Canada's airlines: Risky business

It's a tough business, trying to run a profitable scheduled airline in Canada, or anywhere else, these days. Soaring jet fuel costs and intense competition have brought down more than a few of North America's smaller airlines and are hobbling the big players.
A worker at Pearson International Airport in Toronto stands in front of Skyservice Airlines' check-in counter on March 31, 2010, after it ceased operation. ((Darren Calabrese/Canadian Press))

It's a tough business, trying to run a profitable scheduled airline in Canada — or anywhere else — these days. Intense competition, fluctuating fuel costs and the recession of 2008-09 have brought down more than a few of North America’s smaller airlines and have hobbled the big players.

The International Air Transport Association (IATA) expects the global airline industry to lose $5.6 billion US in 2010, despite some recovery in passenger and air cargo traffic as the economy improves. The association estimates its 240 member airlines have lost $49 billion since 2000.

Toronto-based Skyservice is the latest airline to go under. On March 31, 2010, the airline announced it was going out of business and would wind up operations. The charter airline flew to destinations in the United States, the Caribbean, Mexico and Europe. It employed 2,000 people.

Earlier in the year, Go Travel South — a Halifax-based tour operator — shut down, leaving customers booked for vacations in the Dominican Republic and Mexico scrambling for alternatives.

Air Canada jets are shown at Pearson International Airport in Toronto. Canada's dominant airline cut 2,000 jobs and slashed capacity in June 2008 in the face of soaring fuel costs. ((Frank Gunn/Canadian Press))

In August 2008, Zoom Airlines suspended operations, leaving passengers stranded. Zoom's founders, brothers Hugh and John Boyle, said the airline had seen its annual fuel bill jump by $50 million as oil prices rose. The airline later ceased operations.

Uncertain fuel costs are just one of a series of headaches for an industry and a travelling public that’s had a pretty rough decade. The Sept. 11, 2001, attacks changed air travel forever by bringing in a level of security screening that made air travel more difficult and more costly.

What you can do if your airline or tour operator goes out of business:

  • Customers who booked their vacation using a credit card should contact their credit card company for a refund. You are covered for services not rendered.
  • Travellers who opted for travel insurance should check if the coverage includes operator default, which provides reimbursement should a tour operator or air carrier go out of business.
  • The Canadian Transportation Agency accepts complaints from consumers dissatisfied with the air portion of a travel package. Complaints about the land portion of the trip must be dealt with by provincial and territorial authorities dealing with travel.

New fuel surcharges in 2008 added to a growing list of fees and service charges that airlines have either levied themselves or passed on to their customers. Airlines’ bottom lines are being tested as never before.

The Canadian airline scene had witnessed a lot of evolution and turbulence before Sept. 11, of course. Wardair — one of the country's first discount air carriers — hung on for 37 years before it was bought out by Canadian Airlines in 1989. Wardair had been losing market share to both Air Canada and Canadian, which had the customer loyalty programs that business travellers demanded.

Canadian Airlines itself was the product of the 1987 purchase of Canadian Pacific Airlines by PWA – Pacific Western Airlines. By 1999, Canadian Airlines would be bought out by Air Canada.

Calgary-based WestJet opened for business in 1996 as a low-cost airline serving mainly Western Canada. As other airlines folded or were bought out, WestJet slowly expanded its reach until it hit the East Coast and vacation spots in the United States.

Canada 3000 shutdown strands thousands

CanJet did the same from its base in Halifax, beginning in May 2000. Within a year, it was bought out by Canada 3000 — at the time, the country's second-largest national air carrier. It, too, buckled under the pressures of a sudden and catastrophic drop-off in passenger traffic after Sept. 11 and fierce competition for a slice of a dwindling air travel pie. On Nov. 9, 2001, Canada 3000 abruptly ceased operations, leaving thousands of travellers looking for other ways to get home.

The hole left by the departure of Canada 3000 was filled less than a year later by the arrival of Jetsgo – and the return of CanJet under a new owner. Jetsgo reported sales of $2 million in its first week of operations. Both "no frills" airlines were off to promising starts.

Still, the turmoil in the skies continued as a debt-laden Air Canada filed for bankruptcy protection on April 1, 2003, after suffering a string of heavy losses. It would remain under the protection of the courts for 1½ years, emerging from its restructuring as a much leaner airline.

But the airline business requires deep pockets and, over the years, small Canadian upstarts such as Greyhound Air, Roots Air and Royal Airlines all tried but failed as tough competition made it impossible to keep flying.

Jetsgo folds after fighting 'without a war chest'

The competition was brutal — and possibly no airline competed as hard as Jetsgo, which operated under the motto: "Pay a little. Fly a lot." In late 2004, the airline was selling some seats for $1.

It was a bankruptcy in the making, said airline analyst Joe D'Cruz of the Rotman School of Management.

Jetsgo's collapse in 2005 stranded thousands

"Jetsgo had been an airline in serious financial stress for quite some time, and in the middle of that they decided to take on WestJet in a price war," he told CBC News. "Here's an airline trying to fight a price war without a war chest."

On March 11, 2005, Jetsgo was gone, despite having captured up to 10 per cent of the domestic market. Thousands of passengers were stranded and 1,200 employees were suddenly out of work.

CanJet drops scheduled airline business

CanJet and WestJet stepped up to pick up some of the demand. CanJet, which resumed operations in 2002 with three old Boeing 737s flying to three destinations, had expanded its fleet to 10 aircraft and 14 North American destinations. It retained its focus on Atlantic Canada. It also began operating a small charter business.

In June 2006, CanJet celebrated its fourth birthday with a huge cake and lots of optimism for the future.

Three months later, on Sept. 5, the airline's chairman announced that CanJet was getting out of the scheduled airline business to focus on its charter operations.

"With the rising business risks of operating a scheduled airline, IMP has decided to suspend year-round scheduled airline service and focus on their increasing charter business," said Kenneth Rowe, the chairman and chief executive officer of parent company IMP Group Ltd.

The move left some people worried that Atlantic Canada would be under-serviced by the major carriers.

In March 2007, Vancouver-based Harmony Airways announced it would stop all of its scheduled service by early April. Its billionaire owner, David Ho, called it a restructuring to focus on other opportunities. "I want to be very clear, this is not a bankruptcy. This is not a creditor protection arrangement and this is not a company dissolution."

Ho blamed increasing costs, overcapacity in the market and "aggressive price competition from larger carriers." About 350 staff lost their jobs.

Rising fuel prices wreak havoc

But the biggest threat to airlines at home and around the world came not from competition, but from fuel costs. Oil prices began to rise dramatically in 2005 and they kept rising in subsequent years to levels airline executives couldn't have imagined in their worst nightmares.

By 2008, jet fuel was twice as expensive as it was in 2007. Where jet fuel at one time accounted for just 10 per cent of airline operating expenses, that had soared to more than 30 per cent by 2008. 

The International Air Transport Association (IATA) estimated that oil prices at $135 US a barrel for a full year would translate into $99 billion in extra costs for the world's biggest carriers.

Desperate airlines cut routes, slashed capacity, flew slower, raised fares, imposed fuel surcharges, brought in new charges for checked baggage, and rushed to replace older planes with more fuel-efficient models.

But the pressure proved too much for some. From late 2007 to mid-2008, no fewer than eight U.S. carriers either stopped flying or filed for bankruptcy protection. Delta and Northwest Airlines announced plans to merge.

Indeed, 24 airlines worldwide were grounded in the first half of the year, according to IATA.

While the plunge in world oil prices cut airlines' fuel bills, the global economic crisis that unfolded in September 2008 took its toll on airline traffic.

Zoom suspends operations

In Canada, Ottawa-based Zoom Airlines Inc. and its British-based counterpart, Zoom Airlines Ltd halted operations in late August 2008. Zoom flights were grounded in Canada and Scotland. The company blamed economic conditions and high fuel prices for its move. Zoom served routes in Canada, the U.S. and the U.K.

Canada's two dominant carriers — Air Canada and WestJet — brought in hefty fuel surcharges of their own. In June 2008, Air Canada cut 2,000 jobs and cut capacity. It had lost $288 million in the first quarter of 2008. It warned that further cuts would take place if fuel prices didn’t drop.

The Canadian airline scene remains a tough place to make a buck. But despite all the turbulence, new players continue to try their luck. Toronto-based Porter Airlines launched in 2006, with scheduled flights between Toronto, Ottawa, Montreal, Halifax and Newark. The airline has since added routes to Boston, Chicago, Myrtle Beach, St. John's, Sudbury, Thunder Bay and Quebec City.