TORONTO—Low-cost airlines, taking off around the globe, have been in a holding pattern in Canada.
But thanks to a change in government regulations, a trio of upstarts is set to break into the country's air-travel market, in a move that could challenge the duopoly of the main Canadian operators, Air Canada and WestJet Airlines Ltd.
The new, ultralow-cost carriers could also drain market share from a handful of American airlines catering to Canadians with cheap flights at U.S. airports near the border.
Canada Jetlines Ltd., a new airline based in Vancouver, British Columbia, plans to start flying out of smaller airports near Toronto next year, with fares that should “cost less than a pair of jeans,” or under $100, says Chief Executive Stan Gadek.
Flair Airlines Ltd., meanwhile, relaunched its ultra low cost venture this year after acquiring the assets of defunct NewLeaf Travel. The airline based in Kelowna, British Columbia, plans to add three cities to its flight schedule and triple its fleet of Boeing 737-400 jets to six by the end of the year.
And Bill Franke, who helped pioneer the ultralow-cost carrier segment in the U.S., is pursuing a tie-up with EnerJet, a charter airline based in Calgary, Alberta. The deal, valued at roughly 80 million Canadian dollars, or US$62.5 million, is awaiting the Canadian government's approval.
“We're firm believers that the lowest cost ultimately wins in the low-cost segment, so our objective is to present the lowest- cost and lowest-fare airline in the marketplace,” Mr. Franke said.
The influx of competition comes after the Canadian government last year raised foreign ownership limits on domestic carriers to 49% from 25%, and as the local air-travel market, valued at C$19 billion, grows. Last year, 43 million passengers flew domestically, up 15% from the previous five years, according to Statistics Canada. As more rock-bottom prices are offered, Intervistas Consulting Group estimates that 10 million more people will fly more frequently.
Two carriers still need to raise a minimum of C$50 million to be deemed “financially fit” to operate by regulators. Canada Jetlines is conducting an investor roadshow to raise between C$50 million and C$75 million. EnerJet, meanwhile, expects regulators to accept the terms proposed by Mr. Franke by year-end.
The upstarts say they plan to not only lure budget-conscious fliers from WestJet and Air Canada, but also from American carriers such as Allegiant Air and Frontier Airlines Inc., which have drawn Canadians to border airports such as Buffalo, N.Y., and Burlington, Vt., with cheap fares.
Robert Kokonis, an analyst at airline consultancy AirTrav Inc., estimates that 500,000 passengers, or about 10% of Canadian traffic lost to U.S. border airports, could be handled by the low-cost carriers over the next year.
WestJet, which got its start as a no-frills airline, plans to combat the new airlines with an ultralow-cost carrier of its own. Swoop, which will begin flights next June, “is our ability to encourage Canadians to travel,” said Ed Sims, executive vice president of WestJet's commercial business. “But it's also a means to ensure that we have a very competitive brand stacked up against these new entrants.”
BY DAVID GEORGE-COSH