Will Canada’s sky-high fares ever fall down?
Three airline companies are aiming to bring in an ultra-low-cost model
Travel nearly anywhere in the world, and you’ll find cheap airlines offering no-frills service, from European giant Ryanair Holdings to Peach Aviation in Japan, flynas in Saudi Arabia and Spirit Airlines in the U.S.
But head north of the border, and the aviation landscape is untouched by ultra-low-cost airlines.
Canada ranks among the world’s most expensive countries to fly, thanks in part to high airport and security fees and limited competition, and service is meagre in many small- and medium-sized cities.
More than 60 per cent of Canada’s 36 million people live within 160 kilometres of the border, and many head south to fly. About 5 million cross the border each year for cheaper flights. Some cheaper fares may be en route. Three companies are working to bring the ultra-low-cost model to Canada. Currently, air travel is dominated by Air Canada and WestJet Airlines Ltd.
But higher operating costs make it hard for new airlines to survive, and the dominant airlines are sure to respond to upstarts offering lower fares.
WestJet, for example, has already begun new non-stop service on two routes flown by the first of these newcomers.
Canada is one of just two nations in the Group of 20 largest economies without any ultra-low-cost carriers, or ULCCs.
The other, Argentina, may see one next year as Irelandia Aviation — the Dublin-based investment firm that has established ULCCs like Ryanair in Europe and Allegiant Travel Co. in the U.S. — aims to expand its low-cost airline group Grupo Viva Aerobus there.
Canada also charges higher security fees than most other nations — up to $25 per passenger — and its 26 largest airports must make annual payments to their municipalities in lieu of local taxes.
A 2015 report to the transport minister, reviewing the transportation system, found air travel in Canada “marked by weak accountability constraints on fees and charges; high costs for users and operators; aggressive capital expenditure programs at airports; modest traffic volumes; and limited competition.”
It recommended the government reform airport ownership structure and offer the aviation sector more federal financial aid, as the U.S. does. “There is no room for complacency,” it added.
Canadians are eager for the expanded service and lower fares that ULCCs could provide, said Jim Young, chief executive of NewLeaf Travel Co., a “virtual” airline in its sixth week of operations, with three Boeing 737s flying to secondary airports in 11 cities nationwide.
NewLeaf, based in Winnipeg, itself has no air certificates or airplanes. It sells tickets on an established carrier, Flair Airlines — a “wet lease” arrangement that lets NewLeaf escape many of the costly aspects of being an airline. Flair staffs and maintains the fleet and sells capacity to NewLeaf.
Canadians “understand the business model — they understand the fees, they understand that you pay for what you consume,” Young said in a telephone interview.
Canada is among the most expensive places for air travel — 70th out of 75 nations, in terms of the average cost to fly 100 kilometres, at $38.71, according to data released last week by the online travel agency Kiwi.com. (Only Japan, the Netherlands, Qatar, Finland and the United Arab Emirates had more expensive fares, according to Kiwi; the U.S. was 17th, with India the cheapest place to fly.)
High airport fees limit the traffic-stimulating effect that lower fares can have for low-cost airlines elsewhere, but flying to smaller, cheaper airports increases the odds of success, said NewLeaf’s chairman Ben Baldanza, calling the company the “the only ULCC option that I have seen in Canada that makes sense to me.”
Baldanza, who was previously chief executive at Spirit, is also a “small investor” in the Canadian startup and serves on the board of Icelandbased low-cost carrier WOW Air.
NewLeaf avoids Canada’s primary, higher-cost airports like Toronto Pearson and Vancouver International, just as Allegiant Travel Co. does larger U.S. airports.
Secondary airport fees are generally far lower than those at major airports, which is why a low-cost airline such as NewLeaf looks to towns like Hamilton over Toronto, or Abbotsford, B.C., instead of Vancouver, Baldanza said.
Price is the prime selling point in the ULCC model: Fares begin under $40, and in many cases, well under $40.
In China, for example, Spring Airlines sells tickets for as little as 99 yuan ($14.82). The U.S. has three such carriers — Spirit, Allegiant and Frontier Airlines Holdings Inc. — and all have been expanding voraciously.
Because of Canada’s higher costs, fares won’t be as low as those that other nations enjoy. But executives at all three of Canada’s fledgling ULCCs say they aim to underprice Air Canada and WestJet by 25 per cent to 35 per cent.
Calgary-based Enerjet is a charter operator that flies oil- and gas-field workers in northern Alberta and does contract work for Air Transat, another charter carrier. Now, it is transitioning to the ultra-low-cost model.