Air Canada seems determined to test the country's recently tightened competition law by pressing ahead with controversial discount arms in both eastern and western Canada.

The dominant carrier has announced expanded service for its Tango unit in the east where two spin-offs from bankrupt Canada 3000 are hoping to stage a debut.

Tango barely dodged a cease-and-desist order last November when the competition bureau thought its launch was aimed at Canada 3000. And Air Canada maintains it will start another discount carrier in western Canada even though transport minister David Collenette has publicly warned it to focus on its own problems rather than try to take traffic away from Calgary-based low-fares rival WestJet.

Tango's expansion has become especially sensitive since the former heads of Canada 3000 and Royal Airways announced plans to launch low-fare start-ups in eastern Canada. Angus Kinnear, president of Canada 3000 before it failed, says he is close to a deal to lease 10 Airbus A320s and launch a scaled-down version of Canada 3000 by May. Potential investors include John Mullen, who held a Canada 3000 stake and is also launching a US airline named USA 3000.

Michel Leblanc, founder and head of Royal Aviation before he sold it to Canada 3000 last year, also plans to launch an eastern Canada low-fare airline using the Royal name.

Kinnear warns that investors will only back start-ups if Canada's competition bureau is willing to protect them from heavy-handed tactics by dominant Air Canada, which now controls at least 80% of the market. The competition bureau says it will not dust off its draft cease-and-desist order against Tango because conditions have changed - but insists that it will keep a watchful eye on developments.

Yet, without any commitment from the bureau, some analysts claim Tango's recent announcement of expansion into eastern Canada is, of itself, enough to scare off investors.

But signals can work both ways. Observers suspect that WestJet recently unveiled its own plan for flights to and from Toronto, Air Canada's main hub, after word leaked out that Air Canada is about to repaint jets in the livery of its new, but still unnamed, western Canada discount unit.

Until now WestJet has avoided Toronto, but Air Canada's threat seems to have provoked a counter-threat to bring the battle onto Air Canada's own turf.

Source: Airline Business