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Air Canada Plans Low-Fare Subsidiary

April 22, 2002|From Reuters

MONTREAL — Seeking to attract low-paying customers after the plunge in lucrative business air travel, Air Canada has unveiled its long-awaited no-frills carrier, naming it Zip.

Air Canada, the country's dominant airline and the world's 10th-biggest, said the wholly owned subsidiary will be based in Calgary, Alberta, for service starting this summer in western Canada.

The new carrier will take to the skies with six Boeing 737s, with plans to expand that figure to 20 737s, all transferred from the main Air Canada fleet.

Zip will compete head-to-head with Air Canada's profitable rival WestJet Airlines Ltd., which also is based in Calgary and operates a fleet of 28 Boeing 737s.

Zip will operate initially between Vancouver and Calgary. It will replace existing Air Canada flights without changing the number or frequency, the parent carrier said.

"The low-fare carrier is a critical component of Air Canada's response to growing consumer demand for low-fare travel that will also allow us to reduce our costs dramatically," Air Canada President and Chief Executive Robert Milton said in a statement.

Milton is trying to steer Air Canada, which has 226 aircraft in its mainline fleet and 102 in its regional carrier Jazz, toward the low-fare or no-frills end of the market. The airline suffered a record $788-million loss last year on the plunge in business travel.

With the top eight U.S. carriers reporting a total loss of $2.4 billion in this year's first quarter, analysts expect Air Canada to show a loss of about $184 million in the three months that ended March 31 when it reports results May 2.

Milton warned that Air Canada mainline service may no longer cover certain short-haul markets.

"Canadians tell us that they want Air Canada to continue serving their communities, but our mainline operations in certain short-haul markets may no longer be financially sustainable," he said.

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