Air Canada adding more planes to Rouge fleet

Carrier looks to trim costs as it prepares to battle upstart domestic competitors

MONTREAL Air Canada is looking to cut operating costs and defend against competition from upstart low-cost competitors by adding more planes to its Rouge fleet and flying them on regional routes within Canada.

Narrow-body Rouge planes that operate at lower cost could replace smaller regional aircraft operated by airline partners like Jazz on some routes.

For example, one of several flights per day on a popular route could be converted to an Airbus plane, industry analysts were told Friday.

Rouge aircraft are also available to compete if necessary with ultra low-cost carriers like West Jet’ s new Swoop subsidiary, Flair Airlines or Canada Jetlines.

“We needed to have the capability of introducing a lower-cost competitive vehicle, both on offence and on defence,” Air Canada CEO Calin Rovinescu said during a conference call about its 2017 results.

The increased use of Rouge planes domestically is permitted under changes to the collective agreement with pilots negotiated last year.

Several more Rouge planes are being added this summer and once all Boeing 787s are delivered next year there will be no limit on the number or type of single-aisle planes that can be flown by Rouge.

Ben Smith, president of passenger airlines at Air Canada, said Rouge Airbus A320s and 321s can be converted to high density single class cabins or possibly another airplane type such as the Boeing 737 Max.

Rovinescu also told analysts that a joint venture with Air China expected to be concluded in the coming months would enable it to be more aggressive in the competitive Pacific market.

The joint venture would expand the relationship beyond the use of lounges and codesharing as it faces pressures on flights to China and Hong Kong.

“It certainly it should certainly be an assistance to us in competing more aggressively,” Rovinescu said.

Meanwhile, Air Canada announced Friday a new $250-million cost-cutting plan to be implemented by the end of 2019. That follows the completion of a $500-million plan launched in 2009 that eventually netted about $575 million in savings.

The new drive to cut costs comes as the Montreal-based airline looks to maintain margins despite the expected slowing down of its capacity growth with the arrival of its final new large planes.

“We showed we can take costs out in bad times but we now need to show we can continue to have that cost discipline in good times,” Rovinescu told analysts.

The cost savings are expected to come from procurement, maintenance, aircraft leases, internal engineering, overhead and simplified business processes, added chief financial officer Michael Rousseau.

Chris Murray of Alta Corp Capital Inc. said the new drive for efficiencyis important as Air Canada’ s growth slows to about seven per cent in 2018 from nearly 12 per cent in 2017, with more reductions likely in subsequent years.

He expects the savings to come from“behind the scenes stuff” that won’t be felt by passengers.

Air Canada capped a strong 2017 by earning adjusted net income of $61 million, or 22 cents per share for the quarter — ahead of analyst estimates of 14 cents per share, according to Thomson Reuters data.

Strong demand and growing connecting traffic through its three hubs in Canada are expected to result in another good year in 2018, said Rovinescu.

Air Canada’s shares grew nearly 90 per cent last year and closed up 1.27 per cent at $24.64 on the Toronto Stock Exchange.