Air Canada said it would wrap its tour operator business into a planned low-cost carrier, forming a new integrated leisure business.
The airline named former Thomas Cook North America chief executive Michael Friisdahl to head the leisure business.
"Our new leisure group will benefit from combining the low cost carrier with the strong brand reputation of Air Canada Vacations and leveraging the established marketing and distribution channels of both Air Canada Vacations and Air Canada," Air Canada chief executive Calin Rovinescu said in a statement.
Air Canada Vacations, the airline's tour business, offers a variety of travel packages including cruises and tours to about 100 locations in the Caribbean, Central and South America, Asia, Europe and the United States.
The new low-cost airline, to be launched in June 2013, will start with aircraft released from Air Canada's mainline fleet and will fly to destinations that are either "underserved" or not adequately profitable for the airline, the company said.
Air Canada had in August said it would start up a low-cost airline in 2013 to fly to holiday destinations in North America, the Caribbean and Europe.