"Everywhere we are witnessing the rise of low-cost carriers with the unquestioned ability to capture market share from legacy airlines," Air Canada chief executive Calin Rovinescu said Monday in a speech to shareholders.
"We need to participate in this segment of the market in one manner or another."
Rovinescu revealed few details about what form the low-cost carrier will take.
"We're looking at all of the models that have been done elsewhere in the world,"Rovinescu later told reporters.
"We haven't at this stage settled on one model verses another. We know there are three or four successful models out there."
He said Air Canada is sensitive to the views of our pilots and wants to make sure that whatever timeframe it takes with the low-cost carrier is consistent with the discussions the arbitration process set up by the federal government.
The pilots are one of two major labour groups at Air Canada without a collective agreement. The other union is the International Association of Machinists and Aerospace Workers, which represents repair and ramp crews.
Both disputes will be resolved by a mediator ordered by the federal government, which brought in back-to-work legislation after Air Canada locked out the pilots and the Machinists announced they would go on strike.
Air Canada has tried the discount route before with its launch of the now-defunct Zip Airlines. But Rovinescu said Zip failed because it had a limited number of planes in an attempt to battle WestJet.
Rovinescu said he is optimistic about resolving the labour uncertainty with the pilots and mechanics, who are also headed for arbitration after they announced plans to go on strike.
He said it's necessary to have labour agreements to allow the carrier to move forward and the uncertainty has hurt the share price of Air Canada stock.
"The share price right now is a result of the overhang from our labour issues over the last year or year and a half, as well as the size of the pension deficit so as we look to stabilize those two issues my expectations will be that the stock price starts recovering," Rovinescu added.
The Air Canada shareholder meeting coincides with WestJet's beginning flights to LaGuardia airport in New York after the discount carrier won the lucrative slots in an auction. WestJet had previously serviced the New York area from Newark, NJ and John F. Kennedy.
Rovinescu said Air Canada is ready for the challenge.
"What we've done on New York is we've decided to increase our frequency to all three airports. We're offering service now, not only to LaGuardia but we came back into JFK and we're still offering Newark," he said.
"We're very aware of the fact that they're going to have a very good product on that route and we're going to be ready for the competition."
Shareholders overwhelmingly approved a new policy on executive compensation while Air Canada pilots held an information picked outside the downtown hotel.
The largely symbolic resolution passed with 91.85 per cent approval.
The main opposition came from Air Canada Pilots Association president Paul Strachan.
He argued giving double-digit compensation increases to top executives while extolling austerity to employees is hypocritical.
"It's a credibility issue isn't it? It's very difficult to preach austerity and belt tightening to employees while you're walking away with money falling out of your pockets," Strachan said.
"It would be a mistake for any party to believe that this forced arbitration process brings closure to the issues that we have. It doesn't," he added.
Long-time Air Canada employee and shareholder Jeremy Rabbitte was also questioning high pay for executives at a time when stock shares have been tumbling.
"What you have is a situation at Air Canada where executives are richly rewarding themselves with really excessive pay bonuses. Meanwhile employees are asked to tighten their belts and suck it up with their pension. It's not right. Employees are concerned," Rabbitte said.
Pay for Air Canada's CEO fell 12 per cent last year but payouts of the airline's other four highest-pad top executives soared even though continued losses drove the airline's share price down more than 70 per cent.
The board had approved the so-called "say on pay" policy in April.
The shareholders vote isn't binding on Air Canada's directors but the company says its board will take it into account when establishing executive compensation.
Rovinescu earned $4 million in 2011, down from $4.55 million a year earlier, but higher than the $2.6 million during his first nine months on the job in 2009, according to a proxy circular.
Chief financial officer Michael Rousseau, chief operating officer Duncan Dee, chief commercial officer Benjamin Smith and senior vice-president of operations David Legge each saw their compensation rise by 18 per cent to nearly 47 per cent.
Base salaries remained mostly steady but each executive saw large gains in share and options-based awards while non-equity incentives fell.
Rousseau's compensation grew to $1.68 million, Dee's was $1.62 million, Smith made $1.37 million and Legge's was up to $1.15 million.
Rovinescu's compensation doesn't include the $5 million retention bonus awarded in March, which will show up on next year's compensation. However, 280,000 options granted to him over the past two years were cancelled at his request.
The Montreal-based airline lost $249 million or 92 cents per share last year despite a 7.7 per cent increase in revenues to $11.6 billion.