Canada's Lack of Discount Airlines

[Language]

I've been thinking about this for the last little while lately. I flew to Toronto a few weeks ago and the return flight to Calgary cost me more than some of the flights I've been seeing to Europe (CMyden's deal to London from YEG). Now I know that flight prices are contingent on a number of factors, be it seasonality, holidays, etc., but overall, it's got me wondering why there are no discount inter-Canada carriers.

Now I understand that the airline industry isn't exactly the easiest one to get into or make a huge profit, so I do see why there may be a lack of them. As well, I know Canada is a large country with greater distances to travel so greater related costs.

But when I was in Australia for two months they had Jet Blue and Virgin flying cheap routes between Cairns-Melbourne, Melbourne-Sydney, and they're not necessarily close either. Australia is the closest example I could find to Canada that has alternatives to Quantas.

Will Canada ever get anything like Ryanair in Europe?

[TorqueDog]

I think it's a combination of sheer population numbers and their respective markets.

For example, the entire continent of Europe has nearly 2.3x the population of the United States in an area that's only 3.59% larger.

Canada is 1.6% larger than the United States in overall area, yet the US has 9x our population.

I think the issue is there simply wouldn't be enough demand for services to make a discount carrier viable in Canada. How it works in Australia I have no idea.

[Maritime Q-Scout]

No.

The regulations, taxes, and small population over large landmass makes it nearly impossible to offer a "discount" air service.

I think there are a few factors that play into this.

1 - Let's look at the population, concentrated mostly in southern Ontario. You do have fairly cheap flights in the Toronto - Ottawa - Montréal corridor. Perhaps you can make a living doing that route, however that's Porter's bread and butter, so in a way we already have that. The other major centres of Edmonton-Calgary are too close to fly between efficiently, Calgary-Vancouver I would imagine WestJet has tied up fairly well.

2 - What do you fly? JetBlue for example runs a fleet of A320s and E190s. Not heavys by any stretch, but they aren't small either. JetBlue/SouthWest are the equivalents of WestJet. If they were operating domestically in Canada you'd be looking at about the same prices WestJet is offering as they run the same business model.

What if you were to go with smaller regional aircraft? Porter is running a fleet of Q400's, as will the new WestJet regional airline. Jazz is fazing out the CRJ's in favour of the Q400's. Here you're looking about about 75 seats per plane. That's still a large number to fly between cities and it would have to be full to operate at a profit/break even point.

3 - Places to fly. I'm not very knowledgeable on RyanAir, however from what I understand they fly into more obscure airports just outside of major centres. So if they were to operate in Canada their model would have a Toronto-Montréal flight fly not from Pearson to Trudeau but from Munroe to Mirabel. Canadian aren't too big on that concept, we're more creatures of habit.

Additionally, how many cities have alternate airports to fly in and out of? I would imagine Europe has a number due to WWII. But Canada? Is there an alternate airport that Calgary can use? I don't know what Edmonton's downtown airport can accommodate. Abbotsford does have WestJet already there, perhaps it's an option for Vancouver? If your aircraft is small enough (Q400 for example) then Toronto City Centre is an option if you can get the space. Mirabel is loathed by Montréalers, you'd basically be stuck with Trudeau. In the east Moncton, Halifax, Charlottetown, Sydney, Saint John, and Fredericton all only have one, no real alternate.

4 - Let's talk regional airports for a moment. Did you know Bathurst has the highest Airport Improvement Fee in the country? I'll give $5 to any born and raised Albertan than can point to Bathurst on a map. Sydney's is one of the highest as well. These fees are high as there is demand for passengers but not a huge volume to warrant the upgrades required for growth and upkeep. The Sydney-Halifax route is an absolute cash cow for Air Canada, mostly because it's not busy enough to warrant a mid-sized aircraft so WestJet hasn't touched it with it's 737-600, but does allow for five Dash 8-100 flights a day. It's small enough that Porter hasn't looked this way yet as most planning would start with Halifax and not to the small centre just north-east of it. If a local businessman wanted to start-up it'd cost the $30+million for a plane, plus all the other start-up costs, only to have Air Canada price match and run the little guy out of the market (I've seen it done).

4 - Let's talk Air Canada. They will price match any new competitor on routes they make money at, and will run the competition out of the market. WestJet kind of squeezed in with the Western image and has stuck around to grow and do well. Don't be fooled, WestJet wouldn't want anyone taking away their share of profitable routes either. Porter is an interesting case study, as they bought Toronto City Centre and then started their operations out of there. Somewhere that was highly marketable yet WestJet can't fly into, and Air Canada has trouble getting spots. They leverage that to expand throughout Ontario, Québec and into Eastern Canada.

5 - I'm kind of rambling at this point as I haven't had my morning coffee (and it's 2:30 my head is spinning). But I don't see anyone getting the startup capital, and working routes that currently exist and surviving. I don't see the regulations and taxes making airfare much cheaper than it already is. Heck it'll cost me about $650 to fly from Sydney to St. John's in August if I want to attend a friend's wedding. I don't see that happening.

Canada is too sparsely populated over too great a land mass. And where we aren't sparsely populated we live too close together to warrant air travel.

If a discount airline were to survive it would have to start all its routes at small regional airports (where it's cheaper to have an aircraft sit overnight) and then hit the major centres being on the ground as little as possible. It would make the hub philosophy very difficult to run. I just don't see it.

I hope this post is coherent, I'm going to get coffee rather than proof-read

[Sliver]

Also, you can't really compare the price of a regional trip to a long-haul overseas trip. The bulk of the costs are in airport fees/taxes and fuel burn on take-off. Your costs per available seat mile (ASM) (the cost to fly one seat, one mile) decrease with the length of the flight. So you would expect the price of a Calgary - Edmonton ASM to be more expensive than a Calgary - Glasgow ASM.

[Derek Sutton]

So who sets the all the fees, taxes fuel charges etc... is it the airlines or airports? And the ASM, though well explained just doesn't seem like a logical way of determining price. Obviously, I'm not in the know as far as the airline industry but I can drive down to MT, which isn't far from where I live and the plane to Las Vegas is loaded, 150+/- peolpe every time I've gone, and they fly at least 6 times week out of Great Falls and Kalispell combined. And 75% of them are Canadians, some driving a great distance to catch these flights. I've flown out of Great Falls many times and it is usually at least 1/2 the price it is to fly out of Calgary and about at least 1/4 the price it is to fly out of Lethbridge (where I live) because a flight from Lethbridge to Calgary is $400.

[GP_Matt]

I am pretty sure that most of the tax/surcharge structure is set by the federal government. In the States I think air travel is subsidized somewhat through some method like lower property taxes and not charging as much for security.

[Senator Clay Davis]

Interestingly enough, Canada has a discount/low cost carrier. Its called Westjet. People might be surprised to know that, but really they base a lot of their business model after Southwest Airlines (the only US Airline to be profitable every year of its existence). The reason their prices aren't crazy cheap like the US is mostly due to taxes and lack of demand. As has been pointed out, because Westjet has a limited number of destinations, mostly within Canada, they can't get the kind of volume that drives down costs.

[Derek Sutton]

So the federal government sets all the fees and fianances, bails out the largest airline in the country. So we will never get another airline.

[Maritime Q-Scout]

GP_Matt has it right taxes, fees etc are mostly set by the government. Individual airports do charge an Airport Improvement Fee (AIF on your ticket) and that varies from airport to airport but generally isn't more than $10 or $15.

In the United States there's less regulation, and a greater population. Their airlines thrive almost exclusively on the hub model. That's why if you fly United you usually have a connection in Chicago, Delta in Atlanta, JetBlue at JFK.

In Canada there aren't many airports to set as a hub (Toronto, Montréal, Calgary, maybe Vancouver, and Halifax). Those airports are very well serviced through WestJet & Air Canada and in the East to a lesser extent Porter.

[Maritime Q-Scout]

Originally Posted by Derek Sutton

So the federal government sets all the fees and fianances, bails out the largest airline in the country. So we will never get another airline.

The federal government sets fees and taxes, not really any different from other industries. Truckers have to pay tolls, watch weight restrictions, every industry has to pay taxes.

Finances are a company thing. How a company is structured isn't a government thing, but a corporation thing. WestJet is a very Very VERY different structure from Air Canada which is complete different from Porter.

The bar to entry into the industry isn't the government, and fees, it's the fact that airplanes are fataing expensive, and guys like Ryan Coke won't fly them for free. Your costs outside of the governmental costs are HUGE. If anything, the government costs are passed directly into the consumer.

Competition is very tight in Canada. Huge landmass, small population, massive costs, it's not easy to start an airline and make a go of things. Heck look at aviation nerd Ken Rowe. Multimillionaire (billionaire?) loves the airline industry, yet CanJet wasn't successful as a daily scheduled operator, even with his money and passion behind the company. Why? Because it's a frackin' horrible industry to be in.

If you're blaming AIFs and fuel-surcharges on your company's inability to compete, you were never going to succeed.

As for the government bailouts. Air Canada does more than shuttle people from one Canadian city to another. I want to see them compete and survive (there's another thread on this very topic) but if they just folded the loss of their cargo, mail, international and regional service would cripple the country. Yes, someone (several) would eventually take their place, but the cost just isn't worth it. WestJet isn't ready (nor do they want to) to take over for Air Canada, and Porter isn't ready to take over for Air Canada Express. Not by a long shot. There's literally no one ready to fill in for Air Canada's international flights (unless you want to have foreign operators dictating Canadian transportation policy) and no one with the capacity ready to take over for Air Canada Cargo.

We think bailout or let Air Canada die, we think "we'll just hop on a WestJet or Porter flight, or maybe Sunwing & CanJet will resume daily scheduled service" but there's more to it than that.

[FlamesAddiction]

To make matters worse, our "budget" airliner (Westjet when it started) slowly moved their prices up to be on par with Air Canada, but setting the bar lower for what you should expect for that price. Now we basically have 2 expensive airlines that give you budget airline service.

[c.t.ner]

Gotta give some props to Maritime Q-Scout for his responses in this thread.

This is a topic that's always frustrated me, but I've had a general understanding of the principals on why there are no "JetBlue" type airlines in Canada. Some very interesting points on the reasoning behind the Air Canada bailouts, I think these are elements that the average person doesn't hear when they read about the financial troubles of Air Canada.

[flames_1987]

Maratime, that was awesome, although it did have a certain Springs1 feel to it

[Senator Clay Davis]

What drove up Westjets prices was expanding their offerings and the quality their brand has developped. I think they could still be fairly cheap if they even just went back to Canada only, but not having as many full flights obviously means they have to make up the difference somewhere else. They also know many people are not fans of Air Canada, so why not charge more if people will pay it? Even if Westjet is a bit more I'd rather fly with them.

[Champion]

I remember when I started flying to Vancouver a lot back in 2000. I used to always get tickets for $49 each way plus tax with WJ. Now I pay up to $500 sometimes if I have to go for a day or two.

[Maritime Q-Scout]

Originally Posted by c.t.ner

Gotta give some props to Maritime Q-Scout for his responses in this thread.

Originally Posted by flames_1987

Maratime, that was awesome, although it did have a certain Springs1 feel to it

Thanks for the props guys. I've never worked in the industry, but find it absolutely fascinating (and have since I was a little kid).

flames_1987 I don't know what you mean by Springs1 feel (I don't take issue, nor am I offended just curious what I'm missing)

[STeeLy]

nm....

[TorqueDog]

Originally Posted by FlamesAddiction

To make matters worse, our "budget" airliner (Westjet when it started) slowly moved their prices up to be on par with Air Canada, but setting the bar lower for what you should expect for that price. Now we basically have 2 expensive airlines that give you budget airline service.

Having flown on both A/C and WestJet in the past few years, I can honestly say I felt the experience on WestJet was better and that I got more for my money.

If there's a company that has set the bar low for what you should expect in quality of service, it's absolutely Air Canada.

[STeeLy]

Originally Posted by TorqueDog

If there's a company that has set the bar low for what you should expect in quality of service, it's absolutely Air Canada.

Their domestic service might not be that good, but their long haul international service is actually decent.

Can we NOT turn this into an Air Canada vs. WestJet thread, please?

[Ryan Coke]

WestJet is considered to be a low cost carrier (LCC) very similar to Southwest or Jetblue or Virgin Blue in Australia. Generally speaking, Air Canada initially didn't try to compete head to head with WJ on price, but they were losing a lot of passengers and revenue, and finally decided to have a policy of matching WJ pricing. Although WJ could be profitable at those fairs and AC lost money, they had to do it because not doing it was worse. It is this policy of AC's that make it that most fairs between the 2 are the same.

By and large, the difference in costs when looking south of the border are mostly AIF's, landing fees, an assortment of federal and provincial taxes such as fuel excise taxes, and other similar things. That is part of the reason that a company like Allegiant has no interest in flying into YYC or any other major Canadian airport--they would lose much of their cost advantage. Having said that, it is a concern to all Canadian airlines, and they are continually lobbying government and airport authorities to become more cost competitive--we are losing money because of this.

Now I have to admit, as a for profit company we try to make money. Airfares now are cheaper than 20 years ago in spite of much higher fuel prices, but could they be cheaper? I guess if we didn't try to be profitable. But I know we are passionate about controlling our costs as much as we can given the Canadian environment we operate in.

One other thing, when compared to an operation like Ryanair. There are things WJ decided to do when it was conceived in 1995, like having free drinks and snacks, like having assigned seating, like having free checked bags, and eventually free inflight entertainment, because those were expectations in our market. Of course those are things that you can save money on if you eliminate or charge for them, like Ryanair or Allegiant does. I suppose whether it is worth it is up to each individual. Even to this day we are one of the last airlines to not charge for the first bag on transborder routes. But if people book with our competitors when their fair is $5 cheaper, only to spend $25-35 for a checked bag, then we will likely have to follow suit.