Air Canada discount carrier Rouge to launch in July

Air Canada is launching a new discount carrier, Rouge, that will begin flying July 1, with a focus on holiday destinations in Europe and the Caribbean.

The first Rouge flights this summer will feature two Boeing 767s and two Airbus A319s borrowed from Air Canada's main fleet.

Eventually, Rouge will expand to 50 planes as Air Canada begins to take delivery of its new Boeing 787 Dreamliners in 2014.

At a news conference in Toronto on Tuesday, the airline said "special introductory fares" are now available to Venice, Edinburgh, Athens, Cuba, the Dominican Republic, Jamaica and Costa Rica.

For example, Rouge is offering flights from Toronto to Venice, Edinburgh and Athens starting at $949 round trip, including all taxes, fees and surcharges, as long as flights are booked before Dec. 25. Venice and Edinburgh are destinations that Air Canada currently doesn't serve.

Most of Rouge's first flights will depart from Toronto. But the airline says it plans to add more Canadian gateways and more international destinations later in 2013. Flights to Asia are also a possibility.

"The creation of this carrier is to assist us in serving many destinations that our existing model does not work on a competitive basis," said Ben Smith, Air Canada's chief commercial officer.

Lower cost structure means lower wages

A lower cost structure was critical to the launch of Rouge. The new carrier will pay its crews lower wages and benefits than its mainline counterpart — helped by an arbitration settlement in July that went against the pilots' union.

Rouge will also try to keep costs low by squeezing up to 20 per cent more seats into its planes. "The configuration on both the 767 and the A319 will be more dense than what we have at mainline Air Canada," Smith said.

Air Canada says it needs a low-cost carrier to hold on to market share in a field crowded with other vacation-oriented carriers such as Transat, Sunwing and WestJet Airlines.

WestJet is launching its discount regional carrier, WestJet Encore, in the second half of 2013. It will focus on smaller markets. 

Air Canada says its new airline will create 200 new jobs for flight attendants and pilots. That's on top of 900 new employees the mainline carrier plans to add as part of its 2012-13 recruitment program.

This isn't Air Canada's first venture into discount territory. It launched Tango and Zip as low-cost carriers in 2001 and 2002, respectively. But both were shelved by 2004.