Companies & Industries

Canada's three new discount airlines get ready to rumble

Will Canada finally get cheap flights?


(Photo: Shan Qiao/Air Canada)

Flying with a two-year-old is challenging at the best of times. It doesn’t help when the airline causes more problems than your toddler. Nadine Potvin, a doctor in Alberta, recalls a recent ordeal flying Air Canada to Ontario with her husband and son. She checked in the day before, and saw her two-year-old was seated alone, three rows behind them. When she phoned to inquire about changing seats, she was told to talk to someone at the check-in desk. That agent told her to talk to the boarding agent at the gate, who didn’t have any answers, either. “No one apologized,” Potvin says. It wasn’t until boarding that the crew realized there was a trio of vacant seats at the back of the plane. On the return flight, her son was again seated by himself. This time, she was told she had to pay for seat selection. It wasn’t the $30 fee that irked Potvin, but the terrible customer service. “Since when did we have to pay for common courtesy?” She now flies with WestJet whenever possible.

Potvin’s complaints are not unique. Almost everyone has a tale about a frustrating flying disaster. But finally, there is a reason for optimism. New competition is coming to the Canadian market, with both WestJet and Air Canada recently launching subsidiaries: WestJet unveiled Encore in June to target smaller locations in Western Canada. A few days later, Air Canada rolled out Rouge, to service holiday destinations. Both are low-cost carriers, cheaper to operate than flagship lines, because hiring new staff allows the carriers to pay them less. Each new banner is starting small, but has ambitious expansion plans. Meanwhile, Toronto’s Porter Airlines wants to boost competition even more by adding a slew of new jets and destinations in 2016, expanding from a regional player to a national one.

All of these developments mean consumers could benefit through more choice, increased flight frequency and even lower fares. Some carriers are boasting of reductions of up to 50% on certain routes. What’s more, we could see a greater focus on customer service as airlines fight for passengers. These potential benefits come with at least one cost, however: your personal space. It’s not just legroom you’ll lose as carriers try to fit more passengers on their planes. One analyst who toured one of Encore’s new planes was alarmed at the tiny, cramped, solitary washroom designed for all 78 passengers. “I’ll just go at the airport,” he says.

WestJet’s Encore will likely have the most dramatic effect on the market. Its handful of Bombardier Q400 planes will target a few destinations initially, such as Fort St. John and Nanaimo in B.C. along with Saskatoon, but that’s just the beginning. Encore will challenge Air Canada on two fronts: routes where Air Canada doesn’t already service through its regional affiliates, such as Brandon, Man., and those on which Air Canada is essentially the sole provider. It’s also promising to drastically lower prices. “Our fares will be up to 50% lower than the incumbent carriers’,” says Robert Palmer, WestJet’s public relations manager.

(Photo: Fred Lum/ The Globe and Mail/Canadian Press)

(Photo: Fred Lum/ The Globe and Mail/Canadian Press)

Air Canada lowered rates on at least one of Encore’s routes before it even launched. Earlier this year, a flight from Calgary to Fort St. John would set you back about $372. Today, an economy-class ticket is $225. Encore comes in even lower at $172. Robert Kokonis, president of transportation consulting firm AirTrav Inc. in Toronto, expects to see fares drop between 25% and 50% on the routes targeted by Encore, though they might fluctuate over the next little while. The new discount service has just two airplanes today, but it will take delivery of 18 more over the coming months. It then has the option to purchase an additional 25. “There are so many pockets that WestJet could put its aircraft into, it’s unbelievable,” Kokonis says. Air Canada dominates on many routes to smaller regional hubs in the east because there is little to no competition, making it fertile ground for Encore to muscle in and steal market share.

By expanding to more locations, Encore also sets up its parent carrier for international expansion, eventually allowing, say, someone from Brandon to go on an Italian holiday in Rome entirely on WestJet planes. Part of the appeal for CEO Gregg Saretsky in joining WestJet in 2009 was the chance to grow internationally, speculates Rick Erickson, an aviation consultant with R. P. Erickson & Associates in Calgary. In his previous gig at Alaska Airlines, Saretsky undertook an expansion of its route network. “He’s got all the tools, and he was exactly the right guy to head up WestJet,” Erickson says.

It might take years, but if WestJet adds more international routes, it could put an additional squeeze on Air Canada. Porter Airlines, meanwhile, could further increase the pressure as it too adds more destinations. The regional carrier caters primarily to business travellers between Toronto, Ottawa and Montreal, but since launching in 2006, Porter has grown to service 19 destinations, mostly concentrated in eastern Canada and the U.S. By 2016, it wants to fly Bombardier CSeries jets to more far-flung locales, including Calgary, Vancouver, Los Angeles, and Miami.

Like WestJet, Porter is promising steep price reductions. When the airline originally launched, fares on the routes it targeted fell by up to 60%, according to Brad Cicero, Porter’s manager of communications and public affairs. A reputation for above-average customer service is another reason Porter has proven popular. The airline’s stylish lounges in Toronto’s island airport, Ottawa and Newark, for example, offer free water, free cappuccinos, free snacks, and complementary Wi-Fi. The farther Porter expands, the more pressure it puts on the competition to step up their own game. The airline’s plans are highly speculative at this point, however. Porter still needs permission from the City of Toronto, the Toronto Port Authority, and the federal government to fly CSeries jets from the island airport. And the original agreement to fly the turboprops Porter uses now only came about after some messy political wrangling.

(Photo: Galit Rodan/Canadian Press)

(Photo: Galit Rodan/Canadian Press)

With WestJet and potentially Porter nipping at its heels, Air Canada is not standing still. In recent years, the country’s largest carrier has been hamstrung by high costs, in large part because of its labour agreements. Other carriers such as Sunwing and Air Transat competed for holiday destinations in the Caribbean and Europe. Because they didn’t have the same onerous employment contracts, they undercut Air Canada on price. But after a series of difficult labour negotiations under CEO Calin Rovinescu, Air Canada finally obtained the concessions it needed last year to hire new employees at reduced pay for a low-cost carrier to target the vacation market. Like Encore, Rouge is starting small, with four planes (it plans to have 14 by next year) and 13 international destinations, most of which were previously serviced by Air Canada. Rouge CEO Michael Friisdahl says that while increasing profitability is a focus, so too is growth. “We certainly intend to go back and regain some lost market share,” he says. Rouge will service destinations like Edinburgh and Venice, to which Air Canada normally couldn’t fly because of its high-cost structure.

The carrier’s fares will more or less be in line with the competition’s, but Friisdahl says the “customer experience” Rouge provides will be a big differentiator. “It’s important to be able to assess customers and what their needs are, and adapt accordingly, rather than having a generic approach on board the aircraft,” he says. The flight attendants will wear name tags indicating their hometowns, a technique to start conversation that’s common on cruise ships. The in-flight entertainment system will feature customized music playlists for each location, and the customs declaration forms on the return trip will have the flight number already filled in, so passengers won’t have to search for their boarding passes.

Rouge flight attendants will have to work hard to please, though, because passengers in economy class will be even more tightly packed together. The carrier’s first four planes have been transferred from Air Canada and retrofitted with more seats. Two of them have seen their seat count increase from 120 to 142 seats, depriving passengers in economy of about two inches of space. Encore’s planes will be tight, too. It will be flying Bombardier Q400s with 78 seats, whereas Porter and Air Canada max out at 70 and 74. Encore is using slimmer seats, which allow passengers an average of 30 inches of legroom.

Crowded planes are a reality across the airline industry as carriers try to squeeze out more profit in an absurdly expensive business. The International Air Transport Association projected the industry globally will generate US$711 billion in revenue this year, but airlines will keep just $12.7 billion, or 1.8%. Indeed, the trend is that any additional luxury, no matter how minor, comes with a fee. Accessing Rouge’s in-flight entertainment system, which will be streamed directly to your smartphone or tablet, costs $5 (there will be no free in-flight content). Airlines will also give you the chance to buy back your personal space. Following WestJet’s lead, both Air Canada and Rouge are installing a third tier of seats between first-class and economy known as “premium economy,” which will allow you a few extra inches of legroom and perks like hot towel service. These trends are surely not ideal for consumers, but they mark a necessary trade-off for overall lower ticket prices.

The truth is, there are only so many ways carriers can improve upon the experience of being crammed into a flying hunk of metal while breathing re-circulated air for hours at a time. But with the country’s major carriers staking out new turf, there is hope we’ll dread the experience a little less.