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Air Canada is girding for increased competition.

Aaron Harris/Bloomberg

Air Canada is hoping to cut $50-million across the company in the current second quarter, as the airline battens down the hatches ahead of a storm of new competition.

In a memo to senior management obtained by The Globe and Mail, chief executive officer Calin Rovinescu outlined measures to be taken immediately, including a hiring freeze, stopping the use of consultants and further efforts to trim costs with suppliers.

"While we have made good progress on controlling costs, the ground beneath us is shifting almost daily and the goalposts are moving with it," Mr. Rovinescu said in the memo.

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He noted that "the revenue environment has been and is expected to remain extremely challenging. We are facing intensifying competition competition and significant capacity additions" in key markets.

Exceptions will be made only for new hires and consultants who are considered "mission critical," and the freeze does not apply to hiring new employees for the launch of Air Canada's new discount carrier, Rouge.

Air Canada's cost-cutting moves come as the Canadian airline industry girds for heightened competition – and possible price wars – with the launch this summer of Rouge, and WestJet Airlines Ltd.'s new regional subsidiary, WestJet Encore.

In addition, the bid by Porter Airlines to get approval to fly longer jet routes from Toronto's Billy Bishop Toronto City Airport could intensify the pace of competition.

Air Canada executives approved the $50-million cost-cutting target this week, which represents less that 2.5 per cent of the the airline's non-fuel costs for the quarter. The goal is to turn a profit in 2013, continuing the airline's relatively strong performance in 2012.

"Last year's profit was an important achievement for all of us and it cannot be a 'one-off' nor can we allow Air Canada to relapse into a money-losing spiral," Mr. Rovinescu wrote in the memo.

Many airlines are scrambling to reduce costs, including WestJet, which is looking to shave $100-million in expenses over three years. Many carriers have instituted major company-wide cost overhauls, such as Air Transat's recent layoffs and restructuring.

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At Air Canada, each department is required to contribute cost-cutting targets, the memo said. "We are well within the quarter so we need to act fast," the company's CEO noted.

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About the Author

Guy Dixon is a feature writer for The Globe and Mail. More


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