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ANALYSIS: New entrants shake up Canada's regional market

While the US regional market has seen the consolidation of many carriers into fewer companies over the last few years, the Canadian regional market is experiencing a different trend: diversification.

The most prominent example of this new competition is WestJet’s new regional carrier, Encore, which entered the market on 24 June.

The airline seeks to stimulate traffic with competitive fares in markets primarily served by its domestic competitor, Air Canada Express. WestJet’s chief executive Gregg Saretsky expects this to bring prices for flights down by 30-50% in some markets.

WestJet has estimated the potential market for regional flying for aircraft with more than 50 seats within Canada and to the USA at Canadian dollar (C$) 2.1 billion – comprised of C$1.1 billion domestically and C$1 billion for trans-border routes.

Along with providing new links between underserved markets in western Canada, WestJet’s management has indicated it intends to expand the carrier to the eastern part of the country by early to mid-2015. This will increase competition against not only Air Canada Express, but Porter Airlines and US carriers vying for the competitive trans-border market on the east coast of the USA.

Air Canada has made its own moves to compete with Encore, positioning Q400s in western Canada prior to the airline’s launch. It is also offering new services in February on routes from Calgary to Regina and Saskatoon.

Jazz Aviation operates the 74-seat Q400s on behalf of Air Canada Express. The regional carrier has taken delivery of 21 of the aircraft so far, including aircraft added from a July 2012 decision to take six of 15 options for the turboprops. Those aircraft arrived in February and March.

Air Canada is not launching a new regional carrier. However, it is set on implementing several cost-saving measures in the regional market, made possible with the introduction of a five-year pilot agreement signed last July.

The agreement, mandated by a government-appointed arbitrator after 19 months of negotiations, allowed the carrier to intensify its partnerships with other regional airlines besides Jazz Aviation. The majority of Air Canada Express’ regional lift is provided by Jazz under a capacity purchase agreement that expires in 2020.

After forming the new contract, Air Canada began the transfer of 15 Embraer 175 aircraft to Sky Regional Airlines from its mainline fleet – a move that was completed at the beginning of September.

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