By Mark Morabito, Published in Skies Magazine August/September 2018 Issue
Mark J. Morabito is executive chairman of Vancouver-based Canada Jetlines.
The ingredients of a genuine ULCC for Canada
There have been a lot of headlines lately about ultra-low-cost carriers (ULCCs) finally coming to Canada. As the only G7 country without one and with Canadians paying some of the highest airfares in the world, this enthusiasm is understandable. However, the question remains whether we have yet to see a genuine ULCC enter the Canadian marketplace.
Let’s take a broad look at the ingredients that have made ULCCs work worldwide.
Since their emergence 20 years ago, ULCCs have moved from the periphery to become significant players in the airline industry. In 2016, according to ***Airline Weekly***, three of the world’s top four most profitable carriers were ULCCs. These no-frills airlines have been so successful, both commercially and for investors, because they have followed a specific business model.
At its core, this model is about delivering quality air travel at a low price and in a way that also keeps costs down, so that the business is profitable and sustainable. The key measure to track is the operating cost per available seat mile. Known as CASM, this industry standard identifies how much an airline spends to fly a single seat per mile, whether that seat is occupied or not.
Canada’s two major airlines, which control over 90 per cent of the domestic market, have relatively high metrics. Air Canada reported a CASM of 16.4 cents per passenger and WestJet reported 14.15 cents in the first quarter of 2018. By comparison, U.S.-based ULCCs Spirit Airlines and Allegiant Air reported CASMs in the neighbourhood of 12 cents (CDN) during the same period.
What separates these lower cost airlines from legacy carriers are a few key ingredients, which also provide a litmus test for assessing Canada’s emerging ULCC landscape: flying one type of efficient aircraft; offering one class of unbundled fares; the use of lower-cost airports; committing to cost discipline throughout all operations; and managing labour costs.
With respect to new ULCCs coming to Canada, the focus on secondary airports has been a priority. It is not a coincidence that Hamilton’s John C. Munro International Airport was Canada’s fastest-growing airport by passenger volume in 2017. On the West Coast, Abbotsford International Airport is currently undergoing a major expansion to accommodate ULCCs, as it expects to welcome one million passengers a year by 2020.
Currently, the Canadian landscape shows deviations from the ULCC model, as evidenced by the types of aircraft employed and challenges faced in reducing operating costs.
Both Swoop and Flair have unionized pilots and crews, which have made it difficult for them to keep costs down.
WestJet’s failed attempt to launch its no-frills little brother with non-unionized pilots and flight attendants is another sign that the ULCC model does not work when you have an airline within an airline.
Meanwhile, Flair faces a double challenge. On the one hand, it is operating an aging Boeing 737-400 series fleet, with an average age of 25 years. On the other, its unionized flight attendants and pilots have threatened the company with the same uncertainty that looms over WestJet and Swoop. Additionally, Flair deviates from the ULCC model by flying out of higher-cost airports, including Toronto’s Pearson International Airport and Vancouver International Airport.
For Canadians looking for affordable airfare, there is still light at the end of the runway. Vancouver-based Jetlines has been working tirelessly to line up the right ingredients for a successful ULCC, following a proven model.
We have finalized our leasing agreement for two Airbus A320s, which are the most-used aircraft by ULCCs worldwide. These sister aircraft are 12 years old and were previously flown by Air New Zealand, which consistently ranks as one of the world’s safest airlines.
In addition, we have established partnerships with airports in Abbotsford, Hamilton and Halifax, which serve large populations but charge 20 per cent less than those in Toronto and Vancouver. We have also recruited a new CEO, Lukas Johnson, who helped Allegiant Air increase its annual revenue per plane by over 30 per cent while in charge of commercial function. Finally, our incoming chief commercial officer, Javier Suarez, has fantastic experience at ULCCs Vueling and VivaAerobus.
Although we might not be the first off the tarmac, Jetlines will be the first genuine ULCC and will finally bring affordable airfare to Canadians over the long haul.