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Canada’s largest airline, Air Canada, is the nation’s flag carrier with hubs at Toronto Pearson International Airport, Vancouver International Airport and Montreal-Pierre Elliott Trudeau International Airport. LCC, WestJet, is based at Calgary Airport and also has bases in Toronto and Vancouver. The aviation market is also comprised of regional airlines, including Air North and Central Mountain Air. Canada has a 'blue skies' (open skies) aviation policy, under the government's board for aviation, Transport Canada. NAV CANADA is the air navigation service provider within Canadian airspace.
Airports in Canada
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Pressure by Delta Air Lines on Alaska Airlines in Seattle continues through service additions on routes where Alaska is the dominant or lone carrier – Vancouver and Fairbanks, Alaska. The latest moves underscore Delta’s build-out of Seattle during the last year to solidify connecting traffic for its gateway to the Pacific, and the now familiar increasing competition with its long-term partner Alaska Airlines.
Alaska is all too aware of Delta’s encroachment, evidenced by the recent acknowledgement of Alaska’s management that the two carriers have no plans to codeshare on Delta’s recently announced spate of new US domestic north-south markets from Seattle to feed the legacy carrier’s expanding international network from Tacoma International Airport.
As it works to add service to six of Alaska’s top 10 domestic markets from Seattle by Sep-2014, Delta during the next year also plans to compete with Alaska by launching service from Vancouver to feed its international operations in Seattle. The new service not only continues to heighten tension with Alaska, but also adds a new layer of competitive dynamics to carriers offering service to Asia from Vancouver, which is just 204km north of Seattle.
Some intrigue is surfacing around a new ultra low-cost airline that aims to debut from a base in Vancouver during summer 2014. Modelled after Spirit and the pioneer of the bare-bones business scheme Ryanair, it would arrive just as new carriers created by Canada’s dominant airlines Air Canada and WestJet hit their stride.
Founders of Canada Jetlines have recently been making the rounds among Canada’s media outlets touting their plan to operate Airbus narrowbodies to under-served and little-served markets, appealing to cost-conscious travellers with low base fares and an extensive a la carte menu that could even include a nanny service.
Given Spirit’s solid financial results since its initial public offering in 2011 and Ryanair’s consistent profitability levels, it was only a matter of time before an aspiring ULCC would sprout up in Canada. Of course the challenge is amply executing the theory that the time is ripe for the ultra low-cost model to succeed in Canada. There will also be many across the border watching closely.
WestJet dips a toe in the trans-Atlantic market with Dublin service; any prospective partners there?
WestJet’s decision to use St John’s as a launching pad for a conservative experiment in assessing the potential for trans-Atlantic service is not a huge threat to Air Canada yet. But it does put WestJet’s larger rival on notice that even as Air Canada’s fortunes look to be improving, WestJet does not have any intention of leaving any potential sources of revenue on the table, including trans-Atlantic routes where it can effectively deploy its Boeing 737 narrowbodies.
In some ways WestJet’s move is not surprising given that the carrier has previously hinted at international market expansion beyond the transborder and Caribbean and Latin American markets it serves. But as the carrier has previously stressed, any move into a widebody aircraft operation is at least five years off as its immediate focus is on ensuring the successful launch of its regional carrier Encore and continuing to optimise its network.
The carrier is, however, opting to engage in an exercise to learn more about the trans-Atlantic market while juggling the addition of several new elements to its business – Encore, new fare bundles centred on a premium economy product and its continuous quest to expand its business passenger base. It also helps make potential European partners aware that there is another Canadian airline bidding for expansion.
Air Canada reached a milestone in 3Q2013 as its return on invested capital (ROIC) as of 30-Sep-2013 was 10.8% compared with 7.7% at YE2012. The improvement is notable as the company broaches its stated objective of achieving an ROIC between 10% and 13% on a sustainable basis by 2015.
It is a laudable achievement given a couple of years ago the carrier was working feverishly to combat significant financial challenges and battled labour strife throughout much of 2012 in order to forge collective bargaining agreements that it believes will aid in its ultimate goal of sustainable profitability.
Obviously the carrier still has a long road ahead in proving its mettle in regular profitability, but for the moment it seems to be holding its own against increased competitive pressure from WestJet while getting its own new low-cost carrier Air Canada rouge off the ground.
WestJet beat previous estimates of unit cost reductions in 3Q2013, but overall the quarter was paradoxical for the carrier as yields and unit revenues continued to be pressured by high capacity growth; however, at the same time the airline is pleased with one of the main drivers of the capacity increase, the launch of its regional carrier Encore.
After unit revenues fell nearly 5% in 2Q2013 and almost 4% in 3Q2013, WestJet foresees flat unit revenue growth during 4Q2013 and is declining to offer guidance for FY2014 even as unit costs could grow by 1% during that same time period.
The carrier has undertaken numerous significant projects during 2013 in addition to the launch of a new airline – most notably the introduction of a premium economy section on its Boeing 737 narrowbodies and fare bundling options. At the same time WestJet now believes it will deliver on a CAD100 million (USD96 million) cost-cutting scheme a year early, by the end of 2014. Presumably all of those initiatives will pay off in the long term, but in the short term WestJet may continue to face pressure in some key financial metrics.
Air Canada’s low-cost carrier Rouge is ratcheting up service to leisure destinations in Europe during the 2014 summer high season, which should prove a definitive test for the carrier’s theory that a low cost operation on routes producing softer yields is the correct equation to turn profits.
The growth and operation of Air Canada Rouge to a possible fleet of 50 aircraft is a strategic pillar of the company’s efforts to cut its unit costs by 15% – quite a formidable goal. Similar to Rouge’s initial roll-out of service from Toronto to Athens, Edinburgh and Venice and from Montreal to Athens, most of Rouge’s planned route expansion during 2014 is into markets that have been served by Air Transat during the high season. With just a few months of operations under its belt, no clear-cut conclusions can be made about Rouge’s future or the total effects on Air Transat, but Air Canada appears to be throwing down the competitive gauntlet, noting that it is now in a much better position to compete on those routes.