The Sun Runners

Canadians love their international vacations. Every year, millions fly south to sun destinations in the winter, and jet across to Europe in the summer. Today, the majority of these leisure travellers are flown by six Canadian carriers: Air Transat, Sunwing Airlines, Air Canada, WestJet, CanJet, and, since July 2013, Air Canada rouge. 

Selling low-cost air travel to budget-minded vacationers has always been a tough business proposition. 

In 1950, Club Med established the world’s first all-inclusive holiday resort, and the all-in sun vacation business was born. The early 1950s also saw the creation of the tour opera¬tor business, specializing in bundled holiday packages that included flights, accommodation, ground transfers and even a rental car. 

Canadian charter airlines entered the leisure business in the mid-1950s, with four-engine Douglas DC-4s flying tourists to Caribbean beaches and to European sidewalk cafes. 

Regulatory barriers that once divided the scheduled and charter airline industries started to crumble when deregulation swept through the industry in the late 1980s. Then, the U.S. market opened to more scheduled flights following the implementation of the Canada-U.S. Open Skies agreement in the mid-1990s. 

Regulation aside, riding out the cyclical nature of the business is still a huge challenge for operators. 

Since 2000, the Canadian travel industry has weathered the post 9/11 travel slump, the second Iraq war, SARS, high fuel prices, an economic recession, cutthroat competition, and the global consolidation of the holiday travel industry. 

Not surprisingly, there have been some casualties. At least six Canadian leisure airlines have closed their doors since 2001–Canada 3000, Harmony Airlines, Jetsgo, Zoom Airlines, Skyservice Airlines and Jazz Air’s Boeing 757 operation–throwing thousands of employees out of work. 

More recently, the number of international airports receiving scheduled holiday service has rapidly increased, since the Canadian government launched the Blue Sky Policy initiative in 2007 to proactively negotiate new Open Skies agreements with dozens of countries. 

This has led to more scheduled non-stop passenger flights to more international sun destinations, some of which have never been listed on Canadian airport departure screens until quite recently.

In 2010, Canadian residents made 28.7 million overnight trips abroad, according to Statistics Canada. 

This total includes 6.9 million overnight trips by airline to the United States (a new record) and another 8.7 million trips to other countries, primarily by air. 

Not surprising, StatsCan reports that Florida is the largest Canadian leisure destination in the U.S., accounting for 3.1 million overnight visits in 2010; but Nevada comes first when you measure where Canadians spend the most per night ($188). 

The number of overnight trips overseas (non-U.S.) by Canadian residents has risen 93 per cent from 4.5 million in 2000, to 8.7 million in 2010. During the winter, Cuba, the Dominican Republic and Mexico have all posted strong gains. However, Europe remains the most popular overseas region, with the U.K. the largest s

Tour operators

In Canada and Europe, tour operators own airlines and airlines own tour operators, with both business models now being challenged. 

In Europe, tour operators are consolidating because of cutthroat competition from low-cost carriers (LCC), which has resulted in the merger of some Canadian subsidiaries. 

Air Transat of Montreal is owned by Group Transat AT, Canada’s largest integrated tour operator, whose 18 divisions had combined revenues of $3.6 billion in 2013. 

Sunwing Airlines of Toronto is owned by Sunwing Vacations, Canada’s second-largest tour operator, with revenues of more than $1 billion, which is partially owned by TUI AG of Germany, Europe’s largest travel company. 

Air Canada and WestJet both own in-house tour operators–Air Canada Vacations and WestJet Vacations– that help the airlines fill their seats and capture incremental travel revenue. This winter, WestJet leased two Boeing 757s from Thomas Cook Airlines in the U.K. to fly non-stop flights from Alberta to Hawaii. 

In March 2013, Thomas Cook Group PLC, the second-largest travel company in Europe, sold all its North American tour operations (including Sunquest) to Red Label Vacations (operating as redtag.ca) of Toronto. 

Air Canada has always had a hard time serving vacation destinations. 

In 2011, Air Canada first proposed a low-cost leisure airline flying Airbus A319s and Boeing 767-300s with high-density seating, that would be crewed by pilots and flight attendants paid lower wages than their mainline counterparts. 

Air Canada argued that a low-cost carrier could make marginal tourist routes profitable and help win business back from competitors, as well as from U.S. border airports offering Canadians discounted flights. 

The Air Canada Pilots Association (ACPA) resisted the initiative until a federally appointed arbitrator imposed a new five-year contract in July 2012, which allowed the launch of the new low-cost carrier, dubbed Air Canada rouge. 

Big changes have been underway since rouge first took flight on July 1, 2013. Together with Air Canada Vacations, the airline is now part of the Air Canada Leisure Group. President and CEO Michael Friisdahl told Canadian Skies at the 2013 Canadian Airline Investment Forum that the carrier is planning “extremely aggressive growth.” 

“Our A319s will have a 21 per cent lower cost per available seat mile (CASM) than Air Canada’s A319s, and the 767-300s will have a 29 per cent lower CASM,” he said. The cost reductions are being achieved by increasing the seating capacity of the two aircraft models, reducing labour costs, and negotiating more flexible work rules and third-party contracts, Friisdahl added. 

The 120-seat Airbus A319 fleet going to rouge is being refurbished with 138 seats, and the 211-seat 767-300s will be configured with 282 seats. The wide-body fleet began service last summer, flying across the Atlantic to Edinburgh, Scotland; Venice, Italy; and Athens, Greece. 

Air Canada’s recent Boeing 737 MAX order is aimed at replacing its larger Airbus A320 and A321 fleet. Air Canada is considering the Bombardier CSeries to replace A319s and Embraer E190s currently serving high-yield business routes. 

Rouge’s narrow-body A319s will gradually take over Air Canada’s service to year-round and winter holiday destinations, beginning with 10 Caribbean airports in Cuba, Costa Rica, Jamaica and the Dominican Republic. In November, rouge also launched new non-stop service between Toronto- Sarasota and Toronto-Orlando. By mid-February 2014, rouge was operating nine A319s and two 767-300s and planning to extend service to Vancouver and Calgary.  

The leisure airline’s business plan foresees a potential fleet of 50 aircraft, as Air Canada receives 37 new Boeing 787 Dreamliners to replace 767-300s and shifts additional A319s aircraft to rouge. 

Air Transat ranks as one of the world’s top five vertically integrated tour operators. The organization recently undertook a company-wide cost reduction and efficiencies initiative. 

The biggest challenge for Air Transat is operating in two seasons and two different markets, said Jon Turner, executive vice president of the airline. 

During the summer season from May to October, 90 per cent of Air Transat’s flying is transatlantic, and 10 per cent is to Canadian sun destinations. The picture changes in the winter season from November to April, when 80 per cent of the flying is to the south and 20 per cent is transatlantic. The strong seasonal variation requires Air Transat to essentially operate two different kinds of airlines, Turner told Canadian Skies. 

Last summer, Air Transat flew more than one million customers on its 21 wide-body Airbus aircraft and five chartered CanJet Boeing 737-800s, to more than 30 destinations in 14 countries. During the winter, the Montreal-based airline will fly one million passengers utilizing some of its Airbus wide-body fleet, and up to 13 CanJet Boeing 737-800s. 

Beginning in spring 2014, Air Transat will introduce a fleet of leased Boeing 737-800s, when its five-year agreement with CanJet expires. Already, though, one leased 737-800 from Transavia France has arrived for the current winter season. 

Going forward, Air Transat will have pilots trained to fly the Boeing 737 and Airbus A310/A330, and a group of about 100 pilots dual qualified to fly the narrow- and wide-body jets on a seasonal basis. 

Other fleet plans include flying a “seasonably variable” fleet of 21 wide-body Airbus aircraft, which will see some owned Airbus A310s parked in the low season. 

Air Transat has also been investing in new cabin interiors for its Airbus fleet, which offer a better customer experience and save about two tons in weight per aircraft. 

The introduction of a seasonally variable wide-body and narrow-body aircraft fleet, new interiors and new revenue management plans are expected to achieve $75 million in reoccurring cost savings per year by 2015. The measures appear to be working. Air Transat’s parent company posted a profit at the end of 2013, after showing two years of losses. 

The IMP Group established CanJet in 2000 with a fleet of Boeing 737-200s, intending to capitalize on the reduced airline competition after the merger of Air Canada and Canadian Airlines. 

After operating in different capacities during the intervening years, CanJet introduced its first 189-seat Boeing 737-800 in 2008, and started flying exclusively for Air Transat in 2009. Five 737-800s were employed year-round and up to eight additional European 737-800s were leased during the winter. 

According to CanJet executive vice president Ken Woodside, the airline expects to resume flying for independent tour operators once its five-year contract with Air Transat expires in the spring of 2014. 

Sunwing Holidays got its start in 2002 when travel industry veteran Colin Hunter renamed Red Seal Tours, a tour operator he bought in 1999 after selling his financial interest in Canada 3000 Airlines. 

Initially, Sunwing utilized aircraft from Kelowna Flightcraft, Skyservice Airlines and Jetsgo. It launched Sunwing Airlines in November 2005 with two Boeing 737-800s. 

Four years later, Sunwing Airlines was operating a seasonal fleet of 14 Boeing 737s when Sunwing Vacations merge with Signature Vacations and Selloff Vacations–and became partially owned by TUI AG of Germany, Europe’s largest travel company. 

In early 2014, Sunwing Airlines was operating 32 Boeing 737-800s including aircraft leased from airlines in the U.K., Czech Republic, Norway, Germany and Belgium. 

Other players

Flair Airlines of Kelowna, B.C., and Enerjet of Calgary were both launched with an eye to serving the leisure travel market, but most of their recent flying has involved crew change flights for oil companies, as well as sports team and election charters, and backup service for other airlines. 

Flair Air, which flies four Boeing 737-400s, was established by Jim Rogers, co-founder of Kelowna Flightcraft, in 2005. 

In 2013, Flair Air flew an exclusive $23,000-per-person South American charter to 10 destinations for a Toronto tour operator, and previously flew a $34,000-per-person around-the-world charter to 14 countries, using a 737-400 outfitted with 76 first class seats. 

Building on its recent contract to fly oil sands workers for Shell Canada, Rogers told Canadian Skies that Flair Air “will probably establish its own tour operator in Alberta.” 

Enerjet flies three Boeing 737-700s from a base in Calgary for oil companies, and also flew leisure travellers this past winter in a leased Boeing 737. Enerjet has partnered with tour operators Thomas Cook and Group Transat AT in the past and is flying a leased 737-800 for Air Transat in Western Canada this winter. 

For more than 30 years, Canadian airlines have leased European narrow-body jets for the winter, to make up for a shortfall in domestic capacity. 

The increasing seasonal use of Boeing 737-800s that are flown by foreign pilots, who are working in Canada under the Temporary Foreign Worker Program (TFWP), has received harsh criticism from Canada’s airline pilots unions, especially after the layoff of Air Transat pilots in 2012. 

The unions say the TFWP contravenes the Canadian Aviation Regulations, and allows Canadian carriers to avoid hiring and training Canadian airline pilots who do not already hold a Boeing 737-800 type rating. 

In 2012, CanJet received approval to hire about 35 foreign pilots, and Sunwing was cleared to hire about 150 foreign pilots. 

Airline representatives said they cannot afford the high costs of training pilots who will only fly seasonally for five months. However, in the wake of widespread criticism of the TFWP in 2013, Canadian recruitment efforts were increased. 

Sunwing has also said that it regularly leases Canadian-crewed Boeing 737-800s to European airlines during the summer, to fulfill some of its reciprocity obligations. 

The issue of foreign workers aside, Canada’s leisure carriers still face a number of challenges. These include stiff competition, increasing costs and a fickle consumer–a vacationer without brand loyalty whose main motivation is often the lowest price tag. In its own way, each operator is moving to trim the fat, so it can seize a bigger share of the leisure travel industry pie.