The Airways Project is a new mini-series tailored to the new writers who have joined the team in recent times. Our first piece comes from Aaron Davis, based in Canada!
Ask the average person to name one Canadian airline, they’ll likely give you Air Canada, and if they travel enough, they could probably give you WestJet as well.
And unfortunately, for many people outside of North America and parts of Europe, that’s all there is.
Over the last two years, Air Canada has been in talks to buy low-cost travel airline Air Transat; which would leave Sunwing and, in this case, Air Canada’s subsidiaries to largely dominate “no-frills” vacation travel in the Canadian market.
Critics point out that if the sale goes through, it will prove to be yet another flaw in the Canadian aviation industry, removing another competitor in an already sparse market.
It wouldn’t be the first time this happened either; back when Air Canada was a Crown Corporation, licensed as Trans-Canada-Air-Lines (TCA), the federal government put limits on destinations which other airlines like Canadian Pacific (CP Air) could fly.
The restrictions eventually drove them out of business in 1987 and allowed TCA to remain as the dominant force in the market.
In 1988, Air Canada went public and entered a competitive rivalry against Canadian Airlines before eventually buying them out in 1999.
Brief History of the Canadian Market
By the end of the millennia, a new player had entered the industry and was gaining traction fast in the shadow of Canadian Airlines’ demise.
WestJet was founded in 1996 as a low-cost carrier choosing to exclusively fly the Boeing 737.
Through governmental restructuring in the industry after Canadian’s fall, WestJet was able to gain customer support through campaigning as “Canada’s Friendly Airline”.
By 2004, they added flights to the U.S. and expanded into Mexico, the Caribbean, and eventually Europe in 2013 and are currently the ninth-largest airline in North America by passengers carried.
As WestJet’s success and Air Canada’s dominance took hold over the industry, many airlines rose and fell in the shadows.
Air Canada’s first subsidiary, Air Canada Tango, was launched in November 2001 to compete with low-cost charter airline Canada 3000 who filed for bankruptcy just 7 days after Tango’s launch.
Though, comparable to United’s ‘Ted’, Tango didn’t last long, just 4 years. Just after Tango started, Air Canada launched ‘Zip’ another low-cost subsidiary but designed to compete with the “fun attitude” WestJet brought to the table; yet, Zip barely lasted 2 years.
So, Air Canada’s subsidiaries proved to be unsuccessful through the 2000s, but it wasn’t just bad planning by an overly ambitious flag carrier.
Other carriers like Zoom Airlines, another no-frills airline founded in 2002, flew to destinations in the southern United States and the Caribbean faced bankruptcy in 2008 when oil prices skyrocketed, and jet fuel became too expensive.
A New Decade
After 2010, Air Canada tried again, this time with Air Canada Rouge. Rouge was different, it was designed as a low-cost vacation airline with some of the same perks as the mainline.
Costs were kept low since Air Canada could send their aging Boeing 767 and A319 fleet to Rouge, and great success came as they rivalled charter airline Sunwing in the Caribbean and Air Transat in Europe.
But this airline is carefully funded by Air Canada so it can stay in a relatively strong position financially. Though, in the last few years, two airlines have emerged to serve a domestic Ultra-Low-Cost network.
In 2017, WestJet launched ultra-low-cost carrier (ULCC) Swoop which would serve destinations all over Canada using a lot of secondary airports to keep costs as low as possible.
In the same year, oil charter Flair Airlines announced they would expand destinations and open up sales to passengers to compete.
These airlines both gained traction with younger travellers as it was a cost-effective way to get to post-secondary institutions all over the country.
However, there are barriers that limit the potential success for ULCCs in Canada.
Aviation expert, Cristopher Whitty, a lecturer at Western University and First Officer at WestJet says the major barriers for ULCCs in Canada are the sheer size of the country, huge taxes, and fees on tickets and the lack of viable secondary airports.
The Troubles for ULCCs
Since Canada is so large, with major cities separated by up to thousands of kilometers, costs for fuel and labour are driven up as pilots and flight attendants are paid for increased flight time and more fuel is required for each flight.
From Toronto, Flair Airlines flies to Vancouver, Calgary, Edmonton, Winnipeg, Ottawa, St. John’s and Halifax. On average, these flights are 3h15min each crossing 1,246mi (2005km).
A flight between Toronto and Vancouver, one of the core routes in Canada requires about 34,564lbs of JET A, costing nearly $13,000 CAD.
If fuel is said to make up 18% of airline’s costs per flight and labour makes up 32%, the labour costs would break down to a little over $23,000 on this flight.
This cost breakdown simply doesn’t make sense for long flights when airlines are trying to keep ticket prices low for passengers.
If 180 seats can be sold on one of Flair’s Boeing 737-800, the ticket price based on only fuel and labor would be $200. Then, adding in landing, parking, and other airline fees the price of the ticket drifts farther away from “low cost”.
Further, the Canadian government charges large amounts in taxes and fees for airlines, which boils its way down into the ticket price.
Total governmental revenue from these taxes exceeds $1.5-billion per year according to The Globe And Mail. Porter Airlines provides a breakdown of fees which are included in ticket prices.
Passengers can pay up to $35CAD in airport improvement fees at certain airports in Canada as well as up to $12.71 in security charges and any combination of three sales taxes depending on what provinces the flight is operating between.
When flying to the U.S., Canadian citizens pay a flat rate of $18.30US.
These fees as opposed to the United States who charges 7.5% of the base fare on tickets, the fees for security are much lower only reaching up to $3.30US, and airport improvement charges only get up to $4.50 per departure according to SmarterTravel.com.
Lastly, Canada doesn’t have the infrastructure yet to support ULCCs since there aren’t enough secondary airports. Ryanair is an example of an airline who capitalizes on the use of secondary airports.
As they grew in the 1980s, their base at Stansted airport went into limbo as the airport threatened a rise in landing fees.
According to AviationWeek.com Ryanair, operating a huge number of flights from the airport threatened to pack up and leave the airport if the fees went up.
The airline prevailed and continues to operate flights out of Stansted and numerous other “secondary airports” around Europe.
Unfortunately, airlines in Canada don’t have this luxury. Major population hubs usually have one or two airports large enough to handle regular passenger service, these secondary airports are also usually far from the city center and inaccessible by public transportation systems.
In Toronto, Pearson Airport is the only airport capable of handling jet traffic, with Hamilton acting as a cargo hub with sparse passenger service.
For years the federal government has pondered building an airport in Pickering, a small city just east of Toronto; though it faces harsh criticism from residents and environmental activists alike who argue that the jet noise and construction will disrupt the well being of the local ecosystem.
However, if the airport was to be built, the possibilities for ULCCs in Canada to thrive would increase drastically.
Financial Constraints Hit ULCCs Hard
The universal reason most airlines are forced to fold is undoubtedly due to financial constraints, whether it be high fuel costs, high airport fees or high prices for aircraft leases the saying: “If you want to become a millionaire, start with a billion dollars and found an airline” could never be more true for ULCCs in Canada.
As airlines are hit particularly hard by COVID-19, ULCCs are taking extra blows with lack of liquidity available.
“We’re in this minus 95 percent mode right now,” Swoop president Charles Duncan told CP24 in an interview.
“It doesn’t get much worse than this.”
But Swoop has been struggling for longer, in May 2019, CTV did a story on WestJet’s financial position stating that Swoop was being dragged along as demand remained low.
The Canadian airline industry has not yet proved that it’s ready for ULCCs, but travellers and industry workers alike would certainly benefit from the growth and expansion which ULCCs bring to the table.