Congratulations to Air Canada, which today launched operations of its new leisure airline, rouge.
Time was when it was quite the mode to launch a leisure version of your mainline carrier. The main criteria seemed to be to give it a jaunty name – remember Delta’s Song, United’s Ted (short for Uni-ted, get it?) and Air Canada’s own Tango and Zip. The other common factor was that none survived as each carrier discovered that stripping costs out of your so-called low-cost operation is not easy.
Hopefully, rouge will fare better. As Air Canada president and CEO Calin Rovinescu said, the trick will be to pack in the seats – he says 30% more seats will be added versus their standard product.
And there is a huge focus now on lowering seat costs, partly through more efficient, fuel-economic aircraft, but also by simply cramming in more seats for what Airbus’ John Leahy calls “a very comfortable 29 inch pitch”.
Of course, the king of seat-cramming is Irish low-cost carrier Ryanair; an airline that truly walks the talk when it comes to low-cost operations. CEO Michael O’Leary gets his aircraft at the right price and with the right number of seats to keep his airline highly profitable. Ancillary revenues, including seat reservation fees, that account for more that 20% of income, also help.
At the Paris Air Show in June, O’Leary quipped that he would like to get rid of the cockpit so that he could get in more revenue-earning seats. O’Leary is infamous for his wisecracks and opinions on just about anything, but for a man who swore he’d never attend an air show, he certainly seemed to enjoy his first one. He held court at the Boeing media chalet – there to finalize a deal for 175 Boeing 737-800s and to make heavy hints that an order for MAXs will come – and relished the limelight. Norwegian Air Shuttle, he said, had double the seat mile costs of Ryanair and was “only low cost in Norway”.
But to get back to low-cost leisure carriers and the difference between doing it right – that is, profitably – and becoming a cute name in the history books. There’s no question that O’Leary does it right; as does Spirit Airlines’ Ben Baldanza, Southwest Airlines’ Gary Kelly and – not so well known, Allegiant Air’s Maurice Gallagher. Allegiant, for the record, is a Las Vegas-based leisure operation that has secured 40 consecutive profitable quarters with great margins.
These are all carriers that began operations as leisure-focused and with their fundamental principle being low costs. It’s hard to do that with an operation that evolves from a legacy carrier, if for no other reason than inherited labor costs and older fleets. Rouge will use Airbus A319s and Boeing 767-300ERs. The 767 is a good aircraft, but not necessarily a “low cost” choice. And Air Canada has its own financial challenges to overcome, although rouge is part of its strategy for a turnaround and rouge bookings are said to be strong. Canada has a good leisure market for the type of destinations selected for rouge, including Cuba, Jamaica, Costa Rica, Dominican Republic, Orlando, Las Vegas and Edinburgh.
The trick will be to get those seat mile costs down – and then pack ‘em in.