Ottawa’s First Air and Yellowknife-based Canadian North already offer daily service between Iqaluit and Ottawa, a route popular among government employees and northern residents flying south for medical reasons, as well as a growing number of tourists, researchers and business travellers tapping into the north’s burgeoning resource sector.
However, some question whether there is room for a third carrier.
“Ottawa-to-Iqaluit is a very thin market,” says Chris Ferris, vice-president of marketing and sales at First Air.
“We run a 99-seat all-passenger aircraft between Ottawa and Iqaluit and most days we could carry the entire market on our airplane. Having another carrier on the route is going to pose new challenges.”
Canadian North president Tracy Medve also questions whether the route requires the additional capacity.
For its part, Air Canada spokesperson Peter Fitzpatrick says competition is “normal and healthy” and notes the new service could stimulate new travel, especially since his carrier also connects Ottawa to Frankfurt and London.
Along with its brand-name recognition, Air Canada has its Aeroplan customer rewards program to attract customers. To compete, other carriers must set themselves apart in the minds of travellers, says Ian Lee, director of the MBA program at Carleton University’s Sprott School of Business.
“They’ve got to do the anti-Air Canada strategy and offer something very different,” he says.
Mr. Lee gives the example of offering flights at different times of the day, offering greater frequency or improved cabin service.
It’s a strategy already employed by First Air, which offers complimentary meals with wine, hot cookies and after-meal coffees with liqueur. The company also reportedly makes its inflight safety announcements in Inuktitut, along with English and French, and offers an Inuktitut version of its website.
Domestic passengers on both First Air and Air Canada can check two bags without extra charge. However, they can bring 40 pounds more on First Air, an offering that capitalizes on a current Air Canada weakness, says one observer.
“In an era when the major players are nickel-and-diming consumers ... having a (liberal) luggage policy can buy you some good will and solidify the business,” says Michael Mulvey, an assistant professor of marketing at the University of Ottawa’s Telfer School of Management.
He adds the regional carriers can also capitalize on their strong social, economic and employment ties to the north. Both airlines note they are aboriginal-owned on their websites.
First Air – which was founded in Ottawa more than six decades ago and now has 485 employees – is also building its regional brand as a locally based carrier with advertising in the Ottawa Airport and Winterlude sponsorship.
One area where the airlines don’t seem to differ, though, is on price. All three offer one-way fares starting at $719 before taxes and surcharges for travel after March 28, when Air Canada launches its Ottawa-to-Iqaluit service.
For trips before March 15 on First Air and Canadian North, the base fare is $895.
Last fall, northern media reported a fare war between the carriers as Air Canada set an introductory one-way price of $659. Reports said First Air and Canadian North responded by cutting their fares to $599, which Air Canada then matched.
Despite the price cuts, First Air still expects to grow its regional revenues.
“Obviously the entry of the national flag carrier into Iqaluit will temper that growth for us as an airline, but in the region we are anticipating single-digit growth,” says Mr. Ferris. First Air says it currently has annual revenues in excess of $200 million.
Independent airline analyst Rick Erickson notes the northern carriers can also augment their passenger revenues with freight service. Last year, First Air says it moved 3.2 million kilograms of freight through its Ottawa cargo warehouse. It is also contracting to provide ground service in Ottawa for several other carriers, including Skyservice Airlines, CanJet and Thomas Cook Airlines.
Still, the uncertainty remains about the size of the passenger market, adds Mr. Erickson.
“It is questionable whether there is enough business for three carriers in Iqaluit.”
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NORTHERN EXPOSURE
The existing northern airlines encouraged Air Canada to start flying to the territories with their high fares, says an industry expert.
"The yields out of the north are pretty darn good," says Calgary-based independent aviation analyst Rick Erickson.
"And that is exactly what has attracted the attention of the carriers in the south ... Part of the (reason) this is happening is that (First Air and Canadian North) had their fares fairly high."
He says northern airlines justify their fares by arguing it costs more to service the north. He adds they also cross-subsidize marginal trans-Arctic flights with more profitable routes such as Ottawa-to-Iqaluit.
Using a common industry measurement, some quick calculations show airlines collect significantly more revenue on each seat sold on a flight to Iqaluit than other Canadian cities.
Ottawa-Iqaluit:
Distance: 2,085 km (approximate)
Lowest available Air Canada fare: $719
Revenue per passenger, per kilometre: $0.35
Ottawa-Toronto:
Distance: 350 km (approximate)
Lowest available Air Canada far: $89
Revenue per passenger, per kilometre: $0.25
Ottawa-Halifax:
Distance: 955 km (approximate)
Lowest available Air Canada far: $99
Revenue per passenger, per kilometre: $0.10
Ottawa-Vancouver:
Distance: 3,545 kilometres (approximate)
Lowest available Air Canada far: $229
Revenue per passenger, per kilometre: $0.07
