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Canada air fare

ware may escalate

TORONTO: The latest air fare war between Canada's two major airlines, Air Canada and Canadian Airlines Corp., may escalate and add more red ink to the carriers' bottom lines, analysts said on Friday.

As travellers scramble to take advantage of special weekend fares and discounts on new routes, both airlines say more announcements are planned.

"I'm watching to see how far it spreads. If this thing starts to spread into the fourth quarter then it becomes a little more deleterious to the airlines," said Robert Fay, an analyst with Toronto-based BZW Canada Ltd.

Another airline observer said the new price promotions are not in themselves a concern.

"The risk is whether it leads to destructive competition," on analyst said.

Calgary-based Canadian Airlines fired the first salvo earlier this week when it launched promotional weekend fares with savings of up to 80 percent.

The weekend getaway programme is similar to one offered by American Airlines, a unit of Dallas-based AMR Corp. which owns 33 percent of Canadian.

Montreal-based Air Canada, the country's biggest airline, quickly matched the fares and also unveiled a major expansion in service from western Canada, the backyard of Canadian Airlines.

"While our U.S.-controlled domestic competitor is relying on highly-restrictive weekend fares, Air Canada is putting its money where its mouth is by offering more flights to more destinations ... with dramatically low introductory fares," the airline said in a statement.

Canadian dismissed the move, vowing it will remain the region's dominant carrier.

The consensus among analysts is that new routes take between six to 12 months to become profitable. But Air Canada spokeswoman Kym Robertson said it may be sooner.

"That's a rule of thumb, but in fact in a couple of new routes -- New Delhi (India), Seoul (South Korea) and Osaka (Japan) -- we were profitable in the first two or three months," she said.

The dogfight comes as both airlines are expecting substantially weaker 1995 results after a poor first half performance.

Earlier this month, Air Canada posted a six-month loss of C$111 million ($81 million) and expects to end the year with a slight profit. It had forecast a C$99 million ($73 million) profit for 1995.

Meanwhile, Canadian is forecasting a C$35.4 million ($26 million) loss for 1995 after a C$122 million ($90 million) loss in the first six months of the year. The airline had expected a C$51 million ($37.5 million) profit for year.-Reuter