Chorus makes progress with cost savings programmes

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Jazz parent Chorus Aviation says it remains focused on trimming costs to stay competitive as Air Canada expands its relationships with other regional carriers.

"We are responding to the ongoing challenges in the increasingly competitive regional market," the airline's chief executive and president Joe Randell tells investors on a 14 August conference call.

These initiatives include consolidating four heavy maintenance lines based in Halifax and London, Ontario into three lines based in Halifax. The airline is in the final stages of talks with a prospective buyer for the London facility, says Randell, and is planning to close a transaction by the third quarter.

Other initiatives include transforming its administrative facility into a new operations centre and consolidating three facilities into one headquarters building. These projects are paying off, says Randell, who declines to disclose in detail how much it is saving.

"These initiatives are already starting to deliver positive benefits and returns," says Randell.

The Halifax-based airline currently has a capacity purchase agreement (CPA) with Air Canada, which has terms set to expire in 2020. Current rates under the agreement last for another three years.

Jazz has brought down costs to a lower level than the rates it has agreed to with Air Canada, says Randell during the call. He adds that in the short-term, these savings will especially benefit Chorus, but in the long-term will set the carrier up to be competitive with other regional carriers competing for lift in the Canadian market.

"If Jazz is to remain relevant in this ever-changing competitive environment, dramatic changes such as these are required," says Randell.

Chorus Aviation saw expenses decrease 2.9% from Canadian dollar (C$) $390 million to C$378.6 million in the second quarter. These reduced costs included a C$1.6 million year-over-year decline of aircraft maintenance expenses due to the termination of a flight services agreement with Thomas Cook and a C$8.5 million decrease in fuel costs.

The carrier also gave voluntary severance packages to senior pilots and maintenance technicians in the second quarter as it draws down its maintenance operation. Those costs totalled C$ 2.3 million in the quarter, regulatory filings show.

Last July, Air Canada reached an agreement with its pilots union that allowed for several changes to its operation, including the ability to diversify its regional lift with new partners. This allowed Air Canada to transition 15 Embraer 175 aircraft to Sky Regional Airlines to operate primarily on transborder routes in the USA under the Air Canada Express banner. All but one of those aircraft have been transferred out of the mainline fleet so far, and the remaining aircraft is expected to make the switch by the end of the third quarter.

In the second quarter, Air Canada spent 4% more on its capacity purchase agreements, which totalled C$276 million. This was attributed to increased block hours flown by Sky Regional, higher rates under the flying agreement with Jazz and unfavourable currency impacts.