Air Canada continues to explore ways to reduce costs, which jumped 5.2% during the first quarter compared to a year earlier on rising fuel expenses.

Michael Rousseau, executive vice president and chief financial officer of the Montreal-based airline, said cost reduction initiatives this year include the increased use of ground power instead of auxiliary on aircraft, optimising the use of ground support equipment, improving aircraft utilisation and reducing catering costs and credit card fees during a presentation at the Bank of America Merrill Lynch transportation conference in Boston today.

Costs rose 1% year-on-year not including fuel during the first quarter while unit passenger revenue rose 5%. However, a 20% jump in fuel prices during the period more than offset the revenue increase.

Air Canada also continues to evaluate a low-cost business model for the airline, which it sees as important to improving profitability, said Rousseau.

Despite the encouraging push for cost savings, the airline remains locked in contentious contract negotiations with its mechanics, baggage handlers and cargo workers, and its pilots unions while also facing an increasing shortfall in its pension obligations.

Air Canada is in federally assisted arbitration over contracts with the International Association of Machinists and Aerospace Workers (IAMAW) and the Air Canada Pilots Association (ACPA). Rousseau said it expects to sign contracts with the unions by July.

The airline also faces a C$4.4 billion ($4.3 billion) pension contribution shortfall as of 31 January on the back of falling interest rates, said Rousseau. Interest rates fell to 3.3% from 4.5% between January 2011 and January 2012.

Air Canada will continue to make its mandatory payments this year and next and will look at how to cover the additional funding obligations in 2014, Rousseau said. He added that an increase in interest rates could significantly reduce the shortfall.

Source: Air Transport Intelligence news