Air Transat, the travel company's airline, will add Boeing B737 narrow-body jets to its fleet, currently comprised of Airbus A310 and A330 wide-body aircraft, the company said Thursday.
Transat (TSX:TRZ.B) said five leased narrow-body aircraft will be added to the fleet on a permanent basis, while six others secured possibly from foreign airlines will be used on a seasonal basis in winter when travel from Canada to sun destinations is high.
Air Transat's wide-body fleet, which operates on the transatlantic market on an annual basis, will continue to serve certain sun destinations as well.
The vacation company said that by 2015 the number of wide-body aircraft will be reduced to 16 from 21 aircraft with third-party carriers contracted if required during the high season.
Since 2003, it has contracted other companies to provide planes for many of its southern routes, with the most recent being Nova Scotia-based CanJet. Their contract comes to an end in April 30, 2014 but Transat expects to maintain its business relationship with CanJet.
Last year, Transat, Air Canada, WestJet and the Air Line Pilots Association, which represents Air Transat pilots, complained to the federal government about rival Sunwing's extensive use of foreign pilots at substantially lower costs. They said resorting to foreign planes should be an exception but have become an important feature of Sunwing's business model.
Transat spokeswoman Debbie Cabana says the company will make efforts to continue to employ Canadian pilots but conceded that relying on a few foreign pilots is a possibility.
"Canadian fleets should always comprise a substantial majority of Canadian pilots and crews so with our internationalization if necessary we will use a minority of foreign pilots but they will be hired through existing government programs," she said.
Transat said it can improve its profitability by gaining flexibility through an accordion fleet model that can be adjusted according to market demand.
Air Transat recently won concessions from pilots, flight attendants and others that are expected to sharply trim operating costs.
For example, Air Transat's more than 1,700 flight attendants agreed to some $9-million in non-wage concessions to help it meet increasing competition in the holiday travel industry. A key element will see the number of attendants on A330 airliners reduced to 10 from 11.
Transat said Thursday that internalization of medium-haul operations, including the impact of the employee agreements, should generate savings of some $8 million in 2013, $15 million in 2014 and $30 million a year in 2015 and beyond.
Those are important for the airline as the Montreal-based carrier faces increasing competition, including from Air Canada's (TSX:AC.B) newly formed low-cost carrier Rouge.
“A return to profitability remains our primary goal, and operating costs, particularly air costs, are an essential factor in profitability for any tour operator," stated CEO Jean-Marc Eustache.
He said operating its own flights will increase control over its aviation operations, implement a more competitive cost structure and have Air Transat cabin crews on all flights.
The addition of narrow-body aircraft won't increase Air Transat employment because of the number of larger planes that will be removed from the fleet.
But the company said operating the narrow body planes will allow the company to stabilize jobs by reducing seasonal layoffs.
Benoit Poirier of Desjardins Capital Markets said the news "demonstrates the company’s effective execution of its cost-cutting initiatives."
He said the savings from the new fleet — which the company expects will reach $18 million, in addition to $12 million from union concessions in 2015 — could add 53 cents per share in earnings. He estimates the impact will be 14 cents per share in 2013 and 27 cents per share in 2014.
On the Toronto Stock Exchange, Transat's shares gained 18 cents, or 3.8 per cent, at $4.88 in Thursday afternoon trading.
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