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Analysis: Air Canada Announces Massive European Expansion; Lufthansa to launch Frankfurt – Montreal

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Analysis: Air Canada Announces Massive European Expansion; Lufthansa to launch Frankfurt – Montreal

Analysis: Air Canada Announces Massive European Expansion; Lufthansa to launch Frankfurt – Montreal
October 08
11:40 2013

MIAMI — Canadian flag carrier Air Canada has announced a massive European expansion for the Summer of 2014, with the addition of several new routes and service increases on many others for both its mainline and rouge (low cost) divisions. The growth is being powered by the delivery of eight new widebody aircraft; three Boeing 787-8 Dreamliners, and five Boeing 777-300ERs. The highlights of the expansion are as shown below:

  • New 5x weekly nonstop mainline service between Toronto and Milan Malpensa, to commence June 18, 2014, onboard the Boeing 767-300ER
  • Current 3x weekly nonstop mainline service between Toronto and Istanbul increased to daily from June 2014, subject to government approval. The route is served with the 767-300ER.
  • Toronto – Rome and Montreal – Brussels are being up-gauged from the 767-300ER to the Airbus A330-300 for the summer season
  • Montreal – London Heathrow up-gauged from the A330-300 to the new Boeing 777-300ERs featuring a premium economy cabin and a whopping 458 seats (36J / 24Y+ / 398Y) thanks to the 10-abreast economy class cabin.
  • Montreal – Geneva is being up-gauged from the 767-300ER to the A330-300 year-round
  • Lufthansa to launch summer seasonal 5x weekly Frankfurt – Montreal
  • Calgary – London Heathrow and Calgary – Frankfurt are being up-gauged to a standard 349-seat (42J / 307Y) Boeing 777-300ER from the Airbus A330-300 for the summer season
  • Vancouver – London Heathrow will be up-gauged to the new 458 seat 777-300ERs
  • Air Canada rouge will launch summer seasonal 3x weekly Toronto-Lisbon with the 767-300ER from June 21, 2014
  • rouge will launch summer seasonal 5x weekly Toronto – Manchester with the 767-300ER from June 26, 2014
  • rouge will launch summer seasonal 3x weekly Montreal – Nice with the 767-300ER from June 5, 2014
  • rouge will launch summer seasonal 2x weekly Montreal – Barcelona with the 767-300ER from June 4, 2014
  • Summer Seasonal Toronto – Athens increases from 4x weekly to 5x weekly
  • Summer Seasonal Toronto – Edinburgh increases from 3x weekly to 5x weekly
  • 5x weekly summer seasonal Toronto-Barcelona, as well as year round Toronto – Dublin and Montreal – Rome are being converted from mainline to rouge.

The flight schedules for the new routes are as follow. Lufthansa has not yet loaded schedules for its new Frankfurt – Montreal flights:

Flight Route Depart Arrive Frequency
AC 1916* YYZ – LIS 2235 1055+1 136
AC 1917* LIS – YYZ 1225 1535 247
AC 1930* YYZ – MAN 2205 0955+1 12357
AC 1931* MAN – YYZ 1125 1410 12356
AC 1910* YUL-NCE 2100 1035+1 247
AC 1911* NCE-YUL 1205 1425 135
AC 1914* YUL-BCN 1825 0805+1 35
AC 1915* BCN-YUL 1200 1455 46
AC 842 YYZ – MXP 2020 1040+1 13567
AC 843 MXP -YYZ 1210 1530 12467

There’s a lot that makes sense here from Air Canada. After finally returning to profitability in 2012, indeed Air Canada has had a solid year both strategically and financially, highlighted respectively by the successful launch of rouge and the major (40%+) recovery in its share price.

The implementation of the 777-300ER in Montreal and Vancouver does a good job of catering to the summer demand, which is high-volume, but lower yield. At the same time, Calgary might not be able to provide quite as much volume as those two larger, and more affluent cities, but it does have a major business traffic component thanks to the oil sands industry, which explains the allocation of the aircraft with extra premium cabin capacity to Calgary – Europe.

As for the new route launches, Lisbon, Milan, Nice, and Manchester are all technically new destinations for Air Canada, though they have been served in the past. All are sensible route choices, as are the destinations converted to rouge, which are low-yielding and leisure-heavy.

On the subject of rouge, while it’s still early, I think it might be time to begin thinking of the operation as a success story. The results and commentary from Air Canada about rouge are eerily parallel to some of the comments made by Qantas about Jetstar early in that experiment, which turned out to be (thus far) the only sustainable long haul, low cost operation worldwide. The important thing for Air Canada here is that the combination of rouge and its participation in the trans-Atlantic joint venture give it a powerful ability to maximize profits on trans-Atlantic passengers. Since many of the new rouge destinations are low yield, high volume, Air Canada can capture that segment of the market while at the same time still capturing premium cabin traffic by connecting business class passengers to these destinations via joint venture partners like Lufthansa. Still, Air Canada is moving in aggressively on a market traditionally controlled by charter operators like Air Transat; it will be interesting to see how they respond to the encroachment.

Another interesting note is the up-gauge of Toronto – Istanbul to daily. This is very significant because Star Alliance (and code share) partner Turkish Airlines recently won the right to serve Canada with up to nine weekly frequencies. Origin and destination demand on Canada – Turkey is very much concentrated in Montreal, so this likely portends further cooperation between the two.

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