Air Canada, WestJet competition heating up

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DARRYL DYCK / THE CANADIAN PRESS Air Canada CEO Calin Rovinescu says airline will compete aggressively.

"We're not going to simply back out of markets we think we can make money in," Air Canada CEO Calin Rovinescu said in Vancouver after unveiling the airline's new Olympic plane.

While it won't lead a price war with its Calgary-based rival, the cash-strapped airline said it plans to weather the recession even though some routes and markets may be abandoned as it cuts back capacity in the wake of lower demand.

"There might be some strategic capacity we'll take out, but we certainly don't intend to abandon massive parts of our business without understanding what it is that we're doing," said Rovinescu, who is attempting to prevent Air Canada's second bankruptcy protection filing in six years.

In addition to its internal financial challenges, Air Canada faces a competitor that unveiled Wednesday its largest non-stop flight schedule, featuring eight new international destinations in the Caribbean and three additional U.S. cities, Kauai, Hawaii, Miami, and Atlantic City, N.J.

By late fall, WestJet plans to operate service to 66 cities in more than 10 countries, compared with 51 cities in eight countries one year ago.

Chris Avery, WestJet's vice-president revenue and planning, said the airline remains confident it can attract new and existing customers despite the economic conditions.

WestJet's expansion suggests it is trying to capitalize as Air Canada pulls in its horns to survive its financial weaknesses, says Karl Moore of McGill University's Desautels Faculty of Management.

"What they're saying is that they see an opportunity to really take advantage of Air Canada while their mind is elsewhere," he said in an interview.

Cameron Doerksen of Versant Partners said WestJet's expansion isn't aimed at Air Canada. It has long telegraphed these plans as it has more planes to deploy, including those used last year by Transat (TSX:TRZ.B) for charters.

"If Air Canada was financially healthier, WestJet would be doing the same thing," he said.

Still, the North American airline industry faces a tough operating environment as demand falls because of the weak economy. WestJet said its unit revenues in the second quarter were down 16 to 18 per cent.

"We won't know what the totality of things look like until both WestJet and Air Canada report their results in August, but there's no question it's a very competitive from a pricing point of view right now," said Doerksen.

He expects Air Canada will lose lots of money over the coming two years. His forecast calls for a loss of $6.69 per share in fiscal 2009 and $3.14 in 2010.

-- The Canadian Press

Republished from the Winnipeg Free Press print edition July 9, 2009 B6