Air Canada to combine new LCC with tour business

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Air Canada will create a new wholly-owned leisure subsidiary for its planned low-cost carrier and existing tour business.

The new LCC will begin operations with two Boeing 767-300ERs and two Airbus A319s to cities in the Caribbean and Europe in June 2013, says the Montreal-based flag carrier.

Destinations will include ones that are currently underserved from Canada or "do not generate adequate profitability with Air Canada's existing [mainline] cost structure", adds the airline.

The new LCC's fleet will increase when Air Canada begins receiving Boeing 787s in 2014, it says. It will operate up to 20 767-300ERs and 30 A319s that will transition from the Air Canada mainline fleet.

"The creation of a leisure group that combines our new low-cost leisure carrier with Air Canada Vacations, our successful tour operator business, is a major milestone for Air Canada," says Calin Rovinescu, president and chief executive of Air Canada, in a statement. "Air Canada will be able to compete more effectively in this highly dynamic and expanding market."

Michael Friisdahl will be president and chief executive of the new leisure company. He will report to Air Canada chief commercial officer Ben Smith.

"A number of conditions have to exist to be low cost," said Michael Rousseau, chief financial officer of Air Canada, on the planned LCC at a conference in September. "The planes have to carry more seats than ourselves, [for example] the 767s will carry 20% more. The other half includes [employee] work rules and wage rates."

Air Canada operated LCC subsidiaries Tango and Zip from 2001 until 2003 and 2004, respectively, to compete with low-cost competition.