Published on September 25, 2017 In The Globe and Mail
On a cold and snowy morning, a family of four from Ottawa starts their Florida vacation by driving an hour south to the airport in Ogdensburg, New York. Despite having an international airport in their home city, the family crosses the border to access more affordable flights for their week of sun and fun. On the other side of the country, in Vancouver, a young couple heads to the airport in Bellingham, Washington, to board a flight to California, their first vacation together.
These are not far-fetched examples. The Canadian Airports Council estimates that every year more than five million Canadians are crossing into the U.S. just to access more affordable flights. It’s the airline version of cross-border shopping.
But what about the estimated 10 million passengers that aren’t flying simply because of the prohibitive cost? These are grandparents who can’t visit their grandchildren, parents who can’t visit children working in another city, or simply Canadians who want to explore other parts of the country but find the costs so prohibitive given the duopoly of Canada’s two legacy airlines. Right now, these Canadians simply don’t have an affordable alternative to Canada’s two main carriers—Air Canada and WestJet, who together control 92 per cent of the domestic industry. This duopoly has shut out competition, stymied innovation in the sector, led to poor customer service, and priced air travel out of the budgets for millions of Canadians.
Thankfully, there is some light at the end of the runway.
In every other G7 nation, with the notable exception of Canada, the Ultra-Low-Cost Carrier (ULCC) model has emerged to create more affordable and accessible air travel. This model reduces fares through lower operating costs. ULCCs traditionally focus on standardizing plane sizes and seating options, so everyone flies at the same class and low cost. In contrast to the hub and spoke model used by traditional airlines, a ULCC uses point-to-point flight patterns that often operate out of lower-cost airports that surround major cities, such as Abbotsford near Vancouver or Hamilton in the Greater Toronto Area. A ULCC also controls costs by selling tickets directly from the airline’s website, instead of operating commercial offices or booths. Finally, all amenities and in-flight services are unbundled to give passengers a choice to purchase food or check baggage.
The result is a direct service and drop in ticket price by as much as 30 per cent. This is significantly lower than what the legacy carriers offer through their traditional and discount airlines.
The ULCC model has taken off in other developed countries including the U.S. and across Europe, enabling millions of passengers who have never flown to get on board. The business model also makes money, which means it’s sustainable. Last year, four of the most profitable airlines in the world were ULCCs, proving that it doesn’t take high-ticket prices to be profitable.
Traditional airlines are taking notice of this competition and some have even tried to launch their own budget carriers, with limited success. In the U.S., United Airlines launched Ted, which operated from 2003 to 2009; Delta created Song, which flew from 2003 to 2006; and Continental’s Lite lasted from 1993 to 1995. In Canada, Air Canada’s Zip was a blip on the company’s corporate history, operating only from 2002 to 2003. WestJet recently announced its own plans to establish a ULCC within its network, but prospects seem uncertain, especially after announcing a delay in its launch.
Other airlines have failed because they aren’t true to the ULCC model. They can’t keep costs under control, which ends up leaving passengers in the lurch. Whether it’s pressure from pilot unions, the challenge of operating a multi-plane fleet through a traditional hub and spoke model, or brand confusion, history shows that “airlines within airlines” don’t work.
Travel website Kiwi.com recently reported that Canada ranks 65th out of 80 countries when it comes to affordable air travel. Meantime, WestJet and Air Canada are reporting record or near-record earnings. If Canadians are to finally get more affordable air travel, it clearly isn’t coming from the duopoly.
This is why Transport Minister Marc Garneau, in a speech delivered last November, announced plans for an exemption for two ULCCs to raise the foreign ownership limit for airline carriers from 25 per cent to 49 per cent. Not only did he state that “this will lead to more options for Canadians, and allow the creation of new, low-cost airlines in Canada,” he backed up this message with an official ministerial order that was received a month later. The underlying message was that the airline industry – especially Canadian consumers – would benefit from increased competition and lower fares.
There is no better time to give Canada its first ULCC and start repatriating those flights back from U.S. airports, while also reuniting millions of families from coast-to-coast. Canadians deserve an affordable alternative.