Air Canada union shuns discount carrier proposal

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Air Canada 's plan to launch a low-cost carrier next year has hit a roadblock after the union representing flight attendants turned its back on the proposal.

Negotiators for the Canadian Union of Public Employees withdrew their support for the discount leisure airline after hundreds of flight attendants expressed concern about Air Canada's push for lower wages for new hires.

CUPE members are scheduled to start voting late next week on a revised tentative collective agreement, which has omitted a three-page letter of understanding that offered reduced wages for new flight attendants at the low-cost carrier. The letter formed part of the previous tentative pact that was overwhelmingly rejected by CUPE members in August.

Earlier this month, union leaders returned to the bargaining table and reached a new agreement with management on Tuesday, just hours before 6,800 flight attendants were slated to go on strike.

Many flight attendants argue that a budget division is a bad idea, warning that a low-cost carrier would gradually siphon routes away from Air Canada's mainline operations and threaten the job security of current staff.

Rick Erickson, an aviation consultant who heads Calgary-based RP Erickson & Associates, said the new pact may yield labour peace, but it will come at a painful cost if Air Canada isn't able to find another way to launch a budget airline. Rivals such as Transat A.T. Inc., Sunwing Travel Group, Sunquest Vacations and WestJet Airlines Ltd. have been chipping away at Air Canada.

Air Canada has experimented with discount carriers in the past, notably the Zip Air Inc. fleet in 2002-2004. Mr. Erickson noted that Zip employed unionized pilots who transferred from Air Canada and hired new flight attendants, who were initially non-union but soon joined CUPE. "The Zip model is one of the options for Air Canada."

He said Air Canada's growth prospects will be severely restricted without a low-cost division, which would have 30 Airbus A319s and 20 Boeing 767s by 2015.

Canada's largest airline will be able to build on its strengths in lucrative international business traffic when Boeing 787 Dreamliners begin arriving in late 2013, but "fundamentally, Air Canada also has to go with the low-cost carrier option. There's a desire by most Canadian travellers for the lowest possible fare," he said. "Not all markets can be high yield. Air Canada might even have to downsize unless the company finds a mechanism to start the low-cost operation."

Longer term, WestJet is expected to seriously consider acquiring long-haul planes for under-served markets, and that is another competitive threat to Air Canada because WestJet's costs are 30 per cent lower, Mr. Erickson said.

CUPE negotiators are recommending that flight attendants accept the latest tentative agreement. Highlights include a pension plan that blends defined benefit and defined contribution for new hires, a wage hike of 9.3 per cent compounded over four years and improved work rules for "duty days" to boost payable hours during stopovers.

Certain shifts last 13 hours, which currently pay out 6.5 hours of wages, but that will rise to nine hours of wages, effective Oct. 1, 2012, according to the tentative agreement.