While Air Canada hasn’t made an official announcement as of yet, they did tell their unions that they intend to start a discount airline.  The plans are expected to result in reduced fairs to select destinations in the United States, Mexico, the Caribbean and popular European destinations.

Air Canada suffered significant losses during 2008 and ’09.  They’ve had increased rate pressure from discount carriers Transat AT and Sunwing.  Air Canada is expected to allocate 10 planes to the discount carrier, and the Globe and Mail has reported that conversations have been held with the pilots’ union seeking a new wage scale for the discount carrier.

Neither the airline nor the union have commented on the report.

Chris Murray of PI Financial Corp. stated that a new competitor in the discount market will, at least temporarily, inflict more pressure on the industry to reduce fares.  He contends a rival will eventually be driven out of business, lessening pressure to provide low fares.

Murray goes on to suggest that a prime case study for the operations can be found in Jetstar, an Australian discount carrier that is a wholly owned subsidiary of Qantas.