From Air Transport World – 9 August 2018 – Sean Broderick

As the Canadian ULCC market heats up, Air Canada said it is prepared to leverage the significant flexibility of its rouge subsidiary to ward off competition, from adding flights in major domestic markets to re-configuring aircraft to match rivals’ all-economy offerings.

“We have been preparing to ensure that we have all the tools necessary to offset [low-cost competition] and ensure that we are not negatively impacted,” Air Canada passenger airlines president Ben Smith said.

Set up five years ago as a leisure-destination operation, rouge’s network is heavily transborder and international, with only a handful of year-round and seasonal routes within Canada. None of them link any of the country’s six largest metropolitan areas—Toronto, Montreal, Vancouver, Calgary, Ottawa and Edmonton—part of the carrier’s strategy to preserve mainline margins.

Calgary-based WestJet and its ULCC subsidiary Swoop are following a similar network strategy, but unlike rouge’s two-class aircraft, Swoop operates 189-seat all-economy Boeing 737-800s.

Fast-growing ULCC Flair Airlines is taking the strategy a step further, operating single-class, 158-seat 737-400s on popular domestic routes such as Toronto-Calgary and Vancouver-Calgary. The Edmonton-based carrier’s recent announcement to move its Hamilton services to Toronto will make it even more prominent, and it plans to follow rouge and Swoop into transborder services.

While Montreal-based Air Canada set up rouge as a hybrid low-cost leisure carrier, the company has flexibility to transform its subsidiary to meet market needs, thanks in part to a 2017 amendment to its pilot agreement. The deal lifted Rouge’s fleet-size cap of 50—25 widebodies and 25 narrowbodies—by permitting more narrowbodies based on Air Canada’s mainline operation and permits rouge aircraft to replace regional feeder flying.

Air Canada is already taking advantage of the narrowbody cap’s removal. Its 53-aircraft fleet includes 22 Airbus A319s and six A321s, and it plans to add three A320s next year. It also is evaluating its rouge deployment strategy in light of shifting market dynamics.

“We have not deployed one of our options, which is rouge on any of the major markets. We can do that,” Smith said. “We can also modify the rouge model …. We can densify the rouge aircraft to bring down the CASM. So, a lot of flexibility.”

Usage of the A320s will be determined by the best opportunities. While the strategy could change, Smith said three options are being considered: adding domestic capacity, flying attractive “southern” routes to Florida, Mexico, and the Caribbean, or replacing regional-feeder flying.

“We’re quite pleased with the position we’re in,” he said.

Sean Broderick, sean.broderick@aviationweek.com