to the overall Air Canada network. Since starting Rouge 5 years ago, we've added 40 new destinations, so that's created a lot of opportunity for our employees. We've added 2,000 great jobs just in Air Canada, Air Canada Rouge alone, and when you look at the impact it's had on the industry, we've added thousands of jobs across the entire tourism industry. Air Canada Rouge operates into markets where Air Canada mainline may not make sense, and, you know, we're talking about Air Canada as a primary premier carrier, 4-star, the only 4-star carrier in North America. The Air Canada Rouge product is a great product for us to compete with high-density LCCs and ULCCs that are operating into key markets. You know, Florida is a perfect example. You know, we lost a lot of market share operating mainline. Once we introduced the Air Canada Rouge product, we increased the number of cities that we fly to, and our overall market share has grown significantly. And, you know, now we're certainly the lion's share of the market into Florida. So that's kind of how we fit in. Well, you know, we needed to get our financial house in order at Air Canada, and Calin and Mike Russo and the executive team did a phenomenal job. One of the things that we knew we had to address was our competitiveness against the LCC high-density operator, and this Rouge product allows us to do that. The economic benefit of having Rouge operate versus mainline is significant. We can deploy those mainline products and mainline flights into markets where mainline can make money and contribute positively to our overall EBITDAR, whereas Rouge can operate and compete very, very effectively with the low-cost carriers. So, right product, right place, right time, and certainly Rouge is one of those things that helped Air Canada recover financially, and we're very proud of that. There absolutely is, and, you know, what we look at is the market, the type of yield that we're getting out of a particular market, who the operators are in those markets, whether Air Canada Mainline is the right product to deploy against that competitive set, or whether Air Canada Rouge is. And what we're finding is there are more and more opportunities for Air Canada Rouge to be the operator of choice. And again, you know, we learned some lessons. We deployed Rouge into LA, and we found that that wasn't— the market didn't accept that. They wanted Mainline. And and it was the right type of yield to continue to operate mainline, so we put mainline back into LA and some markets. And you know what, it's one of those products that you're going to learn. The great news about airplanes is you can move them, so, you know, if we deploy Rouge and it's the wrong product and we can replace it with mainline and it's the right product, it's the benefit of being an airline. Well, first of all, it's a great airplane and we're really excited to be onboarding that airplane in 2019. The A220 has great range, great economics, It's a game changer in the regional market, and as you know, it's going to replace the Embraer fleet, which is leaving the Air Canada mainline fleet. You know, whether or not we eventually end up with those airplanes in Rouge, who knows? But right now, that is an aircraft that is being planned for mainline. It'll operate in regional routes, and it has great range and capability. So, you know, we're really looking forward to having that airplane in our fleet. Well, you know, it's a tough business, particularly in the long haul. You know, you're dealing with low yields because of stage length. The reality is fuel is not helping a lot of these low-cost carriers who are trying to start long-haul operations. Primera is an example that went out of business this week. You know, we get the benefit of mainline and we get the benefit of a very extensive network. We get the benefit of a parent company that allows us to acquire aircraft, utilize services that other carriers who are in a startup mode wouldn't have that capability. You know, long-haul, low-cost We've been at it for 5 years, and I would argue we're the first successful long-haul, low-cost carrier in the world. And, you know, it's a very tough business to be in. We launched with 767s in the Airbus fleet, and we're doing extremely well. You know what, we'll see what happens, but we're very comfortable with our business model. We're accretive to Air Canada's overall profit margin, and we hope to continue that. One of the other great things about Air Canada Rouge that's really unique is How we onboard our cabin crew. Our in-flight team are phenomenal, extremely experienced. One of the things that we did that's very different from other carriers is we send all of our new cabin crew to Disney University, really to focus on customer service. You know, at the end of the day, we're a customer service company, we just happen to operate airlines or aircraft, and so that really has allowed us to have a competitive advantage in the marketplace. We have great onboard crew and that customer service Customer-centric training that they get at Disney is something that we think will help us in the long run.

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