Good for revenue, costs and customers
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28 JUL 2008: Air Canada announced Thursday it has signed an agreement in principle with US carrier Continental Airlines that will provide customers a broader network of destinations, frequent flyer benefits and lounge access. AC already has an agreement with Star Alliance partner United Airlines, whose routes don't overlap Continental's. Continental will also join the alliance after exiting its current partnership with Sky Team.
‘The best network in North America’
``You put the three networks together and it's probably the best in North America so it gives our customer base the best network that you can get in North America, by far,'' Ben Smith, Air Canada's chief commercial officer, said in an interview.
Under the new partnership, Canadian travellers will have access to more destinations in the eastern United States, through Continental's hubs in Newark and Cleveland. Enhanced access to the southern United States, Mexico and Central America will be directed through its Houston hub.
Air Canada, which has announced plans to cut its capacity by 7% and lay off up to 2,000 of its 28,000 employees, said the deal isn't designed to allow it to cut the number of direct flights to the United States.
``Our intention is through the partnership to expand our presence and expand our revenue base. That is the experience with most of our partners,'' Smith said.
Canadians heading to the US, particularly business travellers stopping in New York, will be able to then proceed to other destinations using the advantages of the Star Alliance network, including the collection and redemption of frequent flyer miles.
Continental provides 3,1000 flights a day to more than 280 US and international destinations.
More revenue and cost efficiencies
Air Canada expects more revenue and cost efficiencies through a code-sharing arrangement by attracting US customers that fly Continental and gaining improved access to the lucrative New York market.
Air Canada flies primarily into New York's La Guardia airport. It has two daily flights into JFK and recently introduced service to Newark from Calgary.
The airline will be able to piggy-back off the buying and sales power of the New York City area's largest carrier, Smith added.
``For me to get the attention of the American market now I've got to spend a fortune. If I partner with somebody who is already big there I don't have to spend that much.''
The benefits also apply to Continental's other hubs. Air Canada has no plans to boost its three daily flights between the oil centres of Calgary and Houston, although the size of planes may
increase, Smith said.
Could take a year
It may take up to a year before consumers realize the full benefits of this partnership. Continental can't terminate its contract with Sky Team until nine months after the closing of the
proposed merger between Delta and Northwest.
While the partnership with Continental is not predicated on the airline joining the Star Alliance, Smith said it's too soon to determine if consumers will benefit before that happens.
``I would speculate that there are some minor things that we will do before they join Star.''
Add Lufthansa
Air Canada has also signed a framework agreement with Continental, United Airlines and Lufthansa to create a transatlantic joint venture to provide service to Africa, India, Europe and the Middle East.
It will replace a decade-old bilateral deal with the German carrier.
``The four of us want to work together as a team and we think that together we can really capture a larger share of the market,'' Smith said.
Tom Varesh of Canaccord Adams said the real benefit of the deal is predicated on attracting passenger traffic than on cost savings.
``It's filling the planes and getting a cut of the ticket price that you normally wouldn't have,'' he said.
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