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David Tyerman, an analyst at Canaccord Genuity who recommends investors buy Air Canada stock, said 2014 will go far in determining the long-term success of Rouge.

Jury’s Out

“The jury is very much out on Rouge,” Tyerman said by telephone from Toronto. “We don’t really know how well it’s going to work out.”

Air Canada still has a ways to go to improve its cost picture. Seat mile costs at the Montreal-based company amounted to 16.9 cents in the fourth quarter of 2013, exceeding the 13 cent average of 12 North American carriers tracked by Bloomberg. That’s partly due to higher landing fees and other costs related to operating in Canada. The airline also pockets more revenue per domestic mile than the other North American carriers, according to data compiled by Bloomberg.

“They’ve got lots of levers to pull on the cost side,” said Bob Decker, a fund manager with Aurion Capital Management Inc. who helps manage about $6 billion and owns Air Canada stock. “Those denser planes are the nature of air travel nowadays. Airlines are going to have to do more with less.”

Packing More

Air Canada’s strategy of packing in more passengers also extends to its mainline, where it now flies new Boeing 777s on routes such as Vancouver-Hong Kong and Montreal-Paris. Air Canada’s 777s are built to carry 458 passengers, 109 more than standard models.

“That is huge, because you are basically getting 100 seats for free,” Rovinescu said.

After Air Canada deployed a 777 to the Montreal-Paris route last year, “it went from being from one of our poor international routes to being one of our best,” Rovinescu said March 10 at a JPMorgan Chase & Co. conference in New York.

Aurion’s Decker recently flew on one of the Air Canada high-density 777s between Vancouver and Toronto, and said the journey proved to be “a lot more pleasant experience than you’d think. I was surprised at how comfortable it was. I’ve been in far worse planes than that.”

Bloomberg.com