Air Canada says it's ready to respond to WestJet's ultra-low-cost airline

Air Canada executives say the country's biggest airline is better positioned than it has been in more than a decade to respond to WestJet's plan for a new low-cost service.

"We actually have many more tools at our disposal, which gives us a much better feeling and confidence that we are well-positioned to respond to whatever gets put in front of us," says Ben Smith, Air Canada's president of passenger airlines.

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The Montreal-based company has tested the use of its Rouge subsidiary on some domestic routes and could deploy its planes, as appropriate, to compete with a new WestJet basic service that is set to launch next year.

In addition, premium seats could be removed from its Rouge and Air Canada planes to match the number of economy seats that WestJet's venture will have.

Air Canada also has more flexibility because of the industry's move to charge lower fares but higher fees for checked bags, reserved seats and other things.

WestJet has estimated ultra-low-cost airlines could grow to account for five per cent of the Canadian market. However, Air Canada says the country faces impediments such as higher costs, including taxes, airport fees and security charges, that are different from the United States and Europe.

Chief executive Calin Rovinescu says Air Canada will have no problem with WestJet's plans to expand its main service on international routes by adding at least 10 Boeing 787 Dreamliners beginning in 2019.

"The addition of incremental competition is something that at this stage is not troubling to us," Rovinescu told analysts Friday on the company's first-quarter conference call

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Meanwhile, Air Canada expects the federal government's planned passenger bill of rights will respond appropriately to negative public relations that has surfaced from forced evictions from U.S. aircraft because of overbooking flights.

"All in all, we expect to have a reasonable and measured dynamic which should not materially impact our operations," he added.

Air Canada swung to a $37-million loss in the first quarter as higher fuel prices contributed to increased operating costs.

The loss was equal to 14 cents per share and contrasted with a $101 million profit in last year's first quarter, when crude oil prices were near 13-year lows.

Excluding one-time items, its adjusted loss was $87 million or 32 cents per share, much better than the 61 cents per share loss forecast by analysts polled by Thomson Reuters.

Revenue were up $299 million from last year to $3.64 billion, but its operating expenses were up by $507 million.

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The airline said fuel prices were about 48 per cent higher than in the first quarter of 2016, adding $244 million in costs. In addition, Air Canada recorded a $30 million provision related to a fine imposed in March on several cargo carriers.

The European Commission alleges the 11 airlines colluded to fix cargo prices between 1999 and 2006. Air Canada says it followed the law and will fight the allegations.

On the Toronto Stock Exchange, Air Canada's shares gained almost nine per cent on Friday,rising $1.15 to close at$13.94.