MONTREAL - Air Canada (TSX:AC.A) vowed Wednesday to be more up front about ticket prices as the country's largest carrier prepares to weather consumer backlash over the rapidly escalating cost of air travel.

"The severity of it will impact customer demand," president and CEO Montie Brewer told reporters following Air Canada's annual meeting in Montreal.

"We'll see how much the customer can absorb and still plan on travelling."

Brewer indicated the dramatic jump in oil prices has hammered Air Canada's operating costs and hinted consumers can expect to pick up at least part of the tab.

Oil prices jumped past $130 a barrel on Wednesday - only the latest high-water mark in a months-long run on crude that has forced Canadian carriers to slap travellers with fuel surcharges.

"As time goes on, I think we're going to be in a world where there are two prices, the base price of the travel plus the price of the fuel," Brewer said.

He added that competition was preventing the company from offering an "all-inclusive" ticket price.

Air Canada came under fire earlier this month for the way it discreetly tacked on a fuel surcharge to its tickets prices.

While rival WestJet (TSX:WJA) took out newspaper advertisements to inform its clients of a similar new charge, Air Canada buried the surtax on its website.

Brewer said fuel surcharges will now be included in new advertisements for the airline.

"We'd like to find a way to make that more transparent," Brewer said.

He blamed the unpredictability of oil prices, rather than the cost of fuel itself, for causing havoc with airline pricing.

"To have that volatility is not really fair for me, it's not really fair to the customer because I have to figure out some way to cover for that volatility," Brewer said.

"We'd rather have it go straight to our customer and let them see transparently what the cost of fuel is that day."

Airline industry observers point out that greater transparency is important from a marketing sense, helping correct suspicions about price gauging.

"What (consumers) must understand is that fuel costs are a disproportion amount of travel costs in the airline business," said Paul Dempsey, an expert in airline management at McGill University.

With North American airlines nervous that pricey tickets will weaken demand, some have begun to aggressively cut costs.

American Airlines announced Wednesday that along with imposing a surcharge for checked baggage, it was laying off workers to cope fuel costs that have jumped nearly $3 billion since the beginning of the year.

Its most drastic measure though was to cut domestic flight capacity by 11 per cent in the fourth quarter.

Air Canada refused to comment on its own capacity plans, but McGill's Dempsey said it's hard to imagine the airline not following American's lead.

"The fact that Air Canada carries such a disproportionate amount of cross-border traffic and the U.S. economy appears to be slowing - that will dampen consumer demand," he said.

"I think we'll see a cascading announcement pattern of all major North American airlines (cutting capacity) if fuel remains as outrageously high as it is."

Brewer expressed confidence that new additions to the company's fleet - Air Canada expects 18 Boeing 777s by 2009 - will keep fuel consumption down.

He said fuel currently accounts for more than 30 per cent of the airline's costs, almost twice the amount for payroll.

But despite the grim outlook for the industry, Brewer remained optimistic before the company's shareholders.

"We made or exceeded virtually all of the 2007 targets we had set for ourselves, both operationally and financially," he said.

Air Canada had a record operating income of $433 million in 2007, up from $236 million (excluding special charges) a year earlier.

The carrier's class A shares were down 57 cents, or 6.6 per cent, to $8.09 Wednesday on the Toronto Stock Exchange.

LIKE IT?  LET OTHERS KNOW

Thanks for participating!

2 people recommended this article

See what other people are recommending - Popular Stories

FIRST RECOMMENDED BY

Change your Name/Photo display

suavem1
2 months ago

jimmyjon02
2 months ago