Air Canada is hoping to launch its discount carrier to Europe and sun destinations within a year.
But Air Canada president and CEO Calin Rovinescu cautioned in a conference call with analysts Thursday that the airline would only go through with the plan if the conditions are right.
“We will not do it unless it is and has the ability to remain truly low cost over the long term,” Rovinescu said. “It needs to be able to avoid the type of cost creep that has plagued legacy carriers over the years.”
One of the biggest questions is whether the company will be able to get its employees to sign on to the idea, given the discount carrier would need a lower pay structure and different work rules to be viable.
Changes to things like the length of the workday could mean pilots or flight attendants could do a longer round-trip run, instead of staying overnight and requiring a second crew to make a return trip.
Some Air Canada pilots have balked at the low-cost carrier proposal that is attached to a tentative deal as well as a defined contribution pension plan for new hires, leading to this week’s recall of top union executive Bruce White at the Air Canada Pilots Association.
But with the airline refusing to reopen talks, the union is going ahead with a ratification vote, with results expected on May 19.
Talks are also under way with three other unions representing flight attendants, customer service agents and ground crews and mechanics.
While several analysts pointed to the failed attempts by other carriers including Air Canada’s Tango and Zip that led to cannibalizing existing routes on the main airline and cutting into profits, Rovinescu argued this carrier would be different.
Zip only flew on domestic routes and did not have the size or scale to be profitable. Rovinescu refused to announce specific routes, but cited possible destinations like Amsterdam, Dublin, Nice, Manchester, Lisbon, Casablanca and other spots down south—focused on leisure travelers, not business travellers.
With plans to use up to 50 aircraft — a narrow-body model to head south and a wide-body model for transatlantic flights, the airline would start slowly with a few airplanes already owned by Air Canada and then gradually increase service and make aircraft purchases as needed.
Officials estimate the service could create 462 new pilot jobs by 2015 and at least three times as many flight attendant jobs.
“By creating a new business with a fundamentally different cost structure, Air Canada should be able to profitably operate in leisure markets for next decade and beyond, where we currently cannot compete properly,” Rovinescu said.
His comments came on the same day as the airline’s annual meeting in Montreal along with the company’s release of first-quarter earnings.
The carrier reported an operating loss of $66 million in the first quarter that ended March 31, compared with $136 million in the first quarter of 2010.
However, officials warned that rising fuel costs, estimated at an additional $800 million on operating costs this year, would be a significant pressure. The airline is looking at possibly trimming more unprofitable routes as well as higher fares and fuel surcharges on some flights.
