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A new regulation is set to transform the ultra low cost airlines market, in Canada! For years, Canada has aggressively protected its existing airline industry from foreign investments and takeovers with a key regulation, one that restricts foreign ownership to 25%. This in itself is a huge barrier to any new player in the market, seeking investment. Thats about to change.
Ultra Low Cost Airlines in Canada
On November 3rd, the Canadian government announced its intention to increase the foreign ownership limits to 49% (no single investor to own more than 25% ). While this is yet to pass the parliament as a regulation, the government has approved an immediate exemption for two Canadian airlines – Calgary based Enerjet and Richmond (British Columbia) based Canada Jetlines Ltd. , that had applied for an increase in foreign ownership limits. This is incredible news for the two players that have been trying to break into the low cost carrier market and brings tremendous growth potential in the Canadian aviation industry. This may also be a big boost to Bombardier and the C-Series jets that traditionally target this segment.
Photo Credit: Saskatoon StarPhoenix (Editorial Cartoon by Graeme MacKay)
A growth in the low cost carrier segment in Canada should be good news for the passengers that have long complained about the airfares. A recent study by kiwi.com placed Canada as the most expensive country for cost/100 km for international flights and placed it sixth most expensive in the world for average cost/100km.
Graphic Credit: Kiwi.com
Graphic Credit: Kiwi.com
However, when it comes to domestic fares (low cost or full service) , Canada does relatively well, ranking 8th cheapest in the world for full service airline fares and 20th for low cost airlines fares. Cost/100km for low cost domestic flights in Canada prices at $8.00 compared to $3.54 in USA and $7.02 in Russia.
Canada’s relative success in this area can be attributed to the emergence of airlines like Porter (full service airline) and NewLeaf (low cost carrier based out of Winnipeg, Manitoba). Newleaf has been pushing some incredible <$50 CAD fares in recent months. They operate in 9 Canadian cities and partner with Flair Airlines, that owns and operates the Boeing 737-400 planes.
NewLeaf is hardly a success though, with several cancelled routes and predatory pricing responses from Westjet airlines. The following graphic from Financial Post article titled “Why Canada is the only major market in the world without a super-cheap airline” really drives the point across.
Take Away
There is tremendous potential for growth in the ultra low cost airlines market in Canada. The proposed regulation for increased foreign ownership can usher a new era in the Canadian aviation model and tap into a customer base that is ready and has been yearning for a change. I look forward to further developments from EnerJet and Jetlines in cracking open the ultra low cost carrier market for Canadians.
