Possibility of higher fares due to consolidation of Canadian airline market

MONTREAL – After years of welcoming new entrants, Canada’s aviation market is once again on the path to consolidation, raising the prospect of higher fares and fewer flight options.

Since May, emerging low-cost carriers Swoop and Lynx Air have disappeared from the skies, and WestJet has overtaken Sunwing Airlines.

The latter two accounted for 37 per cent of seat capacity on direct flights to solar destinations last year and 72 per cent from Western Canada, according to the Competition Bureau’s October report. The company said the end of the rivalry between WestJet and Sunwing would likely reduce competition for vacation package sales.

“We’ve lost 40% of our players in the last 12 months,” said John Gradek, a lecturer in McGill University’s aviation management program.

“The question is, is this the end?”

A reduction in the number of airlines could mean lower service and higher prices, especially in the West and in smaller markets across the country.

“The fewer companies there are that are competitive in Canada, the less pressure there is to be price competitive,” Gradek said.

Air Canada and WestJet have tightened their grip on the domestic market over the past year, as rival Porter Airlines has expanded rapidly to become the country’s third largest airline.

Canada’s two largest airlines accounted for 79% of domestic traffic this month, up from 74% a year earlier, according to statistics from aviation data firm Cirium.

The airline decline coincides with a nearly 7 percent decline in the number of domestic flights from March 2023 to this month, which may also be due in part to a renewed focus on international travel.

While large cities are still well-served, smaller cities have fewer options, which means higher fares and the potential for passengers to be stranded if conditions are bad.

The number of flights on the Edmonton-Winnipeg route plummeted by 82%, from 242 flights in December 2019 to 44 flights in December, after Air Canada and Swoop suspended operations. WestJet is now the only airline left, operating less than half the number of flights per month as it did four years ago, according to Cirium.

The number of flights between Calgary and Saskatoon decreased by more than 50 per cent from 702 flights in December 2019 to 349 flights in December. Currently, WestJet is the only airline with direct service to the airspace between the large cities of Alberta and Saskatchewan, which Air Canada suspended in December 2019. A year ago, to be based further east. According to Cirium data, in the same period, the average price of a ticket on this route rose by 27%.

Ironically, the COVID-19 pandemic that has devastated the travel industry has opened the door for new entrants. And now business is booming again and ownership is concentrated.

“During a recession, all of a sudden you have a lot of planes coming onto the market at low prices,” said Barry Prentice, director of the Transportation Research Institute at the University of Manitoba.

The Boeing 737 Max 8 was grounded for 20 months after two fatal crashes, and a glut of jetliners suddenly available for lease has made these planes especially cheap. “So Flair, Lynx and others picked it up,” Prentice said.

“People are free to enter, that’s free enterprise. And they are free to go bankrupt.”

Calgary-based Lynx, which shut down last month after filing for creditor protection, became at least the eighth low-cost airline to take off and go out of business since 2000, joining Roots Air, Canjet and Swoop. He became a member.

Last fall, Calgary-based WestJet folded Swoop into its subsidiary. It also aims to wind down Sunwing by October and integrate the discount airline into its core business after acquiring the Toronto-based airline last May.

High airport fees, security fees and fuel taxes are increasing the base cost of airfare, making it harder for low-cost carriers to convince budget-conscious Canadians to fly and, in turn, reducing their own sustainability. It becomes difficult to maintain a broader competitive base.

Pearson’s “airport improvement fee” for a no-frills one-way flare flight between Toronto and Fort Lauderdale, Fla., in April booked this week is worth $35, or one-third of the $107 ticket. (Most US airports charge $4.50). There is an additional $12 security fee. For a family of four, travel costs add nearly $200.

“It makes the difference between traveling and not traveling,” Flair CEO Stephen Jones said. “That’s a big deal.”

He said the decades-long dominance of the market by Air Canada and WestJet could also stifle competition.

“The major airlines are not interested in making low-cost carriers successful and will use the tools in their toolkit to try to kill off airlines like Lynx,” Jones argued.

In late 2018, the Competition Bureau began an investigation into alleged predatory pricing tactics used by WestJet and Swoop Airlines on some Flair routes launched the previous year.

Regulators closed the investigation after nearly five years without taking any further action. The decision comes after then-Interim Competition Commissioner Matthew Boswell accused WestJet and Swoop in 2018 of “predatory pricing that significantly reduces passenger ticket prices to levels believed to be below avoidable costs.” This was done despite accusations that he was involved in setting up the incident.

“We cannot comment on the findings,” spokeswoman Jamie Albert said in an email Wednesday, noting that federal law requires government agencies to operate in a confidential manner.

“However, we always take action when we see evidence of conduct prohibited by competition law,” added spokeswoman Georgia Simone Fakiolas.

Lynx, which began its maiden flight in April 2022 and ceased operations on February 26, has complained to the court of rising costs, airport fees and that the “air competitive environment has proven dire”. stated in the submission.

This report by The Canadian Press was first published March 13, 2024.