After welcoming new entrants for several years, Canada’s airline market is once again on the path to consolidation, increasing the likelihood of higher fares and fewer flight options.
Since May, new low-cost airlines Swoop and Lynx Air have disappeared from the sky and WestJet has taken over Sunwing Airlines.
The latter two alone accounted for 37 per cent of seat capacity on direct flights to sunny destinations and 72 per cent from Western Canada last year, according to an October report from the Competition Bureau. He said eliminating the rivalry between WestJet and Sunwing would likely suppress competition around the sale of vacation packages.
Some experts warn that reducing the number of airlines could mean less service and higher prices, particularly in the West and smaller markets across the country.
High airport rents, security fees and fuel taxes drive up the basic cost of flying, making it difficult for low-cost airlines to convince budget-conscious Canadians to get on board.
“High rates certainly make things more difficult for discount companies,” said Barry Prentice, director of the transportation institute at the University of Manitoba.
Air Canada and WestJet’s decades-long market dominance may also stifle competition, some industry players argue.
Air Canada and WestJet control 79 per cent of domestic traffic as of this month, up from 74 per cent a year earlier, statistics from aviation data firm Cirium show.
“The natural behavior of the duopoly is to use its power to squeeze prices from smaller players,” said Stephen Jones, chief executive of Flair Airlines.
“The big airlines have no interest in low-cost airlines succeeding, and they will use the tools they have in their toolbox to try to take down companies like Lynx,” he said.
In late 2018, the Competition Bureau opened an investigation into predatory pricing tactics allegedly implemented by WestJet and its then subsidiary Swoop on some routes served by Flair, which had launched the previous year.
The regulator ended its investigation about five years later without taking further action. The decision came despite then-acting competition commissioner Matthew Boswell accusing WestJet and Swoop in 2018 of “engaging in…predatory pricing by significantly reducing their passenger ticket prices to a level that appears to be below their avoidable costs”.
Lynx, which launched its first flight in April 2022 and closed last month, said in court papers that rising costs, airport fees and “a competitive aviation landscape have proven disastrous” in generating enough revenue.
Other factors pose a challenge to young newcomers seeking to expand, rather than consolidate, Canada’s aviation landscape.
The lack of large secondary airports in big cities may also force smaller airlines to bid for the most expensive slots at Toronto’s Pearson and Montreal’s Trudeau airports. Executives have long complained about the amounts charged for entry and landing fees, as well as federal agency expenses such as security and air navigation checks.
Meanwhile, the longstanding problem of a vast, sparsely populated geography creates unique challenges for all carriers in Canada, but especially those struggling to get off the ground.
In the United States, older discount airlines such as Southwest Airlines and JetBlue have offered point-to-point service between cities and larger markets over relatively short distances. The goal is to get more revenue from each plane with multiple trips per day and lower fuel costs, so customers can stomach the tight spaces due to faster trips.
In Canada, however, the number of major urban areas is much smaller and the main players are already present in the most lucrative ones.
This report by The Canadian Press was first published March 13, 2024.