Analysis: Canadian aviation enters its darkest days

If it feels like you’re less connected to other Canadians right now, you’re right.

“Certainly, the darkest days of the COVID-19 crisis are now upon airlines in Canada,” said consultant Jim Scott of Royal Pacific Consulting Group. He’s the former chief executive at Flair and recently resigned from the airline’s board. “We are telling our clients that 2021 will be a difficult year for airlines in Canada with a much better outlook in 2022.”

“Here we are, a year into it, and we’re still doing this,” said aviation consultant Sam Barone.

This, is cracking down even further on international flights. Passengers coming to Canada will pay for a COVID test before departure. Then a second one on arrival. Add on a three-night hotel stay while they wait for the results. That will easily add $2,000 to the price of a trip, the government estimates.

Airlines, responding to government prodding, cancelled all their flights to Mexico and the Caribbean until the end of April. Transat is grounding its fleet for the second time in 11 months. The airline was already contemplating $250 million in financing just to survive the year.

In far too many cities, it is genuinely harder to get from ‘here’ to ‘there.’ And the problem is bound to get worse before it gets better.

“We have no bus network, we have no rail network, we have barely an aviation network now,” said Barone. “We’re back to 1860 if you think about it, except for a few flights. Pre-1860, we had no rail, we had no bus. And that’s where we are now.”

How did we get here?

Recovery stalls

The pandemic, of course. Data released Friday by Statistics Canada begin to show just how Canadian aviation has entered its darkest days.

Overall, traffic in November was down 87% from 2019 levels. It’s the sort of decline that has become all too common this year. November was, the agency said, “the ninth consecutive year-over-year monthly decline—a period with the sharpest drop on record.”

But that only tells part of the story. Look a little deeper and the numbers present a real challenge for Canada’s airlines.

“In November, domestic air travel declined from October, while international travel increased,” StatsCan reported.

In other words, the picture would have been far worse had Sunwing and Transat not stepped up their games. The two carriers specialize in transporting Canadians to sun destinations to escape winter’s icy grip. They are joined by Air Canada and Westjet. That’s a lot of people headed south for a winter break.

There’s a reason Cancun, Mexico was the single largest source of COVID warnings for Canada-bound flights.

Now the winter holiday door has essentially closed. There should be a bump in January as passengers return from holiday, then it will be downhill from there.

Taking it on the chin

“The industry’s outlook for 2021 is now dramatically worse than it was even a month ago,” said Daniel-Robert Gooch of the Canadian Airports Council. He represents the nation’s largest airports. He argues that far too often airports say they’ve been kept in the dark about changes to come. “Airports are at the ready to support the government through a collaborative approach and share our decades of experience on how to manage risk at our airports and on aircraft, but we are learning of proposed measures through media leaks and press conferences, which is too late for us to make a positive contribution.”

Since airports generally exist to keep us connected, keeping them in the dark doesn’t serve aviation’s long-term interests.

“There is an urgent need for the government to work with industry in the coming weeks on a plan to emerge from the pandemic and methodically and safely start to remove travel restrictions when the time is right,” he said.

Canada’s airports have been hit hard by the pandemic. Winnipeg International became the latest to report is fourth quarter passenger numbers Friday, and the result is grim. Mirroring the national trend, traffic was down 87% compared to the same period in 2019.

Overall, passenger numbers compiled by Western Aviation News shows airports handled an average of 71% fewer people in 2020 than 2019. The drop ranges from 81% in Charlottetown to 64% in Kelowna. Since airports collect most of their revenues from passengers and the fees they generate, that decline has hammered the bottom line.

Gooch says airports will take on an additional $2.8 billion in debt by the end of the year to keep the lights on.

(Read our original reporting on airports’ debt burden even before the pandemic hit.)

Losing our connections

“Today, there is nothing left to cut, yet the restrictions keep piling on,” said Gooch.

So Canada is undeniably less connected to the rest of the world. There are two risks worth exploring in this evolving reality. First, the long-term impact of Canada’s reduced presence on the world stage and second here at home.

First, the world stage. Canada’s airlines are giving up a larger and larger share of the world market. Before the pandemic, Air Canada built a very profitable business connecting passengers between Europe and the U.S. through its Canadian hubs. Westjet was evolving the same way through Calgary.

Now, there is growing concern the competitive balance is tilting towards foreign carriers.

“U.S. carriers aren’t banned from flying into Canada,” said Barone. “You presumably could still fly from Latin America or Mexico on a U.S. carrier via a U.S. hub into Canada. We’re really at a competitive disadvantage. Are Canadian carriers disproportionately paying competitively because people are still finding workarounds?”

Canada’s airlines are operating under severe restrictions. And yes, foreign carriers operating into Canada face the same measures. But they have received government support. Not so in Canada.

“This is creating a considerable imbalance that has hurt the competitiveness of Canada’s airlines for months and threatens their survival,” Transat said in a statement. “Moreover, the entire Canadian economy will be deprived of the vital and strategic contribution of the airline and aeronautics industry when the recovery comes.”

The Minister of Transport says talks with airlines are ongoing.

Domestic knock-on

Domestically, it’s also getting harder to get from ‘here’ to ‘there.’ Seven out of 12 airports in Atlantic Canada don’t have air service. At least two Canadian communities find now themselves a five-hour drive from the closest air service. This loss of service is tied to restrictions on international travel.

“The reality is that regional air service is most productive when regional routes are connected to a larger network of domestic, transborder, and international flights on a main carrier’s global network,” explained Christopher Rauenbusch, President of Local 4070 of the Canadian Union of Public Employees, to a Commons committee this week.

So it may not be entirely 1860 in Canada – this article is proof of how technology has progressed. But governments want us to stay put, much like our forebears did. It’s a reasonable argument from a health point of view to stop the spread of COVID variants.

But there’s a price being paid. Except for some routes in Southern Ontario, Via Rail is at bare-bones service. Greyhound cancelled inter-city bus service years ago. Airlines are cutting bases and routes to save money. If you don’t own a car, there are fewer and fewer options, even if you have to make an essential trip.

Silver lining

Vaccinations do provide hope, even as the industry faces its darkest days.

“The silver lining may be a government initiated restart,” said analyst Jim Scott, “to the airline industry based on testing and the progress of the coronavirus vaccination efforts. However the timing of such a restart is unknown at this time and probably to government itself.”

So help may be on the way, sometime. As he reported the decimation of his airport’s passenger traffic, Winnipeg’s chief executive sounded an optimistic note.

“As Canadian and global vaccination levels increase, we expect to see a relaxation of the restrictions and greater comfort with people travelling again,” said Barry Rempel, President of the Winnipeg Airport Authority. “However, vaccines alone won’t solve our challenges. There are many factors to consider when it comes to moving towards a more normalized aviation sector, including the status of travel protocols and the state of the economy.”

Perhaps the days are darkest before the dawn.

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