Carrier credits streamlined fare structure with helping it set record
By BRENT JANG
TRANSPORTATION REPORTER
Tuesday, January 11, 2005 - Page B8
Air Canada's passenger loads rose last month, as the carrier credited its simplified fare system for helping set another record for filling seats.
The Montreal-based airline's load factor, or proportion of available seats filled, averaged 75.2 per cent in December at its mainline operations, up from 72 per cent in the same month in 2003.
The latest load factor marked the ninth consecutive record of new monthly highs for Air Canada.
For the full 12 months of 2004, the carrier's load factor averaged 77.5 per cent, compared with 73.8 per cent in 2003.
Air Canada, which emerged last September from 18 months of bankruptcy protection, said yesterday that it managed to control growth in its capacity while luring passengers with a streamlined fare structure. Its capacity last year increased 4.7 per cent to 53.8 billion available seat miles, compared with rival WestJet Airlines Ltd.'s 30.4-per-cent jump in capacity to 8.9 billion available seat miles.
Last week, Calgary-based WestJet reported a December load factor of 74.7 per cent, up from 73.6 per cent a year earlier. For 2004, WestJet had a 70-per-cent load factor, down from 70.6 per cent in 2003.
Air Canada has thrived on booming business to Asian destinations, said Gilles Roucolle, a vice-president in Mercer Management Consulting's Montreal office.
"They're emphasizing the long-haul, international routes, which command in general higher profit margins," said Mr. Roucolle, adding that the carrier appears willing to relinquish some market share domestically.
Last year, Air Canada's capacity on Pacific routes rose 53.4 per cent to 9.9 billion available seat miles. The carrier's Pacific load factor averaged 81.4 per cent, up from 77.8 per cent in 2003.
Markets in Latin America and the Caribbean are also growth areas. Last year, Air Canada began flights to Lima in Peru, Bogota in Colombia and Caracas in Venezuela.
Domestically last year, Air Canada was able to increase its air traffic 4.5 per cent while reducing its Canadian capacity by 3.3 per cent.
"In December, we achieved another month of record system and North America load factors as we continued to generate traffic growth," Air Canada chief financial officer Rob Peterson said in a statement after stock markets closed.
The carrier's Jazz subsidiary had a load factor of 64.3 per cent last year, compared with 59.6 per cent in 2003. Jazz's capacity fell 2.8 per cent in 2004 to 2.6 billion available seat miles, while its traffic climbed 4.9 per cent to 1.7 billion available seat miles.
Mr. Peterson said Canadians have given a vote of confidence to Air Canada's simplified structure of one-way fares, which it began phasing in during the spring of 2003.
Atlanta-based Delta Air Lines Inc. introduced streamlined ticket pricing last week, and several U.S. rivals matched its lower fares.
Mr. Peterson said the so-called legacy carriers in the United States still haven't implemented simplified fare structures as broadly as Air Canada. Delta, for instance, has round-trip rules, certain advance purchase requirements and one-day minimum stays, but Air Canada has eliminated those restrictions on its North American routes.
Air Canada plans to expand its streamlined fares to selected international flights this spring. The system will be patterned after the company's North American branding of five fare types.
Those fare classes start with the cheapest, branded Tango, and get more expensive with greater flexibility under the names Fun, Latitude, Freedom and Executive Class -- the highest ticket price category, but the one with the greatest flexibility.
International fare classes on selected routes will have their own brand names and a different set of ticketing features.
Air Canada has been among the industry leaders embracing simplified fares, a strategy to gain customer loyalty after consumers grew used to discounted prices after the terrorist attacks in the United States on Sept. 11, 2001.
Those opting for the lowest Air Canada fare save money but they get fewer Aeroplan loyalty points than someone else would receive at a higher fare. Paying the highest ticket price would also give the buyer greater flexibility to make changes, and confer on them standby privileges and priority check-in.
The airline is banking on its strategy of increasing customer loyalty and expanding foreign routes to help propel it back to profitability, Mr. Roucolle said.
Air Canada last posted an annual profit in 1999, but it is forecasting a profit in 2005.
For the first nine months of last year, Air Canada lost $895-million, compared with a $1.1-billion loss in the same period in 2003.
Montreal-based ACE Aviation Holdings Inc. is the parent company created after Air Canada exited bankruptcy protection on Sept. 30. ACE's class B shares fell 12 cents to $34.35 yesterday on the Toronto Stock Exchange.
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