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Discount carrier for Air Canada?

April 12, 2011, Montreal - Air Canada's reported plans to launch a discount carrier could mean lower airfares to select destinations and increased competitive headaches for its airline rivals, industry analysts said Tuesday.


April 12, 2011
By The Canadian Press

Canadian consumers could get an initial reprieve from rising fares if Canada's largest carrier establishes a low cost carrier to fly to vacation spots in Mexico, the Caribbean and Europe.

Chris Murray of PI Financial Corp. said the new airline would inflict more pressure on the industry to reduce fares, at least
until a rival is driven out of business.

The Globe and Mail reported that Air Canada pilots are being asked to approve a tentative agreement that includes a letter of understanding that creates a new wage rate for a discount carrier.

Neither the union nor the airline would comment on the report.

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But the union representing reservation agents and airport workers said the idea of a discount carrier has been broadly raised during contract negotiations.

Leslie Dias of the Canadian Auto Workers union said no details or wage demands have yet been provided.

Analysts suggested the potential move would have a noticable impact on a tough marketplace.

Murray said Air Canada's motivation is likely to preserve its marketshare against rivals such as Transat AT and Sunwing.

He said the new carrier could be modelled after Jetstar, an Australian discount carrier that operates as a wholly owned
subsidiary of Qantas.

Walter Spracklin of RBC Capital Markets said Air Canada's move would most likely target WestJet (TSX:WJA), which has made significant inroads in the discount vacation segment.

Additional competition from Air Canada would likely affect already tight margins, he wrote in a report.