Value-based, low cost and a whole lot more

Air Canada rouge

BOB MOWAT

If you want to understand what Air Canada rouge is all about – including how it has changed in the six years since its launch – it would be well worth the time to corner the carrier’s president, Duncan Bureau, and have a chat.

Off the top, Bureau will tell you that Air Canada rouge launched in 2013 and carried 300,000 passengers in its first year of operation; last year (2018), it welcomed 8.1 million travellers on board its flights. It began its operations with 10 aircraft and by the end of 2018, it had a fleet of 53 aircraft.

“Since inception,” Bureau told Canadian Travel Press, “we’ve carried 29.9 million passengers and our route network has grown significantly, and we’re now operating in 100 different markets and the number of net new destinations that the Air Canada Group of Companies has benefited from is 41.”

Yet beyond the numbers, Bureau says that: “When you look at all of the destinations that we’re now operating on a non-stop basis with the Air Canada rouge brand, it has really created an opportunity for consumers to go to places on a direct flight. They’re no longer connecting over Europe to get to Bucharest or Budapest or some of these other second, and third-tier type markets.”

“Those are the kinds of markets we can serve with the Air Canada rouge brand and we do it on a seasonal basis and we do it very, very successfully. We move capacity in and out of Europe, and in and out of the South into the Caribbean, into South America – our variable fleet strategy has worked extremely well for us.”

As for the fleet itself, Bureau said Air Canada rouge currently operates 28 narrow-body aircraft (both A319s and A321s) and is introducing A320s in the summer of 2019.
“What that does,” he explained, “is it introduces a new fleet type for us that we really like from its capacity capability and its payload capability and the overall economics. We’re very excited about adding that into our fleet type.”

What’s the plan for 2019?
In 2019, Bureau told CTP that growth for Air Canada rouge “is going to primarily come from additional frequency.”

As examples, he pointed to increased frequency into Romania and Athens, explaining, “we’re going to increase frequency into a number of markets and try to get to as close to daily service as we can into a lot of our network.”

He continued: “There are a lot of reasons for that, not only from an operations perspective, but also commercially. Being able to have daily service starts to appeal to not only the leisure traveller, but also the business traveller. And, quite frankly, that will allow us to compete more effectively on the transatlantic and gain overall market share and see an improvement in yield.”

Some of those services could also become year-round operations, Bureau confirmed, but added: “I don’t have any [routes] specifically that we’re looking at committing to today to go year-round, but there certainly are some markets where we could extend the season – start it a little bit earlier and end it a little bit later. There are lots of different markets that are very attractive.”

Seat share and Sixth Freedom
In the US, Air Canada rouge has seen significant growth in a number of key markets, with Bureau telling CTP: “We’ve grown significantly in Florida. If you look at our seat share in Florida, we’re around 67% seat share out of Canada into Florida. We’ve grown significantly into Las Vegas. We’ve grown significantly into California. Those are markets
that do extremely well for us. The other area where we’ve grown significantly – and that has been accretive for mainline – is our Sixth Freedom traffic.”

He explained: “When we started the airline it was a smaller percentage of the overall Sixth Freedom traffic. Now, we’re above 15% of the Sixth Freedom traffic being carried on AC rouge on one of the segments of the entire itinerary – that’s very meaningful.”

“Obviously, generating US point-of-sale, point-of-origin traffic is important,” he continued. “It helps us create a natural hedge with currency. It allows us to pay our US bills with US currency rather than buying US currency in the open market. So, there are a number of reasons why that’s incredibly important to us.”

Ready to compete
As for competition, Bureau will tell you that there’s no lack of it and no lack of people who want to spend money on buying and flying airplanes around the world.

“This idea that Canada only has two or three airlines is really nonsense. The fact is we have a significant competitive set in the Canadian marketplace,” he said.

“There are great brands in Canada that have great product, and so, we are not a monopoly airline and Canada is not a duopoly market. The fact is we’re competing with American carriers; we’re competing with South American carriers; Asian carriers; all kinds of European carriers; and we’re competing with high-density carriers into leisure markets.”

And that, Bureau said, is “why AC rouge was so important [because] it allowed us to compete with these carriers. Whether those are Canadian flagged or internationally flagged carriers operating high-density aircraft, low-cost operations; offering capacity and offering inventory at significantly lower cost, we had to be able to address that and Air Canada rouge has allowed us to do that.”

Bureau again pointed to Florida as a perfect example, explaining: “Air Canada mainline struggled to operate into a lot of those markets very profitably. Air Canada rouge, on the other hand, has a much better value proposition, much better cost structure and, quite frankly, the LOPA (Lay Out of Passenger Accommodation) configuration allows us to be competitive and allows us to compete with the WestJets of the world and the Swoops of the world and the Flares and any other high-density carrier.”

Perception and reality
There is a perception of Air Canada rouge that Bureau makes clear isn’t the reality, observing: “We launched AC rouge very quickly. We certainly took some educated risks in terms of what that product would look like and what the service offering would be.”

He told CTP: “We followed the philosophy of fail early and the reality is we did make some mistakes, but what we did was we learned [from those mistakes] and we reacted to them very quickly.”

As a result, he said: “The product today is nowhere near what the product was five years ago. If you look at even our fleet and network size as an example, we have 28 narrow bodies and we have 25 wide bodies and we have access to the Air Canada network – which is a really big differentiator. If you think of other low-cost carriers, they don’t have the ability or the luxury of having a parent like we do, in Air Canada.”

In terms of the benefits of having Air Canada as its parent, Bureau points to irregular operations (or IROPS) where if Air Canada rouge has a situation in one of its destinations, “we have the ability to recover very quickly because we have access to a significant fleet. That’s certainly one of the things that you’re buying when you buy a seat on Air Canada rouge versus other international carriers – our ability to recover and our ability to get you on your way quickly.”

As well, he added passengers are “buying the benefit of Aeroplan; the benefit of the Air Canada infrastructure; access to lounges we have around the world – those are all things that come as part of the [Air Canada rouge] value proposition.”

Connectivity is clearly a differentiator for Air Canada rouge. Bureau said: “We think it’s incredibly important that we take advantage of the very broad network that the Air Canada Group of Companies has by allowing seamless connectivity, so your bags connect and you connect. You don’t have to pick up your bag and then go back upstairs and check in again – you just connect onto Air Canada mainline’s network or onto Air Canada rouge’s network – which we think is a competitive advantage.”

Let’s be clear
On the other hand, Bureau makes it abundantly clear that Air Canada rouge is not Air Canada mainline.

“We are not a four-star, international airline. That is not the product that you’re buying when you’re buying Air Canada rouge. The fact is you’re buying a very good, value-based product that we think is competitive with the Sunwings of the world; the Transats of the world; the WestJets; the Swoops; the Flairs – that is our competitive set. We’re not competing against Emirates. We’re not competing against Air Canada. We’re not competing against British Airways with that product – that’s not who our competitor is.”

He told CTP that “when consumers think of our product, they really need to think about us in that value arena and compare us against the Sunwings and the Transats and the WestJets; and, quite frankly, when you do that, we have a significantly better product than any of those carriers.”

Unfortunately, Bureau said: “The reality is that if you ask Canadians today about Air Canada rouge – or even ask a travel agent – there’s still a lack of understanding of what the product is and what the product has evolved to.”

He continued: “What I would say to our travel agency partners is I want you to try out the product. I want you to get on-board the product and really understand the product you’re selling. I don’t need order takers, I need someone who clearly understands the product. Who makes an effort to understand the product that they’re selling and sells the product as it is and communicates with their customer that this is what Air Canada rouge is versus Air Canada mainline.”

Bureau also wants agents to explain the attributes of AC rouge versus WestJet; versus Sunwing; versus Transat, commenting: “I need someone who is going to educate our customer; communicate to our customer what the [Air Canada rouge] product is so that the customer, and the expectation that customer has before they ever get to the airport, are aligned.”

As for agency training, Bureau said that Air Canada University offers modules on the carrier’s product, and he said that “we are consistently talking about what Air Canada rouge is in the marketplace and trying to educate our travel trade and distribution partners [on] what the product is, and we need them to take that learning and pass it on to the consumer, so expectation and product are matched.”

There are also “lots of opportunities for travel industry professionals to get on board the product – whether it is through fams; whether it’s through discounted rates for travel agencies; whether it’s through contesting – there are lots and lots of opportunities for our partners to get on board the aircraft,” Bureau said.

All about the customer
For Air Canada rouge – in fact, for all of the Air Canada Group Companies – 2019 is the year of the customer.

“One of the things that we have a consistent fail on, and a significant brand damage on, is our lack of communication to the customer. The issue with that is when you look at the customer information that we have, when that booking is generated via the GDS through one of our distribution partners, 80% of those PNRs don’t have customer contact information on them.”

As a result, Bureau explained, when you have the kind of weather that travellers across Canada have been experiencing this winter, “we can’t get hold of customers, and so then, we [have to] rely on social media and we [have to] rely on airport information bulletins.”

“What we need, and what our partners need to do is provide us with the contact information for the customer. I don’t want that customer driving to the airport in a snowstorm, literally risking life and vehicle, to get to a flight that never had a chance of taking off. This is such an important piece for the travel industry to get their arms around.”

Bureau is clearly aware of the reluctance of travel agencies to share information with airlines, however, he said “this historical notion that we would use that information to market directly to their customer is nonsense. We’re not interested in marketing to their customer. The fact of the matter is, we’re the ones that are going to take the brand damage by not communicating to that customer.”

“At the end of the day,” Bureau told CTP, “our goal is to work with our travel agency partners, make sure we have the information we need, so that we can collectively make it a better travel experience for our collective customer.”