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Carr: Waiting in the wings

Canada is without a national low-cost scheduled airline in the mould of a Southwest or easyJet.


March 28, 2008
By David Carr

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If an airline fails and nobody is paying attention, does it make a sound? Apparently not. While Jetsgo collapsed with a bang in March 2005, Vancouver-based Harmony Airways exited the field last year with barely a whimper.

It has been three up and three down for challengers to Air Canada and WestJet since 2005, although describing either Harmony or CanJet, which shut down in 2006, as ‘national’ competitors is a bit of a stretch. Bare-bones CanJet was knocked back to its Atlantic Canada perch almost as soon as it reached Vancouver. Even with full-cabin service, Harmony’s single daily Boeing 757 between Vancouver and Toronto was little match for Air Canada and WestJet’s 25 daily departures, and often took off with four-fifths of the airplane empty.

Nevertheless, Canada is without a national low-cost scheduled airline in the mould of a Southwest or the UK’s easyJet. A spot occupied by WestJet before a hardening market removed an important commodity from the national landscape: competitive seats.

Yet despite the market void, the arrival of a new national cost cutter is unlikely, at least for the time being. The airline industry is notorious for attracting start-ups against sound economic principles. But surging oil prices – albeit moderated by a stronger Canadian dollar – and a struggling economy have left potential investors in a third national airline understandably jittery.

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Frequent flyer point rewards and gimmicks such as Jetsgo’s one-dollar fares have lowered the public value of air travel while raising the expectation for cheap seats. Reality is murkier. There is zero national entitlement to low fares, and neither Air Canada nor WestJet are under any obligation to short-change investors by pricing their product below what the market will bear or accept. Given that on average both airlines take off with more than three-quarters of their airplanes full, they would appear to be doing something right.

But for how long? Both these market-savvy companies understand that that same market cannot tolerate a vacuum forever, and the conditions that have created the current oligopoly have a limited shelf life. Enter the Canadian Competition Bureau. Late last year the Bureau recommended the Harper government embrace unfettered open skies and allow foreign airlines to set up domestic subsidiaries along the lines of Virgin Blue in Australia.

The Air Transport Association of Canada (ATAC) disagrees, as it should. ATAC is an industry association, not a consumer group and suggesting, as the Competition Bureau has, that Canada should invite a global free-for-all while the rest of the world continues business as usual is well intentioned, but naïve. The larger question is, how much longer do we have to have this discussion?

For now at least, domestic competition is going to come not from a third national low-cost airline (although this is inevitable), but from the fringe. JetBlue’s plan is to operate charter and scheduled services to Canada, and regional point-to-point startups that could chip away at Air Canada and WestJet’s market share especially on underserved routes, flying the right mix of airplanes. The nouveau niche.

Such carriers are going to have to be well financed with ownership in it for the long haul (note that Lufthansa recently snapped up 19% of JetBlue). Ottawa should immediately facilitate this trend by bumping the foreign cap on ownership of a Canadian airline to 49% from the present 25%.

Internationally, it is a different game entirely. Since the federal government finished commercializing the Canadian airport system and now extracts huge rents, it should no longer have a say on what foreign tails nudge up to the terminal gates, and how many times. Case in point is Emirates, which launched service to Toronto from Dubai last year. Emirates would like a daily flight. Canada’s bilateral agreement with the United Arab Emirates limits the airline to three a week. But isn’t that something for the Greater Toronto Airports Authority (GTAA) to decide?

And if not, shouldn’t Ottawa have to compensate the GTAA for revenue lost as a result of those four non-flights? That should be an incentive to keep the bilateral ball rolling.

Airports are businesses that should be able to negotiate their own commercial agreements with the airlines that want to fly into them. Full stop. Too many commercial opportunities both in passenger and cargo transport could be lost otherwise. It is not up to government to pick the winners and losers.

David Carr can be reached at davidjcarr@sympatico.ca .