Shrinking airfield: Canada’s airline market consolidates, raising risk of fare hikes

MONTREAL — After welcoming new entrants for several years, Canada’s airline market is once again on the path to consolidation, raising 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 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.

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

“The question is, are we done?”

Reducing the number of airlines could mean less service and higher prices, particularly in the West and in smaller markets across the country.

“The fewer competitive entities there are in Canada, the less pressure there will be to be competitive on price,” Gradek said.

Air Canada and WestJet have strengthened their grip on the domestic market over the past year, even as rival Porter Airlines expands rapidly in a bid to become the country’s third-largest airline.

Canada’s two largest airlines controlled 79 per cent of domestic traffic this month, up from 74 per cent a year earlier, statistics from aviation data firm Cirium show.

The decline in the carrier pool coincides with a nearly seven percent decline in domestic flight volume between March 2023 and this month, although that may be due in part to a renewed focus on international travel.

While large cities remain largely served, smaller ones have fewer options, which can also lead to higher prices and, when things go wrong, stranded passengers.

On the Edmonton-Winnipeg route the number of flights plummeted 82 per cent to 44 in December from 242 in December 2019 after Air Canada and Swoop stopped operating it. Only WestJet remains, which makes less than half as many trips per month as it did four years earlier, according to Cirium.

Between Calgary and Saskatoon, flight numbers fell more than 50 per cent to 349 in December from 702 in December 2019, now that the airspace between Alberta and Saskatchewan’s largest cities is served by WestJet-only nonstop flights: Air Canada withdrew for a year ago to shore up further east. In the same period, the average price of a ticket on the route increased by 27 percent, Cirium data reveals.

Ironically, the COVID-19 pandemic that hit the travel industry opened the door to new entrants. And now that business is booming again, ownership is becoming more concentrated.

“In periods of recession, suddenly there are a lot of airplanes on the market at low cost,” said Barry Prentice, director of the transportation institute at the University of Manitoba.

The glut of airliners suddenly available for lease coupled with the 20-month grounding of the Boeing 737 Max 8 due to two fatal crashes made those planes particularly cheap. “So that’s what Flair learned, and Lynx and others,” Prentice said.

“People are free to enter; That’s free enterprise. And they are free to go bankrupt.”

Calgary-based Lynx, which closed last month after filing for creditor protection, is at least the eighth low-cost airline to take off and then disappear since 2000, joining the ranks of Roots Air, CanJet and Swoop.

Last fall, Calgary-based WestJet closed its Swoop subsidiary under its main banner. It also aims to close Sunwing and integrate the discount airline into its core business by October after purchasing the Toronto-based company last May.

High airport rents, security fees and fuel taxes raise the basic cost of flying, making it difficult for low-cost airlines to convince budget-conscious Canadians to get on board and therefore sustain themselves. and to a broader base of competition.

Pearson’s “airport upgrade fee” on a one-way Flair flight booked this week between Toronto and Fort Lauderdale, Florida, for April amounts to $35, or one-third of the $107 ticket (most U.S. airports (US charge $4.50). ). A security fee adds another $12. For a family of four, that adds almost $200 to the trip.

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

The decades-long market dominance by Air Canada and WestJet can also stifle competition, he said.

“The big airlines have no interest in low-cost airlines succeeding, and they will use the tools they have to try to take down companies like Lynx,” Jones said.

In late 2018, the Competition Bureau opened an investigation into predatory pricing tactics allegedly implemented by WestJet and Swoop on some routes served by Flair, which had launched the previous year.

The regulator ended its investigation almost five years later without taking further action. The decision was made 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 its avoidable costs.”

“I cannot comment on any findings,” spokesperson Jayme Albert said in an email Wednesday, noting that federal law requires the agency to work confidentially.

“That said, we take action whenever we find evidence of conduct prohibited by the Competition Law,” added spokesperson Georgia Simone Fakiolas.

Lynx, which launched its first flight in April 2022 and stopped operations on Feb. 26, said in court documents that rising costs, airport fees and “a competitive aviation landscape have proven disastrous.”

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