Max Kingsley-Jones/TORONTO
Fortunes of Canadian charter airlines have been mixed in recent years. Established names have disappeared, to be replaced by new carriers seeking to Ìll the void, as the market itself has begun to undergo a metamorphosis.
The country's inclusive-tour "holiday" market has traditionally broken down between a "north-to-south" outflow of Canadians during the winter (ie, November to April), to warmer climes such as Mexico and the Caribbean, and an influx of overseas visitors during its summer.
Canada's population of around 30 million people includes some huge expatriate communities, and for many years most of the country's leisure travel has been the "VFR" (visiting friends and relatives) market. As family ties gradually diminish from the first generation of expatriates, however, the business is becoming more tourist-oriented, with tours sold on the strength of Canada's natural attractions.
Three major tour operator groups vie for the business: Transat AT, parent of Air Transat; Signature, linked to Canada 3000 Airlines and a subsidiary of UK tour operator First Choice; and Sunquest, which is an affiliate (through the Canadian Leisure Group) of UK tour operator/airline Airtours, and linked to Toronto-based charter airline Skyservice. These charter airlines are all undertaking fleet revamps, but adopting different strategies to go about their re-equipment.
Lion's share
Air Transat, which was formed in 1987 by French-Canadian tour operator Trafic Voyages, now has the lion's share of the Canadian charter market. Based at Mirabel Airport in Montreal, Air Transat started operations with a single 360-seat short/medium- range Lockheed L-1011-150 TriStar, serving the Canadian winter-holiday market and flying to Europe - primarily France and the UK, two of Canada's major "VFR" markets.
The airline has progressively expanded, adding more TriStars, including long-range L-1011-500s from TAP Air Portugal, and introducing Boeing 757-200s in 1993.
The changing market conditions meant that the company benefited from the demise of Worldways Canada and Nationair, while long-established Canadian charter airline Wardair tried to switch to the scheduled market as the country began its deregulation process, which ultimately resulted in it being taken over by rival Canadian Airlines International in 1990.
Air Transat carried 1.75 million passengers in 1996, a 22% increase on 1995, which makes it Canada's leading charter airline. The group, Transat AT, recorded an operating profit of C$42.8 million ($31 million) in the year to the end of October 1996, on sales of C$779 million (C$29.3 million profit on C$552 million sales in 1995), with around 40% of revenue (C$309 million) being generated by the airline itself. These figures illustrate that the group is undergoing rapid growth, while still returning an improvement on its profit margin, up from 5.3% in 1995 to 5.5% in 1996. "Our aim is not to be the largest [charter carrier], but the most profitable," says Denis Jacob, the airline's executive vice-president, adding that he expects passenger traffic to grow by a further 25% to 2.2 million in 1997.
The French-Canadian connection means that Air Transat is the dominant charter carrier serving the Quebec cities of Montreal and Quebec City. Around 30% of the airline's revenue comes from its French routes. It leads the international market (excluding the USA), with around 40% of charter passengers, and this traffic represents almost three-quarters of the airline's revenue. Air Transat flies around half of Canada's transatlantic charters, and operates almost one-third of all the winter "north-to-south" charters to the Caribbean, Mexico, etc.
The UK is the group's other significant foreign-revenue generator, with a 5% share in 1995-6, and this looks set to grow. According to Iain Mayer, commercial director of Globespan, Air Transat's exclusive UK distributor, the company "-has seen a 25% increase in capacity on its [UK to Canadian] West Coast programme, while the East Coast, which represents a much larger proportion of business, increased by around 15%."
With its tour-operator parent, Air Transat understands the importance of not being reliant on external business. "We own a number of tour operators in Canada and France, and 80% of our 'lift' is contracted in-house," explains Jacob. "We control our own distribution," he adds.
Short-lived
Jacob says that the average life-span of the Canadian charter airlines has been around seven years. "If you make it beyond that [period] you should be okay," he says. This "survival-of-the-fittest" environment is underlined by the fact, says Jacob, that some eight Canadian charter companies have failed in recent years.
He explains that the Canadian charter market is undergoing a strategic change. "A few years ago, we had a good seasonal balance of revenues. Now, the industry as a whole generates a much larger proportion of the total revenue in the summer," he says. Jacob also remarks that the nature of the leisure traveller is changing, saying: "The 'VFR' market has been gradually declining over the years, particularly to countries such as Portugal and Italy."
The rapid sales growth experienced by the group has resulted from its strategy of acquiring companies in the travel industry. In 1996, Transat bought 68% of Look, France's second-largest tour operator, and the group's stated intention is to continue with this purchasing strategy. An C$88 million share issue was completed in January, to fund the acquisition of an interest in a major tour operator in France or the UK during 1997. The group expects sales in 1997 easily to exceed C$1 billion, while "-the next acquisition should bring annual sales to about C$2 billion".
Jacob says that the airline will continue with its strategy of developing the market slowly, adding two to three new destinations each year. "We cannot grow the [Canadian] East Coast-to-Europe business too much more, so we need to focus on expanding the long-haul market," he says, adding that the airline is looking at introducing transpacific routes to Asia, to points such as Hong Kong and Macau.
The two ex-TAP Air Portugal TriStar 500s introduced earlier this year will enable Air Transat to fly non-stop services from the Canadian West Coast to Europe, primarily to the UK on behalf of Globespan. While the shorter-range TriStars are expected to be removed from the airline's fleet "within five years", Jacob sees the long-haul version remaining on the strength "for ten more years", and more -500s could be added as the long-haul markets develop.
Air Transat's fleet now includes ten TriStar 100/150s, two -500s, and five Boeing 757s. An evaluation is now under way of various potential TriStar replacements, including the Airbus A330, the Boeing 767/777 and McDonnell Douglas MD-11, with a new type likely to be in service "within two to three years", says Jacob.
Canada 3000 Airlines, which began operating in 1988, serves tour operator Signature. It is second to Air Transat in international traffic terms, competing on the transatlantic and the winter "north-to-south" markets, as well as to Hawaii and Fiji. Based in Toronto, the airline has been a major player in the Canada-to-Florida, USA, market, but Air Transat's performance is now approaching that of its rival in this important high-volume market.
Canada 3000 started up with a single Boeing 757. The airline is an associate of the Air 2000 UK charter-airline division of First Choice through the Signature link. This has seen the airline operating a fleet-exchange arrangement with the UK airline in the past, but, more recently, it has expanded independently, adding Airbus A320s directly on lease.
Leased fleet
A leased fleet of six A320s and six 757s is now operated and, in April 1998, Canada 3000 will inaugurate revenue services with the long-range Airbus A330-200 on lease from International Lease Finance (ILFC). The first two 340-seat aircraft will be delivered time for the 1998 Canadian summer season, with a third and possibly fourth later.
Brad Rawson, Canada 3000's vice-president for sales and marketing, says that the A330s will be operated on the long-haul market, supplementing and eventually replacing 757s on existing routes, and on new transpacific services. "We will use the A330 on non-stop services from Vancouver to Europe in the summer, and across the Pacific in the winter", he says. He adds that the airline will "feel out" the Australian market this winter with the 757, and introduce the A330 on the route in winter 1998.
Skyservice, which began holiday-charter flights in 1994 with leased Airbus A320s, has gradually expanded its presence in the Canadian market, representing tour operator Sunquest. Until now, it has concentrated on the Canadian winter season, with its fleet leased out in the summer months (May to October). This year, however, the airline has launched a summer programme with the introduction of a 362-seat A330-300 leased from ILFC. The aircraft is being operated on various transatlantic routes from Toronto to destinations including Athens in Greece, Barcelona in Spain and several Italian cities.
"For 1998, we plan a [Canadian] West Coast programme, and will maintain an A320 fleet in the summer season," says Clive Edwards, Skyservice's director of maintenance and engineering, who adds that a second A330-300 could also be leased. "We will also introduce services to Hawaii, and expand our European presence," he says.
Royal Airlines, based in Montreal, has been competing in the market since 1992, fulfilling the residual charter needs of Signature and Sunquest. It operates in the traditional "north-to-south" and transatlantic markets, with around 20% of the international charter traffic.
Having started up services with a small fleet of Boeing 727-200s and TriStar 100s, the airline recently initiated an upgrade of its fleet with the introduction of two 265-seat Airbus A310-300s leased from GE Capital, which are operated to European destinations alongside the carrier's TriStars.
Source: Flight International
