Will Canada Ever See Ultra-Low-Cost Carriers?

For years, the prospect of ultra low-cost fares has tempted Canadians who have watched carriers in the U.S., like Allegiant and Spirit Air, spread their networks to more communities.

Currently, Flair Air (formerly known as NewLeaf), operates out of five small cities; while three additional companies have proposed launching an ultra-low-cost carrier (ULCC) in Canada, including Enerjet/Flytoo, Jetlines and the newly named Swoop.

Enerjet, a Calgary charter airline run by one of WestJet's founders, discontinued charter operations to focus exclusively on building a scheduled ULCC. Jetlines recently hired a new chief executive, and said it is planning to base its operations in southern Ontario where it would try to stimulate travel principally to and from the U.S. and Mexico.

Out of the four, low-cost airline WestJet appears to be the closest. Swoop, which WestJet promotes as providing “a no-frills, lower-fare travel option backed by an airline with a proven track record of bringing lower fares to Canadian,” is scheduled to launch the middle of next year.

What distinguishes a ULCC from traditional Canadian low-fare carriers WestJet and Air Canada’s Rouge is that a ULCC offers an extremely stripped down fare, with few of the common benefits passengers expect, like assigned seating and carry-on bag privileges.

But it is unknown if that business model could work in Canada. “It is not easy [to launch a start-up airline in Canada] and the carrier will have to have sufficient resources to prove themselves to an increasingly dubious marketplace,” said Mike Foster, president of Nexion Canada, in London, Ontario.

“If they can win over agents and consumers, they may be able to make an impact, and one that could put price-pressure on the established carriers and also to open up new markets.”

Ultra low fares are no certainty
But not all signs are positive, as raising capital and navigating regulatory regimes has slowed takeoff for all four startups. NewLeaf retreated to five destinations from its original seven, and was purchased by Flair Air earlier this year. 

Enerjet has not been able to raise enough capital yet to launch; and Jetlines only now is conducting a road show looking for capital. Even the successful WestJet has delayed the launch of Swoop until next year.

“The stars have to be aligned for the magic to work and the carrier to survive. They need to be different and very unique to hold a spot in our market place,” said Lynda Sinclair, vice president of leisure travel at Vision Travel Solutions, in Toronto.

Experts and observers believe U.S. ULCCs succeed in part due to the greater population and density of population not found in Canada. Also, Canadian labor costs tend to be higher than the relatively deregulated environment in America.

If one airline will launch, most think it will be Swoop. Parent WestJet is recognized for its management, and just last month flew an all-time record number of passengers, filling more than 80 percent of its seats.

In addition, Air Canada’s Rouge has been growing its route network, noted Flemming Friisdahl, founder at Toronto-based The Travel Agent Next Door. “They are putting the Rouge aircraft on leisure destinations. Air Canada has been successful with swapping out traditional AC routes to become AC Rouge routes.”

Wait and see attitude from agents
Notorious for not offering commissions and driving consumer bookings exclusively through their websites, ULCCs are not generally well received by the travel agent community.

“When you are looking at it from a consumer’s perspective it is usually a good thing, as more competition helps keeps prices in line and affordable for the consumer. The down side is that more often than not the low-cost carrier does not support the travel community as they will offer it with no commission for agents,” said Friisdahl.

“This is unfair as many travel agents work hard to find their clients the best value for their money, and it would be nice to see these new carriers appreciate the value that a travel agent brings to the table.”

“Agents should be able to book [ULCCs], but they would have to add a service fee, which most agents currently do.  It may be difficult to convince the most cost-sensitive traveler, but some consumers may value the advice and assistance of a travel agent even more and be willing to pay for the assistance of an agent,” Foster said.

So far, Sinclair has heard very little chatter within her industry about the ULLCs. “We will deal with them if our clients want us to,” she said.

Foster said he has heard from agents “a mixture of scepticism and being open to seeing if these carriers would be good for their clients. For the travel agent community, in my view there is an uneasiness towards new entrants, particularly low-cost airlines.”

Agents, Foster said, “would welcome capable competition and a more competitive marketplace; more travel helps to grow the industry.  But since a travel agent’s first duty is to their traveler, a healthy bit of scepticism can prevail until a supplier has proved itself.”

While Friisdahl also said he has not heard much within the travel trade about the various proposed ULCCs, “what makes me happy is the number of consumers who are using travel agents again as they are starting to see that an OTA or booking direct does not give you that support you need.”