September 17, 2014 1:17 pm
Updated: September 17, 2014 3:57 pm

Western Canada ripe for new low-cost air travel: report

"In the past, this [low cost] strategy has proven difficult to implement in Canada," a new report says. Brighter economic conditions in Alberta and B.C. however are reviving hopes carriers are on the way offering cheaper ticket prices.

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A new report published Wednesday suggests “ above average economic growth” across Western Canada in recent years has created the right conditions for another shot at super low-cost air travel in the region, and perhaps across the country.

The number of air travellers in British Columbia and Alberta is growing at a faster clip than other regions, according to the Conference Board of Canada, thanks to a brisker pace of business activity.

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The brighter prospects “have created the right context for the launch of new carriers, especially in the ‘ultra-low cost’ segment, which remains essentially nonexistent in Canada,” according to the report.

Super low-cost air travel is widespread in Europe, Asia and routes spanning the United States. But the model has struggled to sustain itself here.

The fresh vote of confidence comes as up to three new lower cost airlines prepare to launch services.

Jetlines and Jet Naked are two ultra low-cost startups hoping to open up routes as early as next year. U.S. carrier Southwest has also said publicly it intends to add flights north of the border.

Jetlines president David Solloway said in a July interview his company is seeking financing to help it begin offering airfares on routes beginning next spring. Vancouver-based Jetlines plans to launch initially in western provinces.

But “both [Jetlines and Jet Naked] are planning to fly to domestic and sun destinations,” the Conference Board’s Kristelle Audet, who authored the report, suggests. And “at prices that are a fraction of those currently advertised by Air Canada and WestJet.”

MORE: New air carrier Jetlines aims for spring 2015 launch 

Audet said the number of passengers travelling through Western Canadian airports is up substantially this year. Traffic levels in airports further east meanwhile aren’t growing nearly as fast (see chart).

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The carriers plan to slash ticket prices by unbundling every service that’s typically rolled up into an airfare, reducing the base cost and charging extra for everything else, including luggage, snacks and upgraded seating.

“Basically you purchase a seat and seatbelt,” Solloway told Global News in late July.

“It’s a very strict business model. The whole focus is to provide safe, comfortable jet service to Canadians at the lowest possible price.”

Tightly packed flights as well as non-unionized staffs that aren’t paid as much as workers at Air Canada and WestJet will also keep prices way down, Audet suggested.

Flying just a few routes that aren’t dependent on connecting flights is another means of lowering the ticket price, experts say — simple point-to-point flights in a handful of destinations.

Departures

Still, the ultra low-cost approach of Jetlines and Jet Naked carries big financial risks, the report said, echoing other experts who are uncertain about the viability of the model in Canada.

“In the past, this strategy has proven difficult to implement in Canada,” Audet said.

Canada 3000, Jetsgo, Harmony and Zoom Airlines are four examples of operators who have foundered in the past decade or more.

“Even WestJet has moved away from the low-cost strategy that characterized its operations in its early days,” Audet said.

WestJet said this week it will begin charging $25 on economy passengers for their first bag of checked luggage, a move experts say Air Canada is likely to match.

And as airfares between Canada’s two biggest airlines increasingly resemble each other, there’s an opportunity for lower-cost operators, experts say.

MORE: WestJet to charge new $25 luggage for economy fares

“It opens the door to a new entrant stepping into the market with a traditional low-cost model,” Ben Cherniavsky, airline analyst at Raymond James, said in a recent note.

Big discounts

Cherniavsky said such services could initially sell tickets for half what WestJet and Air Canada sell the same flights for.

“Indeed, real low-cost/low-fare carriers usually cut existing fares by 40-50 per cent – or more! – in order to stimulate demand,” the Raymond James analyst said.

WATCH: BYOP: bring your own pretzels. That could be the new standard when discount airline ‘Jetlines’ launches in Canada next year

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