CTV News
The Canadian Press
MONTREAL — Approval of a tentative agreement between Air Canada and flight attendants should ease negotiations with the airline's other employees and may remove the impetus to create a low-cost carrier, an industry observer said Wednesday.
Canada's biggest carrier (TSX:AC.B) has said it needs an improved cost structure from a separate low-cost carrier to compete on leisure routes to Europe and the Caribbean.
But Robert Kokonis, president of airline consulting firm AirTrav, said collective agreements that lower pension costs and change work rules may allow Air Canada to avoid the complexity of establishing another carrier altogether.
History has not been kind to airlines opening low-cost divisions or separate parallel entities. Past efforts from Air Canada and others have ended in failure.
However, the model that several legacy airlines are looking to is Jetstar, an airline owned by Australian carrier Qantas.
Air Canada chief financial officer Michael Rousseau told a CIBC institutional investor conference Wednesday there are several ways to reach costs comparable to competitors.
It can add seats, reduce overhead or negotiate different work rules.
As a result of negotiations with all of its labour groups this year, Rousseau said the launch of a low cost carrier "will probably be pushed out until next year at least."
While Air Canada's operating costs are higher than rivals such as WestJet Airlines (TSX:WJA), the spread between revenues per seat mile and non-fuel costs per seat mile are very similar, said Kokonis.
That means creating a low-cost carrier is less about costs and more about pensions and work rules, he said.
An arbitrator's ruling creating a hybrid pension system for new customer service hires will likely help and be adopted by other employees, he said.
That appears to be the case with flight attendants since a provision of the first tentative agreement that would send the pension issue to arbitration is no longer mentioned in Tuesday's deal.
Details of the agreement with the Canadian Union of Public Employees were not being disclosed pending meetings with flight attendants.
But union president Jeff Taylor said it achieved 80 per cent of what its members wanted, which he hopes will be enough to win their support this time.
After surging Tuesday on word of a deal, Air Canada's shares fell four cents to $1.66 in Wednesday afternoon trading on the Toronto Stock Exchange.