Air Canada May Retire Older Jets Sooner - CEO

June 19, 2008

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Air Canada, which plans deep staff and capacity cuts to cope with sky-high fuel prices, may retire wide-body Airbus jets sooner than expected to reduce costs, its chief executive said on Wednesday.

Air Canada, the country's biggest airline, had expected to part with its Airbus A330-300 aircraft as it took delivery of new-generation Boeing 787s, the much-anticipated planes that have been fraught with costly delays.

Now, as oil hovers above USD$130 a barrel, the airline is considering replacement aircraft as a temporary fuel-saving solution while it waits for the 787s, CEO Montie Brewer said.

"We're looking at all kinds of bridging options to maybe get that fleet out faster. But we still need that capacity for some of the international (routes)," Brewer told a transportation conference in New York.

"There are a lot of moving pieces, but we're looking at anything that can help us manage capacity better and get the greatest amount of cost down."

Air Canada's 274-seat A330s entered the fleet in 1999. It has eight of them. The carrier has already said it will park four older Boeing 767-200s while it rejuvenates its fleet.

The airline last month said it may receive its first 787 in 2012 instead of 2010, complicating its fleet planning. It will push for compensation for the delay from Boeing.

On Tuesday, Air Canada blamed unprecedented fuel prices for its decision to cut 7 percent of its overall capacity this autumn and winter, a move that will mean 2,000 job cuts.

Brewer said Air Canada's fuel costs will be C$1 billion ($980 million) higher this year than in 2007.

The biggest capacity cuts will be on Canada-US routes. That market is also being affected by the weak US economy.

Some of the reduction there is due to Air Canada's shift on many routes to smaller, more fuel-efficient Embraer 190 jets, he said.

The carrier's saving grace compared with US competitors has been the relative strength of Canadian domestic market, where it is targeting just a 2 percent cut in capacity.

The chief executive of its main rival, WestJet Airlines, said at the same conference his carrier could step into markets that may be served less by Air Canada as well as US airlines that are also reducing capacity, boosting its market share.

WestJet has said it will not to waver from its targeted 16 percent capacity increase this year, despite fuel prices.

"You heard today of our competitor taking out some capacity, potentially out of the transborder market," WestJet CEO Sean Durfy said. "That's going to leave some opportunity for us as well."

Air Canada's cuts -- which it warned could be deeper if fuel stays at current prices -- are needed to protect its financial health, Raymond James analyst Ben Cherniavsky said.

"Reduced capacity plans from the competition on domestic and transborder routes will leave the door open for the low cost carrier to continue its fleet expansion plans and -- more importantly -- maintain pricing power in the market," he wrote in a research note.

Air Canada's shares were unchanged at CAD$9.13 on the Toronto Stock Exchange. WestJet shares slipped 10 Canadian cents to CAD$14.60.

(Reuters)