Air Canada’s Leisure Strategy Draws Praise From Agents

Air Canada’s plans for a new “integrated leisure group” is being applauded by Canadian travel agents, who anticipate increased competition and a broader range of product.

Earlier this month, Air Canada announced the formation of a Leisure Group combining Air Canada Vacations, the carrier’s tour operator business, with a new low-cost “leisure airline.”

To oversee the new group, the carrier hired industry veteran Michael Friisdahl, former president and COO of Thomas Cook North America and Thomas Cook Canada. Friisdahl will serve as president and CEO.

The low-cost airline, as yet-unnamed, is scheduled to begin service in June 2013. The carrier will fly to holiday destinations in Europe and the Caribbean that are either underserved or are not sufficiently profitable within Air Canada’s existing cost structure, according to Air Canada.

Industry reaction
The moves by Air Canada are being met favorably by travel sellers in Canada.

“It’s a good thing for Air Canada, and consequently it’s a very good thing for us in the industry,” said Michael Merrithew, chairman and CEO of Toronto-headquartered Merit Travel Group.
 
Ron Pradinuk, president of Winnipeg-based Renaissance Travel, commented on the carrier’s choice of leadership. “Getting Michael Friisdahl to run it is a move that will give agents a tremendous amount of confidence,” he told Travel Market Report.

“He will evolve this brand into a solid tour operation that will have a lot of good things going for it. It’s a very good move for the Air Canada organization.”

More competitive
Adding low-cost service will allow Air Canada to compete in a segment of the market that has been challenging for the carrier, Merrithew said.

“While Air Canada and Air Canada Vacations have always had a great reputation, their cost structure has been higher, and that’s reflected in their pricing and their inability to compete with Sunwing Vacations and Transat Holidays.

“This will enable them to operate with a lower price structure. It gives them a chance to compete more effectively.”

“More competition almost always results in lower prices for consumers,” Merrithew said.

More product for agents
Competition isn’t the only benefit for the travel industry.

“It will open up more doors for the travel agency community to sell more product to their clients,” said David McCaig, president and COO of the Association of Canadian Travel Agents.

“We’re happy to have a company that sells a lot through the travel agency community, pays good commission, and increases the opportunities to sell them.”

 McCaig also commented on his understanding of Air Canada’s plans for its new airline. “This new low-cost carrier is not going to be a charter. It’s operating as a scheduled carrier. I anticipate that it will be going into more regional airports, whether that’s in Europe or in the Caribbean.

“Air Canada flies to Rome, but this carrier could pick another Italian city or other destinations around Europe. It will dramatically increase the destinations that clients have available to them.” McCaig added.

Air Canada has not yet released details of the leisure airline’s inaugural schedule, except to say, in a press release, that the carrier “will assume select Air Canada leisure services and will also operate certain new destinations not currently operated by Air Canada.”

Caribbean & Central America
Merit Travel’s Merrithew said he expected that the new airline “will enable Air Canada to service the Caribbean destinations at a lower cost and be more competitive, as well as develop new destinations like Honduras and increase capacity to new, developing markets like Panama and Costa Rica.”

Merrithew also sees opportunities to develop service to more destinations in Italy and Spain, as well as to South America, which no other carrier currently serves directly from Canada.
 
But, he cautioned, developing new destinations could also be a challenge, especially given overcapacity in markets such as Mexico, the Dominican Republic and Cuba. “There’s always a possibility for failures, such as when too much capacity comes into the marketplace,” he said.

Tight configurations
One problem that Pradinuk of Renaissance Travel anticipated is a diminished comfort level in the aircraft that will be flown by the new carrier. Initial plans are for it to operate two B767-300ER and two A319 aircraft from Air Canada’s current fleet.

“People like to go on Air Canada because of the seats and the option of business class to most destinations. The consumers love the extra space,” Pradinuk said.

“The new configurations will fall in line with traditional configurations. The consumer will feel more squeezed in, but that’s the way tour operators make money.”

Growing the fleet
Air Canada plans to gradually increase its new carrier’s fleet, beginning in 2014 when it receives delivery of its new B787 Dreamliner aircraft. At that time it will start to transfer some of its existing aircraft over to the low-cost airline.

Depending on demand, the leisure carrier may eventually operate a fleet of up to 20 B767-300ER and 30 A319 aircraft.