Air Canada head bullish on low-cost airline

BRENT JANG — TRANSPORTATION REPORTER
From Saturday's Globe and Mail
Published Friday, Apr. 15, 2011 10:00PM EDT


Calin Rovinescu is moving full speed ahead with Air Canada’s global expansion.
 

Air Canada’s new low-cost airline division will be launched next winter, targeting under-served destinations in Europe, Mexico and the Caribbean with non-stop service, the chief executive officer said in an interview. He is undeterred by a setback suffered Friday, when the pilots’ union cancelled its ratification vote for a tentative labour agreement

Mr. Rovinescu is staying the course amid storm clouds on the labour front, saying Canada’s largest airline must go on the offensive and compete vigorously against tour operators that have expanded in recent years.


He plans to start or enhance service to cities that are attractive to travellers wanting to save money aboard planes with economy-class seating. “Premium economy” at the front of the cabin will replace business class. The route map for the new budget carrier might include secondary overseas markets such as Casablanca, Nice, Lyon, Lisbon, Amsterdam, Dublin and Manchester.

This is something that is intended to help assure the stability and survivability of Air Canada longer-term. It will lead to job creation, salary progression and more aircraft,” he said.


Mr. Rovinescu said he is well aware of the challenges ahead, both in winning union acceptance for creating the discount leisure airline and competing against tour rivals such as Transat A.T. Inc. and Sunwing Travel.

The payoff, however, will be huge for employees and consumers, said Mr. Rovinescu, who approved an analysis last fall that later determined that the strengths and opportunities outweighed the weaknesses for launching a low-cost carrier.

At first, Air Canada will rely on four wide-body Boeing 767s for transatlantic routes and six narrow-body Airbus A319s for sun markets, aiming to increase the fleet to 50 planes by 2015. Sun destinations will be gradually rolled out, with flights originating from Central Canada and then from Western Canada

The primary goal will be to lure consumers in major Canadian cities. Smaller Canadian airports such as Abbotsford, B.C., and Hamilton “aren’t part of the plan at this stage,” unless “compelling” reasons emerge to alter the strategy, Mr. Rovinescu said.


Jetstar Airways, the low-cost subsidiary of Australia’s Qantas, is a good example of how a budget division dovetails nicely with a traditional global carrier, he said.

Up to 462 pilot jobs will be created at Air Canada’s discount arm by 2015, plus new employment for flight attendants and others, according to the airline’s internal analysis.

As the carrier steps up its quest for international leisure traffic, “this is something not to be feared by Air Canada employees in any way, shape or form,” Mr. Rovinescu said. “Some of our competitors hope that we won’t do this. It’s an untapped portion of our market.”
He declined to comment on the Air Canada Pilots Association’s decision on Friday to scrap its April 15-27 ratification vote on a tentative labour pact.


Captain Paul Strachan, president of ACPA, said the union’s master executive council will gather next Tuesday to begin examining alternatives to holding the ratification vote, including returning to the bargaining table and securing a revised labour pact for a rescheduled vote. “Democracy can be messy,” Mr. Strachan said, acknowledging that management’s proposals to run a low-cost carrier and place new hires on defined-contribution pension plans raised the ire of hundreds of pilots.

While the defined-benefit plan will continue for current ACPA members, a group of angry pilots declared it had gathered more than 1,300 supporters on a website petitioning to recall council chairman Bruce White.

Still, National Bank Financial analyst Cameron Doerksen said he remains optimistic that a revamped contract will be approved by the 3,000-member pilots’ union.


Undaunted by the cancellation of the pilot ratification vote, Mr. Rovinescu expects the low-cost carrier division to form a “big element” of Air Canada’s expansion plans over the next decade.

Mr. Rovinescu, who became Air Canada CEO during a severe cash crunch two years ago, said he refuses to coast along with a conservative corporate strategy. “We’re not going to stand still and sit on our hands,” he said. “Our business needs to evolve. We’re tackling the challenges we need to tackle to ensure long-term sustainability.”