Recently I read a presentation by WestJet that showed future market opportunities in Canada, and on the domestic side AC and WJ have $3.8 billion of the domestic market, but apparently there is an opportunity in the domestic market “Small Aircraft <50 seats” worth $1.1 billion, that sounded interesting and a little frightening for those operators where Encore intends to fly, so I started studying the 704 and 705 market, who the players are, who the owners, what the equipment is and what markets they are serving.
I found that there are 22 704 operations in Canada that fly scheduled passenger services, that is both as a scheduled airline or as a scheduled charter operation like a corporate shuttle to a mining or oil exploration site. There are 97 of these 704 operations in Canada in total, many of these are also 705 operations with bigger equipment. Of the 22 704 operations, 13 are also 705 operators flying bigger equipment. With the exception of Summit Air, all operate some scheduled passenger services, I chose Summit as it is going to operate two RJ85’s on mine runs in the Northwest Territories from Edmonton starting soon.
On the 705 only side there are 23 operators from our Air Canada and its 183 aircraft down to 1 DC-3 at Buffalo Airways, flying the regular Hay River-Yellowknife service. The composition of these 705 airlines is interesting, from Leisure Charter Airlines, to ACMI Charter Airlines, Scheduled Airlines serving the north, large independent regional airlines serving niche markets to Charter airlines serving the natural resource sector with corporate shuttle operations.
As this article will cover the whole Canadian industry, this Part 1 will deal with the 9 remaining 704 scheduled service operators, in total operating 41 aircraft, probably no more than $90 million a year in revenue in total as they serve small remote communities where air travel is a must, but with aircraft with less than 19 seats. They have an important role to play in the regions they serve, monopoly routes have the yields you need to really make 18 seat aircraft pay today on a scheduled basis, where loads can be 1 passenger one day and 18 the next.
The 9 strictly 704 operators are (no particular order):
1. Air Nunavut, has 3 aircraft with 27 pax seats, largest aircraft is the Falcon 20, lots of EMS work, and is owned by the Inuit on Baffin Island.
2. Adlair Aviation, has 3 aircraft with 36 pax seats, the largest aircraft is a Beech 200 and it is privately owned by the Laserich family.
3. Air Labrador, has 9 aircraft with a total of 162 seats, the largest is the DHC-6 Twin Otter, and it is owned by the Nunatsiavut Group (51%) and Philip Earle (49%).
4. Integra Air, has 1 BAe Jetsream 31 with 16 seats on scheduled Lethbridge-Edmonton service, owned by Mr Gateman. News of a Saab 340B+ have surfaced and is advertised on their web page.
5. Aklak Air, has 4 aircraft with 54 passenger seats, largest is DHC-6 Twin Otter, and is owned by Kenn Borek Air.
6. Keewatin Air, does mainly EMS work, but has 2 Beech 1900C’s for scheds, total 36 seats and is owned by the Exchange Income Fund (EIF), which owns 3 other operators in MB and ON.
7. North Wright Airways, has 5 aircraft with 84 seats, largest is a new Beech 1900D and is privately owned by the Wright family.
8. Northwestern Air, has 8 BAe Jetstream 32’s with 128 seats, flies to 8 destinations in 3 provinces, privately owned by the Harrold family.
9. EVAS Air, an Air Canada Express partner in Newfoundland, operates 6 passenger Beech 1900D’s and is privately owned.
This is it for 904 operations that fly passenger scheds with fixed wing aircraft in Canada, they generally fly 18 seat equipment for the low traffic routes they serve, while seat costs are high for these aircraft in normal operations, in remote regions they are even more expensive due to high cost of fuel and attracting pilots/mechanics to remote areas. Because they generally serve small markets dependent on air travel, yields ($/RPM) are very high, in some cases up north it can be as high as net $1.65/RPM (revenue passenger mile), or $330 for a 200 mile trip, a captive market pays such high yields, but in populated markets the yields are as low as $0.60 per RPM, close to the total operating cost of the 18 seat aircraft.
In general DOC’s (direct operating costs) are $1,300-1,600 per flight hour and overheads can easily add +50% to the DOC costs, so total operating costs for DHC-6, 1900C, 1900D, J32 are around $2,350 per hour, roughly $8.45 per mile, or $0.47 per ASM for a Beech 1900D, a tough sell in a competitive market, when you need a yield of $0.94/RPM (in this example) to achieve a break-even load factor of 50%, its why airlines go to 705 bigger aircraft lower seat mile costs. For instance a DHC-8-300 with 50 seats can be as low as $0.31 per ASM and a B737-200ADV around $0.23 per ASM, the bigger the plane, the lower the ASM generally but you have to fill more seats to breakeven.
Still many are family owned, but these family owned companies are slowly fading as 3rd generation family members seek new challenges, we have seen the seen several family businesses sell to the Exchange Income Corporation in Winnipeg, the Morberg family sold CALM Air, the Friesen’s sold Bearskin Airlines and the Wehrle family sold Perimeter Aviation. Several in the above list need to adapt to new changes, the above photo of a Northwestern Air Lease Ltd. BAe J32 carries a livery very much outdated, fine for the north, but when down in Kelowna, Fort McMurray it is very outdated, word “Lease” very confusing to passengers about what the carrier actually does, branding is very important in a competitive market. Northwestern Air flies its northern monopoly routes and of course makes lots of money there with high yields, but in the south where passengers have choices it does not make money, it has tried 10+ routes and always abandoned them one by one, the lesson is stick to your market, venture out only if you have a competitive advantage, which Northwestern Air does not have, bad branding, high costs (CASM $0.65+ per ASM), poor marketing, does not know its operating costs per out. no idea of break-even load factors and yields all add up to a loosing proposition in the south. It takes a well managed company to become efficient enough to compete in competitive markets, and when you have AC and WJ as direct or indirect competitors and you run 18 seat aircraft, you are in a no win situation.
The strength of these small localized operators is the markets they dominate, few have local competition on the sched services, so stick to your market and don’t venture out unless you can handle competition, most of the 18 seat operators cannot handle competition, the aircraft cost too much (CASM), management is thin, few know their numbers and what it takes to expand. When I say numbers, it means the financial information that all airline executives MUST know, that is your costs per route, per ASM then your yields ($/RPM) so you know your break-even numbers and you know when each flight leaves how much you are making or loosing on each flight. You need to keep your numbers updated by flight, per week, day of week, per month so you see how each route is doing. I know operators that have grown up from charter operations and they use charter rates which is $ per mile, but that is no way to keep track of economics. IF you do not know your numbers you have no idea how you are doing, you may have 10 routes and make some money, but which routes make money ? how profitable are they ? load factor is only half the equation, you need to know your average net yield as (LF x Yield = RASM-revenue per mile), remember airline operating profitability is RASM-CASM (cost per ASM), but few small airlines really do track that sadly. Every airline needs a good financial manager that tracks profitability on each route, by flight, by day, by week, by month, by quarter just like a factory that keeps track of profitability of each product, otherwise how do you know where your profits come from and where your losses are happening ?
RIGHT CLICK and Check out this Table out for all 45 of Canada’s scheduled and charter passenger operators (704 & 705), passenger fleet size, number of seats and current ownership:
We will explore in future articles the coming of new capital and with it mergers & acquisitions, bankruptcies and consolidations in this segment, and how its changing the nature of the business forever. The above table will serve as a guide as I will discuss many of the operators one by one on what is or is not happening with it and where it is or is not going. The ownership issue is one that will see a great deal of change over the next few years.
Till next time, thank you.