When I was at the Boyd conference in Vegas a couple weeks ago, I had the chance to sit down with several airline execs. You already heard from Virgin America CEO David Cush on his grand plan to expand regulation. Now let’s move north of the border with Air Canada’s President of Passenger Airlines Ben Smith.
Ben was the man behind the launch of Tango back at the dawn of the millennium, and I was eager to talk about that. But first, we dove into the airline’s decision to put some super-dense 777s into service under the Air Canada brand.
Cranky: Let’s start with the densification of the widebody fleet. The new 777s are rolling out with, what, 300,000 seats on board?
Ben: *laughs* We’re not as dense at the Air France Caribbean/Indian Ocean aircraft.
Cranky: Fair, but it’s an interesting strategy so I’m curious how you arrived at that number of seats, which is close to 450?
Ben: In Canada we have a market phenomenon which does not exist in the US. We have a large presence by a charter-type carrier, Air Transat, in a big way in some of the biggest international markets out of Canada. I would say that’s not the main reason why we densified the 777s but it was one of the main reasons. We did not have a cost structure to effectively compete against this carrier. There were a number of ways we went to resolve this. One was through Rouge and another was through having a high capacity aircraft that could not only have a premium cabin but also a very competitive seat cost in economy.
Air France had a similar issue to the Caribbean. When they started deploying that to Montreal we said, “ugh, what are we going to do here?” They have this beast with 472 seats flying. If Air France, which does very well in the Canadian market, can do it, we can try it out. We have the same issues in the Pacific against Cathay Pacific between Vancouver and Hong Kong which is a big leisure market. Neither were the sole reason we did the high density [configuration] but the airplane has proven to be extremely effective across the Atlantic. We’ve come to the realization we pushed the premium cabin a bit too far so we’re going to put the 787 product on the airplane and bring capacity down from 458 to 450.
Cranky: Well forget it now, that’s not densified anymore.
Ben: *laughs* But we’re gonna have a uniform product offering across all 777s and 787s. Both have premium business class seats, premium economy, and economy. We’ll be the only North American carrier to have a true premium economy cabin internationally. Not just pitch but also width. That’s been very successful. And the business class seat is great.
The 777 high density is an amazing amazing airplane for us as an airline. It’s one of the most powerful weapons we’ve had. It’s a huge barrier of entry to anyone. When we put the new business class seat in there, you’ve got the best premium cabin in North America, true premium economy, and you have a seat mile cost in economy with a product which is basically the same as Emirates, same as any of the US legacy or European carriers with a great inflight entertainment system. What more could you ask for? And it has the unit costs so why wouldn’t we use this airplane?
Cranky: How big is this going to be in the end?
Ben: At the end state, it’s going to be a very small portion of our fleet.
Cranky: For now
Ben: No, no. As you’re seeing with many airlines around the world, the real estate on the airplane, you have to get it right. Every carrier is trying to find the right balance. I think we’re a little ahead of most of the western carriers. Our go-forward cabin offering is 4 seat types, standard economy, what we call preferred seat, premium economy, then business class.
Cranky: Does Rouge fit into that as well? Will you have the same product?
Ben: Yeah. The Rouge difference is we won’t have the real business class.
Cranky: Can you talk a little bit about how you decided to go with a true premium economy cabin?
Ben: For us, when you look at our four biggest international competitors — Cathay Pacific, British Airways, Air France, and Air Transat — all 4 of them have such a product. It was a competitive issue.
Cranky: Now you have WestJet maybe gonna be number 5.
Ben: Yeah, but we’ve been expecting that.
Cranky: You’ve already stepped up the competition in London with Gatwick service. Did you think that was necessary?
Ben: We’ve served Gatwick in the past so it’s not a first for us. The London market is the biggest air market in the world. We do serve multiple airports in many cities, so it’s not crazy for us to serve a second airport there. It will be on a limited basis though.
Cranky: Let’s talk narrowbodies. Rouge… well, first, you started Tango right?
Ben: Tango was, from an Air Canada perspective, we were really happy with it. At the time most of the legacy carriers were full service. In Canada you had full meals, a bar on board. The only way to do it was to have these crazy gouge Y fares and then low fares with Saturday night stay and 14 day advance purchase. Tango offered a lower-risk way of introducing buy on board, one way fares, internet only fares, all the things airlines were scared to do at the time. It worked really well for us. We ran a closed network and had a much lower risk of tarnishing the mainline brand. But because we weren’t interlining with mainline, we had to make a decision. Do we interline or how do we handle this? The decision was made to introduce branded fares, and we morphed Tango from a separate operation into our base branded fare across all North America.
Cranky: Instead of launching Tango as a separate airline, do you think looking back you could have launched it as part of a branded fare in the first place?
Ben: No I think it was necessary. The industry and the margins were so tight. In Canada at the time, I don’t think we would have risked the business. Right now, if you asked if we’d do it again, I’d say definitely.
Cranky: So then we fast forward to Rouge, obviously not a closed network. Why the decision to go with Rouge as a separate airline instead of cramming more in the back and cutting seat pitch and doing more densification with mainline as you’ve done with the 777s?
Ben: I think because in Canada we’ve got so much capacity and competition from Air Transat and Sunwing, just doing density was not going to be enough. We needed a b-scale from flight attendants and pilots, and we needed more flexibility. That was only doable with a separate [operating certificate]. On top of that, if we were going to have a product that was comparable to the others, we needed different branding as well.
Cranky: Of course now you have people connecting between the two, not getting what they expected. And that led to product changes, so can you talk about what you learned early on?
Ben: Of the 60 plus routes we’ve started with Rouge, I’d say 55 of them have been successful for us on most fronts. We had some big challenges on Western Canada-California customer expectations and we now have a ten year pilot contract, no strike no lock out on very good terms. With that it eased some of the restrictions they had imposed on us which allowed us to put the premium seats in. That along with customer feedback has allowed us to address a lot of the product issues.
Cranky: Interesting, so it was the pilots?
Ben: One of the reasons.
Cranky: Is the premium cabin the only place you see issues with Rouge today?
Ben: That was one of the bigger issues but not the only issue.
Cranky: So what do you want to see change going forward? Is it at a place you’re happy with it?
Ben: I mean, look, we’re always evolving in our business but it’s far exceeding my expectations. First of all on bottom line financial performance, it helps support our main go-forward strategies. And people don’t like change and people like a good deal. Flying mainline against these charter carriers, we weren’t making any money. If you make the comparison of Rouge to Air Transat and Sunwing, we win. If you make the comparison between Rouge and mainline, you can understand why people might be upset. But once people understand what the comparison is, our customers usually come around.
Cranky: Is there more growth for Rouge?
Ben: It’s capped at 50 airplanes. We’ll be there by summer 2017.
[Cranky Note: Air Canada announced a big expansion with flights to Prague, Casablanca, Budapest, Glasgow, and Warsaw after this interview.]
Cranky: When the 737MAXs come in, is it going to look like the same product as people see today?
Ben: I think it’s a bit early for us. We’re watching closely New York to California, 5 airlines with an international product. It’s unbelievable.
Cranky: Well you have Toronto to the West Coast with an international product.
Ben: Well we don’t have a dedicated fleet. We haven’t got this A321 with a 3-class configuration, but I would think the bulk of those airplanes would be very similar to what thy’re replacing. Whether we go one step further and do something one step up for long haul transcon, I don’t know.
Cranky: Are you looking to put these airplanes on longer routes that you can’t do today?
Ben: For sure you’re going to see us deploy that airplane in places where the Airbus narrowbody doesn’t go.
Cranky: Some creative stuff over time?
Ben: Sure, North and South America, Hawai’i, Europe, transcon. I mean, it’s a great airplane.
If you missed my earlier discussion with Virgin America CEO David Cush, you can read that here.
Informative interview. Honest, straightforward answers.
As always, great stuff.
Ben brings up a good point. 5 carriers with an int’l product in NYC-California is a lot. Brett, do you think we could get to a point where there is TOO much high-end capacity there – kind of like a high-end blood-bath – where it turns into more of a competitive necessity vs a cash cow?
Dave – Oh sure, there’s probably already some of that going on as they all jockey for position. But it’s such a lucrative and important market that it just has to be done.
Interesting how in Canada there isn’t the big 3 but the big 1 and AC is it, so to find it trying to compete evenly with Air Transat must show how much business they must be losing in the international market.
Cranky—thanks for the direct questions in the interview. Unfortunately, Ben’s being a bit facile here. It’s worth skimming the threads on FlyerTalk; most fliers do *not* find the business class on the 777HD top-notch; it’s dense and far worse than the rest of the AC business. I’ve heard that they’ll be retrofitting those; we’ll see. Meanwhile, it’s also incorrect to say the 777HD is like the Air France product. That one has virtually no business, so while they do have more seats, those seats have more pitch.
As for LAX/SFO-JFK, airlines get higher revenue on that route than pretty much any other domestic route. JetBlue in fact put international business on there because they knew they were losing business to the other carriers. Delta has announced they’re going to put more 763s on the JFK-SFO route. Clearly, there’s demand. Second, there are not in fact 5 carriers with “international business,” there are four. Virgin’s is very much a domestic recliner business, and they only have 8 business seats in each plane anyway.
BigDaddyJ – Mike is right. Ben said the initial biz product wasn’t good so they’re refitting it with a good one now. That they admitted was a mistake.
As for the AC vs AF 777 high density, that is true. AF has a much smaller premium cabin and the coach seats have I believe an extra inch of legroom vs the AC ones.
I used to fly Air Canada between Las Vegas and Canada. My first flight on Air Canada Rouge caused me to switch to WestJet. While I had a seat with extra leg room on the Rouge flight, they made me check my carryon that every other airline I fly lets me carry on board.
@BigDaddyJ – I think what Ben was saying was that the business seat on the 777HD *wasn’t* working to meet customer expectations, so they are retrofitting the business cabin with the 787 J seat, which is top notch and does get good reviews on FT. That much is public. Also the AF 777 is practically the same in the back as the AC 777HD.
Of course, there is nothing about what torture chambers these products are. The high density is a 777 with 10 seats across the aisle, which is inhumane IMO. The Rouge A319 has a pitch of 29″. That’s beyond inhumane IMO. Why anyone would willingly pay to be tortured by an airline is beyond me.
The “torture chambers” are consumer driven. Unfortunately people are voting with their wallets. I doubt legacy carriers ever really wanted to pack more people into planes. They’d rather just charge higher fares. But people are saying they prefer to pay less. What you’re not going to get is AC full service at Air Transat prices.
The trend in airlines is directly reflecting what people are willing to pay for. They are investing more and more in premium cabins to attract the flyers that will pay more and packing and stacking the discount flyers in the back. It’s hard to blame the airline when they are just trying to hit the price point the market is demanding.
Is Air Transat competing with AC on, say, SFO-YVR that they had to put Rouge on that route?
Maybe they just wanted to make United look like the more comfortable option.
Very informative, loved it.
OK. I get it. Put more seats in. Get more revenue. Remain competitive. For the once a year traveler, you can pretty much tolerate anything if you save a few $$$ and spend it on lodging or meals at your final destination. But the biz traveler, who flys a 100k a year, do you want to sit closer to a stranger than you would your husband or wife?
Somehow the airline industry left the frequent flyer behind. Who pays the bulk of the revenue? Yes, the biz traveler, who doesn’t book a trip 4 months or more in advance.
The more I pay for a seat I expect at least a little more room. You want me to keep flying your airline? Make me comfortable, safe and treat me like a human being. Bottom line: I could care less about miles. Give me the option of having a seat with a little more room so I can avoid the armrest slugfest with my seatmate.
I’m getting bitter. The upcoming CVG/LAX/SYD/MEL lurks on a tired DL 777 to SYD.
At least the 777 has 18.5″ wide seats. It could be the new AA torture chamber 777 which has that extra seat in each row of Y instead.
The AC 777HD is 10-across, and with a tighter pitch than AA. It’s probably the worst in the world.
AC: 10 across, 31″ pitch (36J / 34Y+ / 398Y)
AF: 10 across, 32″ pitch (14J / 32Y+ / 422Y)
AA: 10 across, 31-32″ pitch (45J / 45J / 170Y), but a -200
To be honest the only person jealous of AC’s 777HDs is Michael O’Leary
Had pleasant experiences flying AC Economy across the Pacific. Not so pleasant: Still waiting over six months for a reply from their Revenue Management area about getting funds returned because of illness. They have no passenger-responsive social media so turning to Twitter is useless.
Maybe they should fix their website first.
We booked what we thought was a flight from San Francisco to Regina and back, well it was what we wanted only in reverse. My wife noticed that the flights were reversed when we were call to let our relatives know about our vacation. 40 minutes later, and at more than double the cost Air Canada was able to fix our flights.
At 6’4″ ‘steerage is not for me, even on a 3-4 hour flight.
And Cranky; AC didn’t announce any new routes, all of them are Rouge. Please don’t confuse the two different airlines, as it’s like comparing AA with NK.
Rouge may have the same parent company, and they may have outsourced the pilots (and only the pilots) to AC; but AC Rouge is so cheap that the flight attendants have to pay for their own customer service training (at Disney)
Interesting how the interviewee doesn’t see any of the American airlines as one of their “four biggest international competitors”. Four biggest competitors, not four best. I would think that the US is Air Canada’s top international destination or am I wrong?
LOL. “Product which is the same as Emirates…” You know he’s smoking something. Emirates has the same width. But Emirates compensates for that with increased seat pitch. Emirates also has better catering and IFE.
Want to see an awesome economy product? The new TK Y on its 777s. Sad that they are getting rid of Y+. But their Y is at least tolerable.
The thing that really gets me about AC though is why they really bothered with Rouge when the new international economy on their densified 777s and 787s is essentially the same as Rouge give or take an inch. Maybe it was all about the pilots…..