Price wars coming to Canada’s airlines

Canada has so far been a difficult place for budget airlines to thrive, but that appears to be changing, thanks mainly to the effects of the COVID-19 pandemic.

The Canadian market, long defined by two dominant incumbents and consumer reluctance to embrace the ultra-low-cost model, is now poised to enter a period of price wars and suppressed fares as the pandemic upends the aviation sector.

“The pandemic has clearly changed the game for everyone,” Stephen Jones, CEO of discount carrier Flair Airlines, said. “The emergence of ultra-low-cost carriers and competition can only be good for consumers. It’s driving efficiency into what was a relatively inefficient industry and lowering prices, I think permanently.”

While the pandemic saw billions of dollars in revenue go up in smoke over the past 20 months, it also burned down barriers to entry for upstarts.

Plummeting demand for aircraft meant carriers could access them more quickly and cheaply. A pilot shortage that had plagued the industry is no longer as severe. And greater availability of airport slots has given companies leverage when striking deals with airport authorities.

“All the competitors are relatively stretched — their balance sheets are stressed, their fleets are contracting. And so the conditions for expansion for a ULCC [ultralow cost carrier]are fantastic right now,” Jones said.

ULCCs, which offer bare-bones discount fares and charge extra for services such as checked bags and cancellations, have expanded their global market share, largely outside of Canada,to more than 37 per cent from about one-quarter a few years earlier, according to Jones..

Several carriers have been beefing up over the past six monthsin preparation for a clash with Air Canada and WestJet — and with each other — particularly for domestic flights and to sun destinations.

Flair was down to one aircraft in April. It now has a dozen planes, with four more coming next year as the Edmonton-based airline adds routes from Victoria to St. John’s.

Lynx (formerly Enerjet) announced this week it will launch commercial routes next year with three new Boeing 737 Max airliners, part of an eventual fleet of up to 46 within seven years.

Meanwhile, WestJet budget subsidiary Swoop continues to expand, unveiling nine new routes out of Edmonton this week.

“Canadians are finally embracing the ULCC model,” said Robert Kokonis, president of consulting firm AirTrav Inc. “You’d go to chat boards online and people were grumbling about having to pay extra to check in a bag or even to pay money for a carry-on bag. But Canadians are starting to realize that, hey, if I can pay a really rock-bottom airfare, I’ve got money left over to spend at the destination.”

The pandemic has clearly changed the game for everyone.

STEPHEN JONES CEO OF FLAIR AIRLINES