In late January WestJet announced plans to begin flying into Whitehorse starting in May 2012. This announcement has precipitated renewed discussions concerning the impact of mainline air carrier competition in small northern air markets.
During the past twenty years or so, northern air carriers have established themselves as the primary providers of air transportation within the north and also between the territorial capitals and southern gateway cities. The establishment of transportation infrastructure hubs in the north has greatly contributed to northern employment and northern gross domestic product (gdp). Northern air carrier gateway routes have also helped to ensure the provision of stable and cost effective service to outlying communities.
More recently, mainline carriers (Air Canada and WestJet) have shown increasing interest in northern markets. While access to mainline route networks is obviously beneficial to northerners as is the possibility of lower airfares, the replacement of capacity provided by northern air carriers with capacity provided by mainline air carriers comes at the expense of northern employment and northern gdp.
The Yellowknife market experience provides a good illustration. When WestJet entered the market in 2009, there were plenty of airfares below $100 and plenty of flights between the two northern carriers (Canadian North and First Air) and the two mainline carriers. Since 2009, both northern carriers have had to reduce their frequencies and lay off some employees. The airfares of less than $100 are gone also, and today it is the northern carriers that are consistently providing the best fares in the market.
The cost and benefit trade-offs associated with local carrier service versus mainline carrier service are particularly evident in the Yukon market. Air North, Yukon's Airline is one of the largest private sector employers in the Yukon, with more than 200 Yukon employees and an annual Yukon payroll of more than $9 million. Air North employees account for more than 1.5% of the private sector Yukon work force and more than 1.5% of Yukon gdp. In addition, almost one in fifteen Yukon residents, including the Vuntut Gwitchin First Nation, has an equity stake in the airline.
In most cases when a new air carrier announces their plans to fly to a community, the reaction from that community is very positive. Usually the new service is initiated because the community has been underserved or overcharged or both. Under these circumstances the community has everything to gain and nothing to lose so they usually roll out the red carpet for the new airline. This has not been the case in the Yukon, which has reacted to the WestJet announcement in a very unique and thoughtful way.
The Yukon Government has recognized and acknowledged that air transportation is a product that can be and is presently being produced locally such that the revenues associated with that product remain in the north or flow into the north, and the employment associated with that product is provided in the north. The Yukon government position is entirely consistent with their responsibility to promote and facilitate economic growth and development in the Yukon.
Regional governments often compete with other regional governments to attract mining, tourism, manufacturing and other developments to their area so that they can increase employment and provide other economic benefits to their region. This situation is no different.
The Yukon public has also recognized the value of having a local service provider and while both the government and the public acknowledge the benefits of having access to another mainline route network, they also express a desire for this access to be achieved without putting local jobs at risk. For either mainline carrier, this approach would likely produce a better market share at less cost and less risk.
The decision by WestJet to fly to Whitehorse has brought to a head an issue that has been brewing across the north for the past several years. The Yukon Government and the Yukon public deserve a lot of credit for standing up for what is best for the Yukon and their efforts should be recognized and supported in the other territories as well as Federally.
There is an obvious win-win situation and that is one where the mainline carriers work with northern carriers through interline and/or code share arrangements such that northerners have access to mainline route networks without putting northern jobs or service to small northern communities at risk.
There should be a good business case for the mainline carriers to entertain working relationships with northern carriers as network feed traffic delivered by northern carriers comes at no cost while there is a very real cost to the mainline carriers if they have to fly a northern gateway route themselves, particularly in a small market with lots of competition. Another cost that the mainline carriers should consider is the cost of the reaction from northern markets should a northern carrier become collateral damage as a result of being caught in the crossfire in a market share battle between two mainline carriers.
While we don't believe that causing harm to the local carriers is an intended consequence on the part of either mainline carrier, we also don't believe that mainline carriers completely recognize the role that northern air carriers play, not only in providing employment within the north, but also in providing an essential service from the territorial capitals to remote northern communities.
While it should be useful to let the mainline carriers know just how important northern air carriers are to the north, it is not effective if this information comes from the northern carriers themselves. Instead, the message should come from northerners and from those that have a direct interest in the growth and development of the north.
In addition to the territorial governments and individual northerners, the Department of Aboriginal Affairs and Northern Development (AANDC), and the Canadian Northern Economic Development Agency (CanNor) are two key Federal stakeholders who have a direct interest in the northern economy. The mandates of these agencies include the "support of Aboriginal people and Northerners in their efforts to:
- improve social well being and economic prosperity;
- develop healthier more sustainable communities; and
- participate more fully in Canada's political, social, and economic development- to the benefit of all Canadians." and to "help provide the foundation for a prosperous economic future for those who live, work, and support their families in the North.
I believe that there is also a good case to be made for Transport Canada, at the policy level, to recognize and support the role of northern air carriers. In early 2011, Inter Vistas Consulting, on behalf of Transport Canada, did a study to determine the impact on northern air carriers and on northern air services of increased mainline carrier services on gateway routes. While the study has not been released to the public, it should have confirmed much of the information in this document and it should have provided justification for the development of policy to recognize and support the role of northern air carriers in the north.
With almost 40% of Canada's land mass and only .3% of the population, it is easy to see why it is so important to the north and to northerners to have efficient, affordable, and competitive air transportation to and from southern gateways and between northern communities. Northern transportation hubs permit the efficient integration of air services within the north and air services between the north and southern gateways and they provide significant employment and other economic benefits to the north. Northerners need access to mainline route networks and interline and/or code share arrangements with mainline air carriers will provide this without sacrificing northern employment or impacting service to remote northern communities. The reflection of the foregoing in Transport Canada policy could be all that is required to provide appropriate direction to all stakeholders.
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