Following the tragic events of September 11th 2001, the Government undertook a comprehensive program to enhance aviation security in Canada. The Air Travellers' Security Charge (ATSC) was introduced on April 1st 2002 to fund the government's expenditures on air travel security for travel in Canada. A fee of $12 one way, or $24 return, is charged on all air tickets for travel between two ATSC listed airports.
As part of the Government's commitment to review the ATSC, the Department of Finance engaged the firm of Sypher:Mueller International to collect data from Low Cost and Regional air carriers to enhance the government's understanding of these carriers and to assist the government in considering the application of the ATSC to these segments of the air transportation industry. The primary focus was on the collection of data on the routes and fares offered by Low Cost and Regional air carriers and determining the proportion of routes where the charge applies and the effect of the charge on representative airfares for those routes.
The study was broken into four major components:
- Selection of Carriers – Low Cost and Regional air carriers providing scheduled services to at least two ATSC listed airports were identified.
- Data Collection – Data was collected through a number of sources simultaneously. Input from the industry was sought via a survey requesting data and information on routes, passengers, load factors and fares. The response was variable with a number of carriers providing very detailed information while some others did not respond to repeated requests for information. Data was also collected from other sources such as the Official Airline Guide (OAG), the Airline Tariff Publishing Company, the Sabre ticketing system, and airline web sites.
- Fare Analysis – Analyses were conducted to provide an assessment of how often the ATSC is applicable, in terms of numbers of routes, seats and passengers, and the effect of the charge on airfares of Low Cost and Regional carriers. For each of 837 city pairs for which airfares were obtained, data was presented for three fares: the walk-on fare, the lowest fare available to adults and a representative "B" or "M" class fare. The analysis focuses on origin-destination (OD) passengers receiving same plane service as connecting passengers will usually be travelling on Mainline or international carriers and be required to pay the ASTC.
- Alternative Modes – The availability of alternative modes of travel and travel times were determined. City pairs were classified into the following categories: short (<500 km), medium (500 – 1,000 km), and long (>1000 km) haul. The difference in travel times between travel by air and road were determined for each route. Allowances were made for typical times associated with travel to/from the airport, check-in, passing through security, and waiting in the departure lounge.
Experience Subsequent to the Introduction of the ATSC – A review of recent trends in traffic was conducted, covering the period subsequent to implementation of the ATSC on April 1, 2002. The review consisted of a month-by-month comparison of traffic in 2001 versus 2002, in order to take into account seasonal patterns in travel demand. Monthly information for selected short haul routes were analyzed using the data a small number of carriers were willing to provide for the study. For the Low Cost Carriers, monthly revenue passenger kilometres (RPK) data was developed from public sources.
Low Cost Carriers
Low Cost air carriers accounted for approximately 31% of ASKs on domestic scheduled flights in Canada in September 2002.
Low Cost air carriers provide service for roughly 175 city pairs (excluding connections), carrying about 160,000 OD passengers per week in September 2002 between these city pairs. All of these city pairs are between ATSC listed airports and are therefore subject to the ATSC. The ATSC represents an increase of 8.9% in the Low fare and 7.0% of the "B"/"M" class fare when averaged over all OD passengers on these routes. The breakdown of routes is as follows:
- Routes less than 500 km account for almost 15% of the passengers, with the ATSC ranging from 10.6% to 12.6% of the fare for most passengers. Travel time savings by flying vary from one to seven hours, averaging 2.3 hours, each way.
- Routes between 500 and 1,000 km account for just over 45% of passengers, with the ATSC ranging from 6.8% to 10.8% of the fare for most passengers. Travel time savings by flying vary from 4 to 17 hours, averaging 8.5 hours, each way.
- Routes greater than 1,000 km account for just over 40% of passengers, with the ATSC ranging from 3.4% to 7.0% of the fare for most passengers. Travel time savings by flying vary from 10 to 30 hours, averaging 21 hours, each way.
The return airfare is estimated to be between $200 and $400 for about 65% of passengers. About 25% pay between $400 and $600, and about 10% pay more than $600.
Regional air carriers account for approximately 16% of ASKs on domestic flights in Canada. They provide air service between about 850 city pairs (excluding connections), carrying roughly 70,000 passenger per week in September 2002.
About 600 of these city pairs involve just one or no ATSC listed airport and are therefore not subject to the ATSC. Passengers on these routes (excluding connecting passengers) totalled roughly 20,000 per week in September 2002.
About 250 of the city pairs served by the Regional carriers are between ATSC listed airports and are therefore subject to the ATSC. Passengers on these routes totalled almost 50,000 per week in September 2002 (excluding connecting passengers). The ATSC represents an increase of 8.9% in the Low fare and 4.4% of the "B"/"M" class fare when averaged over all OD passengers on these routes. A breakdown of these routes is as follow:
- Routes less than 500 km account for just over 50% of passengers paying the ATSC, with the ATSC ranging from 5.9% to 10.9% of the fare for most passengers. Travel time savings by flying vary from 1 to 6 hours each way for most of these passengers.
- Routes between 500 and 1,000 km account for almost 35% of passengers paying the ATSC, with the ATSC ranging from 3.0% to 7.1% of the fare for most passengers.
- Routes greater than 1,000 km account for almost 15% of passengers paying the ATSC, with the ATSC ranging from 2.2% to 5.0% of the fare for most passengers.
The return airfare was estimated to be less than $200 for 6% of passengers on Regional air carriers, and between $200 and $400 for 37% of passengers.
Remote communities, those where there is no reliable year round surface transportation, account for 15% of passengers on the Regional carriers surveyed. The ATSC applies on only a small portion (about 14%) of these trips.
Experience Subsequent to Introduction of the ATSC
A review of trends in air traffic was conducted for Low Cost carriers, for selected short haul city pair markets, and for other regional markets.
For Low Cost carriers, data limitations related to changes in the air transportation industry required that the examination of time trends be broadened to include most mainline air transportation services in Canada. RPKs were used as an aggregate measure of air travel demand and showed for the first eight months of 2002, overall passenger traffic for Low Cost and Mainline carriers trailed 2001 traffic levels by about 7%. Also, for Low Cost and Mainline carriers, seasonal growth in aggregate RPKs over the months following the introduction of the ATSC was slower in 2002, compared to 2001.
Information concerning selected short haul markets was available from carriers providing passenger information by route. This information was used to compare the change in traffic over the 5-month period from April through to August 2002 with the change over the same period in 2001. This comparison removes the direct effect of the events of September 11, 2001, but could be influenced by any "bounce-back" from the large drop in traffic that occurred immediately following those events, or to other external factors such as economic activity.
A selection was made of the larger short haul markets subject to strong competition from highway transportation. The expectation is that these markets have lower fares and as a result, would be subject to greater price elasticity. The selected city pairs include city pairs of less than 500 km, with a volume of more than 5,000 seats per week and subject to strong highway competition.
The review of traffic trends indicates that passenger volumes on selected short haul routes are down 10.9% in Western Canada and down 3.8% in Eastern Canada. The larger drop in Western Canada may be associated with lower airfares and shorter driving times on the selected routes in Western Canada. Traffic on particular short haul routes has dropped by even greater amounts.
For both the selected short haul markets and the Low Cost carriers, the observed traffic patterns are consistent with the expected influence of the ATSC. However, the magnitude of the changes in traffic cannot be attributed solely to the ATSC as many other factors have been at play:
- The continuing effect of the events of September 11, 2001, such as the uncertainty over the timing and extent of a recovery in the demand for air travel during the period from April to August 2002;
- Economic conditions have been stronger in 2002 compared to 2001, which would tend to offset to some extent, the price impact of the ATSC; and
- Adding to the effect of improving economic conditions would be any "bounce-back" of travel demand from the events of September 11, 2001.
Further qualifications to the analysis of time trends for Mainline and Low Cost carriers concerns the significant change in the mix of markets and services between 2001 and 2002. It would appear that an examination of aggregate trends in RPKs provides little in the way of insight as to the effect of the ATSC on the markets served by Low Cost carriers.
Finally, as concerns other regional markets, a comparison of the trend in passengers and ASKS (2002 compared to 2001, over the four month period April through July) was conducted for city pairs in the north, and for city pairs in the south served by Jazz, other than those included in the selected short haul routes, and smaller carriers.
Northern city pairs have benefitted from competition among carriers, with ASKs continuing to show modest growth. For Southern city pairs, the trend was not as strong, with ASKS over most carriers experiencing reduced growth and a modest reduction in passengers on short haul routes.
A. Developments in the Air Carrier Industry in Canada
The last three years have seen major changes to the air carrier industry stemming from the consequences of competition within the industry, economic conditions affecting the industry and the events of September 11, 2001. Within the industry, the acquisition of Canadian Airlines International by Air Canada in early 2000 altered the structure of the industry from a duopoly to one dominated by Air Canada. Externally, the events of September 11 and its aftermath have had severe negative effects on demand and brought about a contraction of the air carrier industry. How permanent these conditions are will not be known for some time.
The merger of the two major Canadian carriers created opportunities for growth by smaller, more specialized air carriers. In particular, the rapid expansion of the Low Cost carrier Westjet into short haul and regional markets in Western and Central Canada (both before and after the merger) was remarkable both in terms of its speed and sound financial situation of the carrier. Charter-based carriers such as Royal Aviation and Canada 3000 also found room for expansion into medium and long haul markets by offering services aimed at low fare, non-business travel markets. Operating out of Halifax, startup Canjet entered markets in Eastern Canada with low fares, in direct competition with Air Canada.
The ambitious expansion of the charter-based carriers was however short lived. Canada 3000 consolidated the main players through the acquisition of Royal and Canjet in April 2001. However, slowing economic growth in 2001 put additional pressure on the industry combined with the dramatic drop in demand following the events of September 11 brought about the collapse of Canada 3000 in November. This series of events left Westjet as the only strong competitor to Air Canada on a national level.
Air Canada's response to the new environment was initially to create two subsidiaries, Jazz and Tango, to provide management focus for regional and low price services. Jazz is now the entity responsible for managing regional services throughout Canada, including those of earlier subsidiaries such Air Nova, Air Ontario and Air BC, as well the remnants of Canadian Airlines subsidiaries and its affiliate Canadian Regional. Tango operates Air Canada's low fare services on flights where the aircraft is dedicated to discount fares.
During the summer of 2002, two new Low Cost carriers commenced operations, a renewed Canjet, and Jetsgo, which is operated by the former owner of Royal Airlines. While both these carriers had high load factors and were profitable over the peak summer season, many new entrants have failed in the past. Initially, the capacity offered by these carriers has been limited. A further new entrant, Zip Airlines, commenced service on September 21, 2002. ZIP is a subsidiary of Air Canada intended to compete with Westjet on markets in Western Canada.
Developments in Infrastructure Pricing
Over the last five years, reforms to the pricing of airport infrastructure and air navigation services have had an important impact on the price of air travel. The main elements of these reforms are as follows:
- The commercialization of air traffic control services (NAV CANADA) in 1996 and the introduction of air navigation fees two years later;
- The removal of the Air Ticket Tax (coincident with the introduction of air navigation fees); and
- Extension of Airport Improvement Fees (AIF) to many more airports subsequent to the transfer of airports to local authorities (LAAs).
Insurance premiums for aviation infrastructure have also increased greatly following the events of September 11 and these costs have been passed on to the carriers. These changes have increased the level of fees, charges and taxes added to the base fare charged by air carriers. The Government of Canada is providing third-party war and liability insurance for essential aviation service operators in Canada, following the reduction in the level of war risk liability provided by international insurers.
The tragic events of September 11, 2001 have had a significant impact on the security needs of air travellers. In response to the new requirements, the Federal Government undertook a comprehensive program to enhance aviation security. This program included rigorous new standards for security in airports, the formation of the Canadian Aviation Transportation Security Authority (CATSA) and assumption of funding responsibility for a number of programs.
To fund the new air security expenditures, the Government introduced the Air Travellers Security Charge (ATSC), effective April 1, 2002. It is paid by air travellers and collected by air carriers or their agents at the time of purchase of airline tickets. For travel within Canada, the amount of the charge is $12 for a one-way trip on a direct flight and $24 for a round trip (including GST) between ATSC listed airports. In the budget of December 10, 2001, the Government undertook to review the rate of the ATSC over time to maintain revenue in line with expenditures on air security.
The objective of this study is to enhance the Government's understanding of Low Cost and Regional carriers and to assist in the consideration of the implications of the ATSC to those segments of the industry.
The primary focus is to collect data on the routes and fares offered by Low Cost and Regional air carriers to determine the proportion of routes where the charge applies and the effect of the charge on representative airfares for those routes. The study also involves the development of a context for assessing the implications of the charge by way of air carrier business strategies, competitive environment, potential for substitution between with alternative transportation modes and recent changes in air travel demand.
The study includes all Low Cost carriers operating in September 2002 and a close to full sample of Regional carriers operating scheduled services at ATSC listed airports in September 2002. The sample includes Regional carriers serving at least two ATSC listed airports based on a preliminary list of routes served by Regional carriers. The routes examined were restricted to Canadian domestic routes operated by these air carriers.
The study was broken into four major components. These components and the approach used are summarized below.
- Selection of Carriers – A list of air carriers certified to provide scheduled services was obtained from Transport Canada, Civil Aviation. Regional carriers operating commuter sized (10 to 19 seat) aircraft or larger on scheduled services and new entrant Low Cost airlines which are currently providing scheduled service were identified. From this, a list of Low Cost and regional airlines to be included in the study was produced. The list of carriers surveyed and summary information on the fleet and points served are presented in Appendix A.
- Data Collection – Data was collected through a number of sources simultaneously. These are described in Section II-B. Input from the industry was sought via a survey requesting data and information on routes, passengers, load factors and fares. The response was variable with a number of carriers providing very detailed information while some others did not respond to repeated requests for information. The survey provided a great deal of data and valuable comments regarding the application of the ATSC.
- Fare Analysis – Analyses were conducted to provide an assessment of how often the ATSC is applicable, in terms of numbers of routes, seats and passengers, and the effect of the charge on airfares of Low Cost and Regional carriers.
Alternative Modes – The availability of alternative modes of travel and travel times were determined. City pairs were classified into the following categories:
- Short haul (<500 km);
- Medium haul (500 – 1000 km); and
- Long haul (>1000 km).
The difference in travel times between travel by air and road were determined for each route. Allowances were made for typical times associated with travel to/from the airport, check-in, passing through security, and waiting in the departure lounge.
- Experience Since Introduction of the ATSC – The ATSC has been payable on airline tickets issued since April 1st, 2002. Data to assess the effect of the ATSC on passenger traffic was available for the five months following introduction of the charge.
B. Sources of Data
The acquisition of reliable, consistent and accurate information is essential to the success of the study. This section outlines the numerous sources used and the steps taken to ensure consistency and integrity.
Baseline data on services, fares and ground transportation was collected for the month of September, 2002. This period was chosen to ensure currency and to facilitate the collection of airline fares in "real time". Further, the month of September is a shoulder month and is often considered as representative of an average month of the year, in terms of the seasonality of Canadian air traffic activity.
1. Air Carrier Services
Information on air carrier services was drawn mainly from the database of the Official Airline Guide (OAG). This database is a standard industry source developed from published airline schedules. The OAG data provides comprehensive information on airline operations such as flight itineraries, times, aircraft type, seat capacity, distances and flight times.
For those few carriers not represented in the OAG, operating data was obtained from schedules available on the internet or directly from the carriers themselves.
Airfares were obtained from a number of sources. Eight carriers supplied airfares in response to the survey. Fares for Low Cost carriers were taken directly from each airline's web sites. Fares for the remaining carriers were obtained from either the Sabre reservation system, from the database of the Airline Tariff Publishing Company (ATPCO) or, for several small Regional carriers, the airline web sites. Airfares from three Regional carriers primarily serving non-ATSC airports could not be obtained. In all cases, sample fares obtained from various sources were cross-checked for consistency. All surcharges, fees, taxes and airport charges included in the total ticket price were included in order to provide a reference baseline for the cost of air travel to consumers. Where taxes levied on the fares depended on which city of the origin-destination (OD) pair was the origin (e.g., QST and HST), the average tax was used.
3. Ground Transportation
Data on distances by road and driving times were obtained from Microsoft Map Point software. Scheduled trip times for ferry crossings and railway services in remote areas were obtained from published information on the web. Assumptions used to calculate driving times, waiting and processing time for ferries and air terminals and airport access times are presented in Appendix B.
The list of carriers for which data was collected and the sources of route, passenger and fare data are given in Exhibit II-1. Comments received from carriers in response to the survey are summarized in Section IV-E.
C. Data Issues
In collecting the data and conducting the analysis, the special circumstances surrounding passengers who connect to other flights and passengers on multi-stop routes were taken into account. These are discussed below.
1. Local and Connecting Passengers
Some passengers travelling on the routes offered by Low Cost and Regional carriers are connecting with other flights. The implications of the ATSC for connecting passengers are significantly different from passengers whose true origin and destination are on the itinerary of the aircraft itself (so-called local origin-destination passengers). The airfares paid by connecting passengers cover the cost of travel for the whole trip and are greater than for local origin-destination passengers; for this reason, the implications of the ATSC will usually be less for the connecting passengers, compared to local origin-destination passengers.
Due to the difficulty in assembling appropriate data, this study is focused on the implications of the ATSC on local origin-destination passengers. Airfares were collected for each city pair analyzed, and an estimate was made of the number of local origin-destination passengers for each route. Information on the percentage of connecting passengers by route was used when provided by the carriers, otherwise estimates of the percentage were used.
Exhibit II-1. Air Carriers Surveyed and Source of Data by Type of Data
|Air Carrier||Routes||Airfares||Passenger Traffic*|
|Air Alliance / Air Georgian||OAG||Sabre||Typical LF|
|Air Creebec Inc.||OAG||ATPCO||Typical LF|
|Air Inuit||Web||not avail.||Typical LF|
|Air Mikisew Ltd.||OAG||Carrier||Typical LF|
|Air North||OAG||Web||Typical LF|
|Air Satellite Inc.||Carrier||Carrier||Typical LF|
|Air Tindi||not applic.||not applic.||Typical LF|
|Airspeed Aviation Inc.||Web||Web||Typical LF|
|Alberta Citylink / Palliser Air||not applic.||not applic.||Typical LF|
|Altair Aviation Ltd.||not avail.||not avail.||Typical LF|
|Aviation Quebec Labrador||OAG||ATPCO||Typical LF|
|Baxter Aviation||Web||Web||Typical LF|
|Bearskin Airlines||OAG||Carrier||Carrier LF|
|Calm Air International Ltd.||OAG||Web||Typical LF|
|Canadian North Airlines||OAG||Web||Typical LF|
|Canadian Western Airlines||OAG||Web||Typical LF|
|Central Mountain Air Ltd||OAG||Carrier||LF by route|
|Corporate Express Airlines||Web||Web||Typical LF|
|First Air||OAG||Sabre||Typical LF|
|Harbour Air Ltd.||OAG||Web||Typical LF|
|Hawkair Aviation Services Ltd||OAG||Web||Typical LF|
|Helijet International||OAG||Carrier||Typical LF|
|Integra Air||Web||Web||Typical LF|
|Jazz Air Inc.||Carrier||Carrier||Carrier|
|Labrador Airways Ltd.||OAG||ATPCO||Typical LF|
|Northern Thunderbird Air Inc.||Web||Web||Typical LF|
|Northwestern Air Lease Ltd.||OAG||Web||LF by route|
|Pacific Coastal Airlines||OAG||Carrier||LF by route|
|Pascan Aviation Inc.||Web||not avail.||Typical LF|
|Peace Air Ltd.||Web||Web||Typical LF|
|Provincial Airlines||OAG||ATPCO||Typical LF|
|Skyward Aviation Ltd.||OAG||Sabre||Typical LF|
|Tango By Air Canada||Web||Web||Carrier LF|
|Trans Capital Air Ltd.||not applic.||not applic.||Typical LF|
|Transwest Air||OAG||Carrier||Carrier LF|
|Voyageur Airways Limited||not applic.||not applic.||Typical LF|
|Western Express Airlines Inc.||Web||na||Typical LF|
|Westjet Airlines Ltd.||OAG||Web||Carrier LF|
|Zip Airlines||Web||Web||Typical LF|
* LF (load factor) used in conjunction with scheduled flight frequency and aircraft type to estimate passengers
2. Multiple-stop Routes
Routes with multiple stops are common on many air carriers, particularly for routes offered by the smaller Regional carriers. On multiple-stop routes, most passengers are bound to/from the major city/town on the route and may be on the flight for two or more flight segments of the route. The effect of this on passenger numbers is analogous to that of connecting passengers. Where not provided by the airline, the number of passengers for each city pair was estimated by considering each O-D pair that is served by the multi-stop route, and number of stops involved for each city pair served, the draw of each city, and the average load factor for the route. Where load factors for particular routes were unavailable, overall carrier load factors were used.
A. How the ATSC Applies to Travel Within the Air Transport Network
The Canada Customs and Revenue Agency (CCRA) is responsible for the administration and interpretation of the charge. This entails registering clients, providing written and verbal information, processing of ATSC returns and remittances, collection of outstanding balances, auditing to ensure voluntary compliance, and providing an appeals mechanism. Further information about the charge and its application is available at the CCRA website - http://www.ccra-adrc.gc.ca. Generally, for domestic air travel, the ATSC of $12 one-way applies to air transportation for trips between two ATSC listed airports, or where the connecting airport and either the origin or destination airport are ATSC listed airports. Trips between listed and non-listed airports and between non-listed airports are not subject to the ATSC. The schedule of listed airports is presented in Exhibit III-1. The 89 listed airports include all of the large Canadian airports, all international airports as well as a number of smaller regional and local airports with air services into the larger centers.
The distinction between listed and non-listed airports impacts carriers in different ways, depending on the city-pair markets served. For example, the services of Low Cost carriers (e.g. Westjet, Tango, etc.) and larger regional airlines such as Air Canada Jazz are largely between listed airports and thus subject to the ATSC. The reverse is true for Regional carriers operating in the North or to smaller communities in remote locations where, for the most part, the ATSC does not apply. These points are elaborated in the following sections of Chapter III.
B. Application of ATSC to City Pairs Served by Low Cost Air Carriers
The term Low Cost carrier refers to airlines that have specialized in providing low priced travel, as distinct from mainline carriers who cater to a wide range of travellers and markets. Not only do Low Cost carriers focus on specific markets, their businesses are organized to provide the low operating cost structure that allows them to remain profitable in a highly competitive regime. Some of the characteristics of these airlines include:
Exhibit III-1. Listed Airports for the ATSC
Prince Edward Island
Newfoundland and Labrador
- A simplified low cost pricing, ticketing and reservation system to facilitate operations at a high load factor;
- Flexible, low cost operating practices, often with non-unionized staff;
- Higher levels of aircraft utilization;
- Aircraft fleets with uniform aircraft types (for example, B737 for Westjet and Zip, and MD80 for Jetsgo);
- Operations from smaller airports (e.g. Hamilton and Abbotsford for Westjet);
- Operations based on low cost, point-to-point services as opposed to higher cost connecting routes. Some hubbing may occur at some airports (e.g. Westjet at Hamilton), but this is not necessarily an important feature of Low Cost carriers. Also, while Low Cost carriers may arrange services as multi-stop routes, most passengers would fly only one or possibly two segments of a multiple-stop route;
- No-frills onboard service; and
- Market development focused on stimulating air travel demand by offering low fares to attract automobile users and to generate air travel demand for non-business travel (vacationing and visiting friends and relatives).
As shown in Exhibit III-2, there are a number of Low Cost carriers operating in Canada. Westjet has been a principal player in the Canadian airline industry and is by far the largest Low Cost carrier in terms of passengers carried and available seat kilometers provided. Initially Westjet specialized in short haul markets in competition not only with other carriers, but also with the automobile. In recent years, Westjet has expanded service to Eastern Canada based in Hamilton, developed an extensive network of regional services in Western and Central Canada, and is currently developing a new presence in medium and longer haul markets provided over segments of its new East-West network.
Tango is an operating component of Air Canada specializing in low fare services in competition with Westjet and newly emerging carriers such as Jetsgo and Canjet. Tango uses a simplified fare structure and reservation system to achieve high load factors. Aircraft are drawn from Air Canada's fleet and operated in concert with that carrier's scheduled operations. One of the objectives is to increase consolidated load factors and aircraft utilization.
Exhibit III-2. Low Cost Carriers (September 2002)
|Carrier||Code||# Pairs served||Seats / week||Seat km per week||Seat km Share %||Cumulative %||ATSC Avg % of Low Fare|
|Air Canada Tango*||AC||25||45,630||58,673,277||22.2%||81.1%||7.7%|
|Total: Low Cost Carriers||177||261,274||263,730,183||100.0%|
Source: OAG and airline web sites (for carriers with *)
ZIP Airlines is another new operating subsidiary of Air Canada, based in Calgary and designed to compete with Westjet in Western Canada. Jetsgo and Canjet are new, independent entrants offering services over a wide range of short, medium and long haul markets, based largely on point-to-point operations.
Load factors (ratio of passenger-km to ASKs) achieved by Low Cost carriers are typically higher than for other segments of the aviation industry. Westjet reported an average load factor of 75.1% for the first 8 months of 2002 and load factor of 85.9% during August, one of the peak summer months. Jetsgo also reported a high load factors in August of 83.6% following the 70% it achieved in July, its first month of operation. No Low Cost carriers provided load factors by route and average load factors of 75% were used for estimating passenger traffic in Section 3 for all carriers except Zip Airlines. Zip commenced operations in September and a lower load factor of 70% was used.
All of the routes served by the Low Cost carriers are subject to the ATSC.
C. Application of ATSC to City Pairs Served by Regional Air Carriers
There are a large number of diverse air carriers providing regional and local services in Canada. Exhibit III-3 provides a summary of the larger Regional carriers considered in this study. The largest carrier, Air Canada Jazz, provides almost 60% of the seat kilometers for the group. Carriers operating in the North account for about 25% and numerous small carriers in Southern Canada account for about 14% of the total seat kilometers of the surveyed Regional carriers.
Exhibit III-3. Regional carriers (September 2002)
|Carriers||Code||# Pairs served||Seats / week||Seat km per week||Seat km Share %||Cumulative %|
|Air Canada (Domestic only)|
|AC Central Mountain Air||9M||12||6,270||1,903,800||1.5%||60.1%|
|AC Air Georgian||GGN||4||3,458||842,688||0.7%||60.7%|
|Sub-total Air Canada||132||188,472||75,695,509||60.7%|
|Calm Air Intl Ltd||MO||45||8,918||3,619,606||2.9%||82.2%|
|Skyward Aviation Ltd||K9||31||4,074||994,432||0.8%||85.2%|
|Northwestern Air Lease Ltd.||J3||2||608||195,320||0.2%||85.4%|
|Air Tindi Ltd||8T||5||630||138,186||0.1%||85.5%|
|Sub-total Northern Carriers||251||47,013||30,952,661||24.8%|
|Pascan Aviation Inc.||24||3,267||1,725,588||1.4%||93.3%|
|Pacific Coastal Airlines||8P||13||10,155||1,310,949||1.1%||94.3%|
|Corporate Express Airlines||CPB||3||2,544||873,120||0.7%||97.9%|
|Aviation Quebec Labrador||QC||24||3,102||536,458||0.4%||98.3%|
|Central Mountain Air||9M||8||1,748||486,495||0.4%||98.7%|
|Harbour Air Ltd||H3||5||4,856||415,196||0.3%||99.0%|
|Northern Thunderbird Air||2||330||146,025||0.1%||99.8%|
|Canadian Western Airlines||W2||3||432||39,012||0.0%||100.0%|
|Airspeed Aviation Inc.||5S||1||160||14,080||0.0%||100.0%|
|Sub-total Southern Carriers||466||75,843||17,967,260||14.4%|
Source: OAG and airline web sites
Typically, the Regional carriers fly much shorter distances with much smaller aircraft and provide services to numerous, low-density markets. Note that the number of city pairs served by the Regional carriers (849) is much greater than that of the Low Cost carriers (177). The route structures usually consist of multiple stop flights and fewer point-to-point flights. Thus, passengers on the services of the Regional carriers are more likely to stop at intermediate airports along the way. Further, some of the Regional carriers, most notably Jazz, operate as feeders to the mainline carriers.
While the Regional carriers may have low overheads, simplified ticketing and reservation systems and low labour costs, the regime for aircraft operations is often a costly one:
- They operate smaller aircraft, resulting in a higher cost per seat kilometer;
- Stage lengths are shorter, resulting in a higher cost per seat kilometer;
- A larger proportion of passengers fly on more than one flight segment, thus raising the cost for longer haul passengers;
- They often serve remote locations, resulting in higher fuel and maintenance costs; and
- They often use multiple aircraft types, resulting in higher maintenance costs.
Air Canada Jazz operates services to short haul and regional markets throughout Canada. The routes are those formerly operated by subsidiaries and affiliates of Air Canada and Canadian International (Air BC, Canadian Regional, Air Ontario, Air Nova, etc.). The fleet consists mainly of DeHavilland Dash 8 turboprop aircraft and some small jets such as the Canadair Regional Jet (CRJ) and Bae 146. The routes comprise a mixture of high density markets, such as Calgary–Edmonton, and small low density markets. Recently, Air Canada has published notices of the withdrawal of Air Canada Jazz from a number of communities in Eastern Canada in January, 2003.
The operations of some of the larger air carriers in the North (First Air, Canadian North and Air North) include the use of B727 and B737 jet aircraft over very long stage lengths, much longer than the stage lengths of Regional carriers operating in the south. Due to the heavy movement of air cargo in the north, these aircraft are typically configured as combination aircraft, carrying both passengers and freight on the main deck. The long distances in the north result in the large seat kilometers presented in Exhibit III-3.
Most carriers operating in southern Canada (except for Jazz) operate small turbo prop aircraft such as the DeHavilland DHC-6 Twin Otters, Bae Jetstream 31, Beechcraft 1900D and 99, Fairchild Metroliner, Pilatus PC12, and Emabaer EMB-1100.
The load factors achieved by Regional carriers vary considerably and are typically lower than for mainline and Low Cost carriers. Seven Regional carriers provided information on average load factors, several by route. Average load factors varied from 25% to 63% and averaged 50.4%. A load factor of 50% was used for Regional carriers that did not provide this type of information.
With the notable exception of Air Canada Jazz, many of the services operated by the Regional carriers are exempt from the ATSC. Overall, 88% of the city pairs, accounting for 64% of the passengers of the Northern carriers, are exempt from the ATSC. For the Southern carriers, markets exempt from the ATSC account for 79%% of markets served, representing 56% of the passengers. The specifics for each carrier are outlined in Exhibit III-4.
It should be noted that the Regional carriers surveyed do not represent a complete sample of this type of carrier. Regional carriers were selected if they operate at two or more ATSC listed airports based on preliminary information and should cover almost all Regional carriers serving routes where the ATSC applies. However, there are a number of carriers which provide services where the ATSC does not apply. A number of the larger carriers excluded from the survey and the ASKs they provide are given below:
|ASKs for Week in Sept,2002||ASKs for Week Sept,2002|
|Southern Carriers||Northern Carriers|
|BZ - KEYSTONE AIR SERVICE||83,302||FK - KEEWATIN AIR||395,135|
|8O - WEST COAST AIR||365,598||6L - AKLAK AIR||314,121|
|XC - K.D. AIR||60,813||U7 - NORCANAIR||542,052|
|T2 - NAKINA AIR SERVICE||237,213||4K - KENN BOREK AIR||573,726|
|UJ - MONTAIR AVIATION||72,248||J4 - BUFFALO AIRWAYS||62,048|
|Total ASKs||819,174||Total ASKs||1,887,082|
|Source: BACK Aviation, ASKs from OAG|
The excluded carriers in each region account for 4.4% and 5.7% of the ASK of Regional carriers in the Southern and Northern regions, respectively.
Exhibit III-4. Application of the ATSC to Markets of Regional Carriers
|Number of City Pair Markets||City Pair Markets Subject to ATSC|
|Carriers||With 2 ATSC airports||With 1 ATSC airport||With no ATSC airports||% of OD Pairs||% of Passengers||Avg % of lowest fare|
|Air Canada (Domestic only)|
|AC Central Mountain Air||8||4||0||67%||85%||15.2%|
|AC Air Georgian||4||0||0||100%||100%||12.3%|
|Sub Total Air Canada||124||8||0||94%||99%||8.8%|
|Calm Air Intl Ltd||1||21||23||2%||22%||5.4%|
|Air Tindi Ltd||0||5||0||0%||0%||Nav|
|Sub Total Northern Carriers||30||134||87||12%||36%||3.6%|
|Pascan Aviation Inc.||17||7||0||71%||67%||Nav|
|Av. Quebec Labrador||2||10||12||8%||7%||4.7%|
|Central Mountain Air Ltd.||8||0||0||100%||100%||8.2%|
|Harbour Air Ltd||0||1||4||0%||0%||Nav|
|Sub Total Southern Carriers||96||158||212||21%||43%||11.8%|
|Source: OAG and airline web sites|
1 Note that some references when stating the number of city pairs served are referring only to city pairs served on non-stop flights. Inclusion of multi-stop flights greatly increases the number of city pairs served. [Return]