Air Canada to detail plans on low cost carrier

MONTREAL – Air Canada says it is a couple of weeks away from announcing plans to launch a separately managed low cost carrier that will service transatlantic and leisure routes in the Caribbean and the United States.

Michael Rousseau, the airline’s chief financial officer, told a CIBC investment conference on Wednesday that the carrier will be wholly owned by Air Canada (TSX:AC.B), but carry a different name.

About half of the incremental profits from the low cost carrier will be derived from cramming more seats into a fleet of 20 Boeing 767s and 30 Airbus A319s. The rest comes from lower employee wages and more flexible work rules.

The wide-body planes, for example, will be fitted with 20 per cent more seats, raising the number of passengers to 275 per aircraft.

The new business model will open the low cost carrier to new routes in Europe that currently aren’t cost competitive for the legacy carrier and allow it to be more competitive on sun and some U.S. destinations.

Rousseau warned that the new low cost carrier will be launched in 2013, but won’t have a material impact on Air Canada’s results until it ramps up to the full fleet of 50 planes.

Meanwhile, he says Air Canada is working on several other initiatives, including developing a “competitive response” to WestJet Airlines (TSX:WJA) plans to launch a regional service next year.

It also is discussing with Ottawa about extending its moratorium on past service pension contributions for another 10 years once the current deal expires in 2013.

On the Toronto Stock Exchange, Air Canada’s shares gained one cent at $1.17 in morning trading.