Speaking at last week’s RBC Capital Markets 2009 Passport Transportation Conference in Toronto, Jazz CEO Joe Randell said the airline was focusing on large turboprops for its fleet renewal plans as he explained to analysts what sets his airline apart. While not getting into specifics, Randell responded to a question that the ATR 72, still very much under consideration, he said, would be more difficult and added the only other option would be the Bombardier Q400.

“There is no question that, ultimately, fuel prices will rise again,” he said. “Last year we found the CRJs were vulnerable to high fuel prides and the flexibility of being able to offer turboprops came into play. Turboprops have a great acceptance in Canada, even on on 600-mile segments, as well as from an economics perspective.”

He also reported that the company needed to diversify and outlined the details of its amended Capacity Purchase Agreement with Air Canada. “Business diversification is paramount and we are building cash,” he told analysts. “On July 28 we made an adjustment to cash distribution, reducing it to by 40 cents to 60 cents per unit annually effective this month. This was in not a light decision, but was done in the interest of being prudent and doing what is necessary to maintain our strength. Cash distributions were amended to reflect the amended CPA, term extension of contract and to improve liquidity at this time. Still, at the current price, it represents an attractive yield; one of the highest of all income trusts.”

After the brinksmanship surrounding the a potential Air Canada failure earlier this year, all stakeholders, including Jazz were asked to contribute to an solution for the airline. To that end, Jazz and Air Canada renegotiated the CPA dropping block hours but extending the agreement out until 2020.

“After consideration, we were faced with three options – do nothing, let Air Canada file, or work on a sustainable solution,” Randell told analysts, adding the first two were untenable. “With no action block hours would have been reduced. If it filed, we would have been faced with a repudiated CPA, parked aircraft and layoffs at a time when we are in collective bargaining. We want a healthy Air Canada and were at significant risk the CPA would have been repudiated which would put us in jeopardy. It is interesting to note that Air Canada announced its new financing immediately after we amended the CPA.”

The amended CPA, he said, results in a strengthened relationships with its major carrier partner while maintaining the strength of Jazz since it offers both stability and growth. It reduces block hours to 375,000, down from the current 390,000 it expects to bill this year.

“This provides predictability without the need for disruption in the workforce or the costs,” he said. “It makes us more competitive within the North American industry and incentivizes Air Canada to use us more and not, perhaps, our competitors. We are still an integral part of the Air Canada strategy with three roles – serving markets that do not have the demand to warrant big jets, on high-density routes at off-peak times and point-to-point to increase passenger convenience. This is successful in longer-haul routes such as Calgary-Montreal and Toronto-Houston where the CRJ 705 is preferred since it offers more leg room that the A319 or A320.”

Randell explained that Jazz and its environment were unlike that experienced by its counterparts in the U.S., noting the “turmoil south of the border” in which regionals face growing uncertainty with the major partners who are facing severe cash crunches.

“The majors drove a high demand for aircraft,” he said. “Now there is an oversupply of regional aircraft and a lot of duplication of services,” he said, noting there is also the threat of consolidation which would mean further shrinking demand for regional aircraft increasing pressure on U.S. regionals. “Routes and hubs are being redefined by majors who are now using their own mainline aircraft. Although Air Canada is under financial pressure, it it’s not the case we are facing consolidation.

“Jazz is not your typical airline,” he continued in a statement that will no doubt be the envy of every regional in the U.S. “We are the only provider on many routes so even when demand is down there remains a healthy demand for smaller regional aircraft. We are the largest regional and the second largest airline in Canada and we cover more domestic destinations than any other carrier. We are 10 times larger than the next largest regional putting us at a considerable advantage. We are the only operator of 50-seat jets which are good in the routes we serve which don’t have population densities offering strong enough for larger jets. We are the only airline service all 10 provinces and two territories and the only regional in Canada flying regional jets as well as Dash 8s. There is an increasing demand for our CRJs for the Toronto-New York and Calgary-Chicago markets where we can maintain flight frequencies to match demand. Despite the drop in the price of fuel, Air Canada still benefits from the economy of our aircraft. Given current state of economic uncertainty we are cautiously optimistic we will be successful.”

Despite all that, the company, said Randell, continues to work on contingency plans especially focusing on diversification which he termed paramount to the company’s long-term success. He noted the 262% growth in its charter operations, which reached C$7 million in revenues last year and which is expanding to use the CRJs as well.

“Future charter bookings are strong and while there was a slight decline in the oil patch, there are signs it is coming back,” he said. “We also want to pursue wet-leasing contracts with other airlines and we are always looking for new strategic operations to expand services both inside and outside North America. Partnership could involve provision of support and participation in the business or simply consulting services.”

Randell reported it has already provided consulting services which have included ownership stake in South America. It has also provided consulting to entities around the world on the development of regional airline services. Jazz remains open to more strategic investments abroad. He also noted that now that it is no longer owned by Air Canada, it is no longer restricted on aircraft size for aircraft used outside the CPA.

In response to a question, Randell said the company is open to all options including entering the cargo market or helicopter operations. “The focus will be within the aviation industry,” he added, noting it capitalize on the company’s inherent expertise.