Air Canada is set to shake up the low-cost leisure travel market in Canada with its new "Rouge" airline, stopping off at destinations in Europe and the Caribbean next summer. The question is how will the business plan fly?
The company hopes the carrier will be a vehicle to reclaim market share and bolster its bottom line. Rick Erickson, an independent aviation consultant, thinks Air Canada's chances of success in the venture are pretty good.
"I'm fairly bullish on it. We Canadians like to beat up on them but they do offer a very good international product," said Erickson, who is based in Calgary.
"They've got a very strong management team and I think a pretty sound business plan when I look at this."
On Tuesday, Air Canada unveiled plans for its low-cost carrier. Starting July 1, Rouge will offer cheaper flights to new routes in the Caribbean and Europe. Special introductory fares went on sale for flights to Venice, Italy, Edinburgh, Scotland, Athens, Greece, Cuba, the Dominican Republic, Jamaica and Costa Rica, Air Canada said.
"Air Canada enters today's growing leisure travel market on a truly competitive basis," said Ben Smith, the company's chief commercial officer.
The carrier will launch with two Boeing 767s and two Airbus 319s, but Rouge plans to expand to more than 50 aircraft in the next three to five years.
The Montreal-based company will compete with the likes of Transat, WestJet Vacations and Sunwing Travel Group.
Erickson said the move will allow Air Canada to compete in a market it got pushed out of. He expects a move into the international market and then sun spots.But that doesn't necessarily mean super-cheap flights.
"Are we going to see lower prices? I'd be surprised. If they are it'll be marginal. All these carriers watch each other like hawks," he said.
"If I'm a consumer out there what am going to get? I'm probably going to get more destinations, more choices of places to go to than the current milieu right now that's being offered. Am I going to see some real bargains? I don't think so. Am I going to see fairly aggressive fares in the marketplace? Yes."
Air Canada plans to hire 200 people for Rouge. Cost savings are expected to come from paying lower wages and putting more seats in planes in a so-called new "multi-tier seating" structure.
Chris Murray, an analyst at PI Financial Corp, sees Rouge more as a defensive strategy against further encroachment by those competitors, according to a report in the Financial Post.
“Management indicated they expected the new operation to be profitable from inception, however we expect given its small scale that the operation is likely not material in [2013 or 2014],” he said in a note to clients.