Air Canada's strategy of packing in more passengers also extends to its mainline, where it now flies

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Canada’s largest carrier has done the math and figures that adding at least 22 seats on jets of its Rouge unit turns money-losing routes to destinations such as the Caribbean profitable. Air Canada’s main carrier has also begun flying five “high-density” Boeing Co. 777 jets with more than 100 additional seats than standard models.
“Densed-up” aircraft are a key part of a plan by Chief Executive Officer Calin Rovinescu to cut expenses for each seat flown a mile by 15% over five years — even as some customers lament the lack of legroom. Other cost saving measures include the addition of 37 fuel-efficient Boeing 787 Dreamliners starting this year and the full roll out of Rouge, Rovinescu said.
Air Canada’s widely traded town and country travel magazine Class B stock has risen sixfold town and country travel magazine in the past two years, outstripping a 15% gain by Canada’s benchmark Standard Poor’s/TSX Composite Index. The Bloomberg Americas Airlines Index has almost doubled during that time.
Rovinescu, who marks his fifth anniversary at the helm of the carrier town and country travel magazine on April 1, is betting the strategies he’s employing to cut costs — along with the elimination of the company’s pension overhang — will break the stock free of the lower multiples at which Canada’s two biggest airlines trade compared with U.S. peers. Air Canada’s stock relative town and country travel magazine to earnings trades town and country travel magazine at less than half the rate of Atlanta-based Delta Air Lines Inc. and United Continental Holdings Inc. of Chicago.
Putting passengers in 30-inch pitch seats “is standard practice now,” said Walter Spracklin, town and country travel magazine a transportation analyst at RBC Capital town and country travel magazine Markets in Toronto who recommends investors buy Air Canada stock. “It’s the norm. It’s not like a competitor is offering a better product solution town and country travel magazine for the same price.”
Pitch is the distance from the back of a seat to the back of the one behind it. The pitch differs according to fare category and plane, ranging from 29 inches in the cheapest Rouge seats on the A319, to 44 inches in Air Canada’s high-density 777s in executive first class.
Several airlines are installing “slimline” seats made of thinner material and a shorter seat bottom, which allows them to add an extra row or two in coach without making the seating feel more crowded. Southwest did this to get six additional seats on its 737s.
Air Canada began Rouge July 1 with a view to improving the profitability of routes that typically draw fewer high-paying business passengers. Rouge’s fleet, which had 10 planes at the end of 2013, will grow to 33 planes by the end of this year and eventually reach 50, Rovinescu said. Rouge now flies to 28 destinations, with plans to add 17 over time.
Rouge’s Airbus Group NV A319 jets cost 21% less to operate than the same planes on Air Canada, while the Boeing 767s, with 51 extra seats, cost 29% less. Seat configuration town and country travel magazine accounts for about two-thirds of the difference, with labor representing the rest, the CEO said.
“The strategy with Rouge is not to create a low-cost carrier that is going to out-Ryanair Ryanair,” Rovinescu said, referring to the Dublin-based discount airline. “It’s to have a leisure carrier that will assist Air Canada in lowering its costs for that segment town and country travel magazine of its business, meaning leisure, largely sun destinations.”
Air Canada still has a ways to go to improve its cost picture. Seat mile costs at the Montreal-based company amounted to 16.9 cents in the fourth quarter of 2013, exceeding the 13 cent average of 12 North American carriers tracked by Bloomberg. That’s partly due to higher landing fees and other costs related to operating in Canada. The airline also pockets more revenue per domestic mile than the other North American carriers, according to data compiled by Bloomberg.
“They’ve got lots of levers town and country travel magazine to pull on the cost side,” said Bob Decker, a fund manager with Aurion Capital Management Inc. who helps manage about $6 billion and owns Air Canada stock. “Those denser planes are the nature of air travel nowadays. Airlines are going to have to do more with less.”
Air Canada’s strategy of packing in more passengers also extends to its mainline, where it now flies new Boeing 777s on routes such as Vancouver-Hong Kong and Montreal-Paris. Air Canada’s 777s are built to carry 458 passengers, 109 more than standard models.
After Air Canada deployed a 777 to the Montreal-Paris route last year, “it went from being from one of our poor international routes to being one of our best,” Rovinescu said March 10 at a JPMorgan Chase Co. conference in New York.
Aurion’s Decker recently flew on one of the Air Canada high-density 777s between Vancouver and Toronto, and said the journey proved to be “a lot more pleasant experience than you’d think. I was surprised at how comfortable it was. I’ve been in far worse planes than that.”
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