Air Canada seeks to cut WestJet's cost advantage

During the recent CIBC inventors conference carrier CFO Michael Rousseau acknowledged there is "a sizeable cost differential [between Air Canada and WestJet]" based on cost per available seat mile (casm) excluding fuel.

Obviously the biggest difference in the cost structure between the two carriers is Air Canada's premium offering, which results in Air Canada having fewer seats in its aircraft. "And for that we have to get a premium," he says, adding Air Canada enjoys both a yield and revenue per available seat mile (RASM) premium.

Those premiums have grown tighter due to the economic recession but "historically that premium more than offset the cost differential on that one issue," he explains.

Even with the revenue premium Rousseau still admits: "We run an expensive model".

That's a driver in the cost reduction programme the carrier plans to execute during the next couple of years. "Part of that [the cost cutting] is in maintenance, part of that is in salaries and benefits - part of that is just in the overall cost of our business model," explains Rousseau.

Air Canada's CFO does believe WestJet will face cost pressures as it adds more services such as codesharing and frequent flyer programmes. Even though those components add revenue, "those features cost money to manage", he explains.

With respect to Air Canada's other Canadian rival upstart Porter Airlines, Rousseau does admit "Porter does run a good model. We're obviously concerned about their business model and the fact that it is taking away business traffic."

He says Porter's model is limited to some degree since operating jets is prohibited at Porter's base at the Toronto City Centre Airport.

Air Canada's regional partner Jazz has taken legal action over the exclusivity Porter has at the island airport through a lawsuit filed against the Toronto Port Authority that is still being processed.

"That being said", says Rousseau, "We are looking for ways to re-enter that marketplace." The carrier is looking to maintain its flexibility and "not to be restricted in our ability to service our customers", he explains.

In a separate presentation Joseph Randell CEO of Jazz said the carrier's understanding is the exclusivity that Porter has with the airprot operator is coming to an end.

"We're looking forward to getting back in there," says Randell.

Air Canada is also enhancing its rapid air service in Montreal, Ottawa and Toronto, and adding staff at those locations "to deliver a better customer service than we have been historically", explains Rousseau.

Source: Air Transport Intelligence news