Why 100% foreign ownership of the major airlines is on hold (even if it’s a good idea)

It costs a lot of money to be in the airline business. In 2015, it cost Air Canada more than $12.3 billion (or $236 per seat-trip) to keep the airline flying. The smaller WestJet cost a little over $3.4 billion to run, or approximately $213 per seat-trip. Even if half the passengers vanished overnight, most of those multi-billion-dollar costs would still need to be paid as overhead.

When fleets need to be renewed or IT systems need to be modernized, it can be helpful if the airline can turn to investors. But Canada’s major airlines are limited in who they can turn to by something that might seem rather petty in this day and age: where those investors live.

That’s because Canadian law requires that “at least 75 percent of the voting interests, meaning voting securities and the votes assigned to those securities, need to be both owned and controlled by Canadians.” In other words, foreigners are collectively limited to a 25-percent stake.

For years, this cap on foreign ownership has been seen as being of dubious value. Both Australia and New Zealand have allowed up to 49 percent foreign ownership of their international airlines, and 100 percent foreign ownership of strictly domestic airlines, since at least 2002 with no adverse effects. A working paper presented at the International Civil Aviation Organization’s 2013 Montreal conference painted the industry as being still subject to “a framework of restrictions developed in the first half of the 20th century at the end of an age of colonial empires” that are “no longer fit for purpose.” And an International Air Transport Association (IATA) report noted in 2007 that “removing ownership restrictions can also lead to increased investment in the sector . . . and a lower cost of capital as firms have access to wider and more efficient sources of finance.”

At last, momentum is building in Canada to allow foreigners a little more freedom to invest in Canadian airlines. A review of the Canada Transportation Act that concluded this past February recommended allowing up to 49 percent foreign ownership of Canada’s passenger airlines and complete foreign ownership of its cargo airlines.

The idea was met with mixed views in the industry. WestJet is said to favour raising the foreign ownership limit to 49 percent only for countries that allow Canadian investors the same privileges. Porter and Jetlines were said to be all for it, while Air Canada carefully maintained a poker face.

But why stop at 49 percent? Why not raise the passenger airline foreign ownership limit to 100 percent?

A big part of the problem can be found in those restrictions that limit international air traffic. When they fly between countries, airlines need to abide by rules set out by international treaties negotiated between Canada and foreign governments.

Most of those treaties, some of which are decades old, would bar any majority-foreign-owned Canadian airlines from serving foreign cities. For instance:

  • Canada’s agreement with Mexico says that either country has the right “to revoke, suspend or impose conditions” on an airline’s right to fly between the two countries if “they are not satisfied that substantial ownership and effective control of the airline are vested in [the country’s government] or its nationals.”
  • Canada’s agreement with the European Union says that a Canadian airline can only serve the E.U. if “effective control of the airline are vested in nationals of Canada, the airline is licensed as a Canadian airline, and the airline has its principal place of business in Canada.” Similar restrictions apply to E.U. airlines flying to Canada.
  • And Canada’s agreement with China allows China to block any seemingly Canadian airline if “they are not satisfied that substantial ownership and effective control of the airline” rests with Canadian citizens. Again, Canada can apply the same requirement to China’s airlines

It is possible that the basis for those restrictions will eventually be worked around. As the IATA’s 2007 report noted, international safety standards were already taking shape when the report was being written (including an operational safety audit that was to be mandatory for all IATA member-airlines starting in 2008) that would prevent airlines from adopting the flags-of-convenience often used in the cruise ship industry; thus, safety standards are no longer a particularly compelling reason to block foreign ownership among the countries whose airlines already have excellent safety records.

And while there were approximately 3,000 international agreements regulating air travel in 2007, only 200 of them already covered 75 percent of passenger traffic, greatly simplifying the process of revising those treaties to allow full foreign ownership between countries with similarly high standards.

There’s no longer any need to fear American or German or Australian or Japanese or British ownership of Canadian airlines. Indeed, the easier it is for Canadian carriers to get investment from abroad, the more robust the Canadian system will be. Until 100-percent foreign ownership can be allowed without running afoul of decades-old international treaties, raising the foreign ownership limit from 25 percent to 49 percent would be a fine start.

 

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Dear Politicians: Steal This Idea

The airline industry might be a favourite whipping boy for all kinds of reasons, sometimes for understandable ones, but now they’re even taking a beating for getting people to their destinations on-time.

A Nov. 29 Los Angeles Times report cites the example of a semi-retired electrical engineer who used to be able to fly from Palm Springs, Calif. to San Francisco in 55 minutes. Today, that same trip is scheduled to take 90 minutes, leading to accusations that airlines “pad” their schedules to improve their on-time performance.

“It tells me that the on-time statistics are worthless,” the Times reports Joe Nolan, who lives in Palm Desert, a Palm Springs suburb, as saying.

The writer concedes that Nolan “might have a point”. Indeed, he does; but in a different way than one might expect.

Two commonly used measures of airline on-time performance are the average delay, and the percentage of flights arriving within 15 minutes of the scheduled time.

In September, the most recent available month, the U.S. Bureau of Transportation Statistics’s numbers for the two U.S. carriers serving Winnipeg looked pretty good: the average United flight system-wide arrived two minutes early, and the average Delta flight pulled up to the gate four minutes ahead of schedule. No such information was available for Air Canada and WestJet on this side of the border.

According to FlightStats.com, which shares each airline’s on-time performance according to the 15-minute rule, all four carriers saw more than 80 percent of their flights arrive on time during the two months from Sept. 15 to Nov. 15.

But what use is that to you, the consumer? Not much; in fact, it might give you a false sense of security.

As anyone routinely traveling from Winnipeg will know, it’s often necessary to make at least one flight connection to reach the desired destination. But when the consumer books a flight, they’re not assuming a flight will arrive at the gate at the scheduled time with fifty-fifty-ish probability — they’re assuming something closer to 100-percent probability.

After all, if the average flight arrives early, and the vast majority of flights arrive within 15 minutes of the scheduled arrival time, isn’t it just going to be alright?

This week, I looked up the Nov. 24-Dec. 1 stats for 40 randomly chosen aircraft — 10 each flying in Air Canada, WestJet, Delta and United colours — and tracked their on-time performance during that period. This included 235 Air Canada-branded flights, 309 WestJet-branded flights, 259 Delta-branded flights, and 241 United-branded flights. (Since Flightradar24.com data reports landing times, I assumed an average eight-minute taxi-in time, consistent with U.S. Bureau of Transportation Statistics information.)

The average estimated deviation from schedule was, at worst, insignificant: three minutes late on Air Canada, four minutes early on United, five minutes early on WestJet, and 12 minutes early on Delta — which is not unusual for that airline, being the most conservative scheduler over the past couple of years.

Most of each airline’s branded flights were also on-time according to the 15-minute rule: 74 percent for Air Canada, 81 percent for WestJet, 60 percent for United and 61 percent for Delta. (The busy U.S. Thanksgiving holiday, which was expected to be more of a problem than usual this year due to tighter security, likely accounts for much of the difference.)

But if one were to look at the cut-off separating the worst five percent of each airline’s flights from the other 95 percent, that is where one starts to get a sense of how much of a delay should be assumed if the goal is a leisurely walk through the terminal from the arriving flight to the departure gate, and not a panicked sprint.

In this case, WestJet was the best performer, with 95 percent of flights arriving no more than 22 minutes late.

Delta and Air Canada were essentially tied, at 35 and 37 minutes respectively. United was the straggler, with the best 95 percent of flights arriving no more than 45 minutes late.

That is information that consumers can actually use, because those are the margins they should build into their schedules if they want to avoid a high-stress situation.

Given that governments like to play “the consumer’s best friend” when it comes to air travel, they could actually do something useful for a change by providing the public with not just average delays, but with an idea of what to expect when their flight turns out to be anything but average in a negative way.

Publicizing information on the cut-off between the “best 95 percent” and “worst 5 percent” of flights would not only save travellers the stress of running through airports, or arriving at the destination and finding their bags didn’t make the connecting flight; it would give a far more vivid illustration of each airline’s network performance than conventional on-time statistics ever could.

Globalized world stuck with parochial airline rules

Imagine you’re one of a still small, but growing, number of global road warriors. You’re based out of Vancouver, but have business to do in London and Tokyo, and wish to make things as simple as possible by doing it all in three hops, taking nonstop flights.

On the surface, this should be easy enough to arrange. London is British Airways’ global hub, and Tokyo serves the same purpose for Japan Airlines. Both belong to the Oneworld airline alliance, one of three that purpote to offer seamless worldwide connections, and both fly from their respective hubs to Vancouver, so booking a Vancouver-London-Tokyo-Vancouver trip should be a piece of cake, right?

Not necessarily. Oneworld, like the other two alliances, offers suggested itineraries and even a few package deals; but you cannot book directly through the Oneworld site; you must deal directly with a member airline.

An amusingly bad Tokyo-Vancouver routing suggested by the Oneworld web site: Fly from Tokyo's Haneda Airport to Osaka,  then fly back to Tokyo, landing at the less-central Narita airport this time, then fly to Vancouver. (Click to enlarge.)

An amusingly bad Tokyo-Vancouver routing suggested by the Oneworld web site: Fly from Tokyo’s Haneda Airport to Osaka, then fly back to Tokyo, landing at the less-central Narita airport this time, then fly to Vancouver. (Click to enlarge.)

Fair enough. So you try booking online with British Airways, but come to a dead end because their web site won’t let you book a nonstop Tokyo-Vancouver flight on Japan Airlines, despite being alliance partners. BA’s web site demands that the Tokyo-Vancouver leg be via London Heathrow, a journey of more than 24 hours.

Then you try making the booking with Japan Airlines, but get no further because their web site requires that your first leg be from Canada to Japan.

Frustrated, you check out your options on Google Flights, and find out that, ironically, the only way to reserve all three flights on a single booking is to book through the American Airlines web site — rather counterintuitive, given that your itinerary neither involves ever stepping aboard an American Airlines flight, nor setting foot in the United States.

Even once booked, your hassles aren’t necessarily over. Prefer an aisle seat for those long flights? Even within an alliance, airlines might have drastically different seat-selection policies, and almost all require that seats be arranged through their own web sites or call centres. Hate waiting in line to check in? Sorry, but many of those computerized airport kiosks still tell you to go find an agent to personally get you checked in, as the software can’t handle bookings made through other carriers’ reservation systems.

The airlines know this is a clunky and exasperating way of doing business, and some within the European Union have merged while retaining nominal national brands. British Airways and Spain’s Iberia, for example, might look like two different airlines; but both are really divisions of the London-based International Airlines Group (IAG). The same applies to Paris-based Air France-KLM, which owns the French and Dutch airlines which go by those names.

But among the airlines that have their hubs in other global business capitals, not only has little consolidation taken place — it’s not even allowed to happen.

Although the International Civil Aviation Organization (ICAO) has acknowledged that laws restricting foreign ownership of domestic airlines are of questionable relevance today, Canada remains one of many countries whose laws are based on the assumption that foreign ownership of an airline, no matter how sterling the foreigners’ reputation, is somehow a bad thing. As the Canadian Transportation Agency notes on its web site:

The CTA requires that air carriers operating or proposing to operate a domestic air service be Canadian unless they obtain an exemption from the Minister of Transportation, Infrastructure and Communities . . . With respect to a corporation, partnership, proprietorship or other legal form of business enterprise: It must be incorporated or formed under the laws of Canada or a province; At least 75% of its voting interests must be owned and controlled by Canadians; and it must be controlled in fact by Canadians.

But Peter Davies, a former Air Malta CEO notorious for referring to his own troubled airline as “crap”, is pitching a solution. In an interview published Jan. 8 on Skift.com, a travel industry news site, he suggests that smaller airlines in different countries keep their national identities on the surface, but merge their back-office operations:

[Davies] proposes a “hotel management style, where airlines have maintained their brand but the whole back office is managed by the management company.” The hotel management company would be invisible to passengers. The airline’s customers would experience the local airline brand, not a chain identity. But the national carriers would benefit from the same cost advantages of their larger competitors.

“Your back office costs, your revenue counting, maintenance, aircraft purchasing, insurance—all these expensive ticket items would be transferred [to the management company] which yields economies of scale,” Davies says. “That company takes on a percentage of the fixed-costs basis of these smaller flagship airlines, which would make a significant difference in terms of profitability. The key is to make sure you maintain the brand. I do believe fervently in the brand, particularly for a destination airline.”

Though Davies promotes his idea as a means by which to save small national brands — the same week as one such carrier, Cyprus Airways, bit the dust — it raises another possibility: adapting this model to finally allow the Star, Oneworld and Skyteam alliances to become to global air transport what Crowne Plaza, Holiday Inn and Sheraton have become to lodging; namely, a global network of regionally owned franchises.

Under such a model, it would be possible for airlines to respect the foreign ownership laws of their respective countries. Unlike in the hotel industry, it would even be possible to keep the planes painted in national colours and the flight attendants in the same uniforms that they wear today.

But the pricing and marketing functions, the policies on such things as baggage allowance and seat selection, the fee structure, the product offerings and innovations, and the reservation systems would all become merged and run out of Star’s Frankfurt headquarters, Oneworld’s New York City headquarters and Skyteam’s Amsterdam headquarters.

Thus, if you were to fly Oneworld’s British Airways from Vancouver to London, and then on to Tokyo, and then fellow alliance member Japan Airlines from Tokyo to Vancouver, it would be the truly seamless experience that the airlines had in mind when they began forming alliances in the ’90s.

It’s a move that would make sense in a world that’s more internationally mobile than ever, though some carriers with excellent reputations in their own right, such as Star Alliance member Singapore Airlines, might rightly resist any tarnishing of their brand.

Yet the airline industry is also closely tied to nationalist sentiments, and can end up taking a bashing by politicians for not being reverential enough to these sentiments, as British Airways painfully learned when it tried removing the Union Jack from the tails of its aircraft years ago. That alone might be enough to slow any progress down.

How to lessen that squished-in feeling when you fly

Different airlines, same story.

Different airlines, same story.

The last time you looked for a flight to book, chances are — if you’re anything like the majority of the airlines’ customers — that you looked at only two things: price and schedule.

This is the norm in modern-day air travel. Airlines have long since stopped competing with one another on anything else — the comfort of the seats or the quality of the food, for example — because they know full well that such things rarely make someone pick one airline over another.

Thus, in a bid to cut the average cost-per-passenger of operating a flight, the airlines have progressively packed the seats in tighter over the years. In the Seventies, scheduled airlines typically spaced each row of Economy seating 34 inches apart. Today, 31-inch spacing is the standard, with some airlines even having drifted down to 30 inches between rows.

Airlines have also started installing narrower seats on some flights to fit more seats across the cabin. Air Canada, for example, has generated controversy by introducing high-density Boeing 777s to its fleet that pack 10 people into each row instead of the standard nine by giving everyone an inch and a half less elbow room.

Not all airlines and aircraft are the same, however. Thus, if being comfortable on a flight is important, it pays to check out websites like SeatGuru dedicated to helping people make educated choices about where to sit. But to simplify things, here are the types of aircraft to try to travel on if you want just a little more space, or to avoid if you hate that squished-in feeling:

Aircraft to try to get a seat on:

  • Air Canada’s CRJ-705s: These smaller regional jets are surprisingly generous in terms of legroom if not in elbow room, with rows spaced 34 inches apart and seats that are 17 inches wide. These are normally listed on web sites using the “CRA” moniker.

 

  • Air Canada’s Embraer 175s: The rows on these smaller 73-seat jets are still spaced 32 inches apart, and the 18-inch wide seats offer a little more elbow room than the CRJ-705s do.

 

  • Delta’s Embraer 170s and 175s: The 31 inches between rows might be nothing special these days, but these aircraft are a bit more generous than average in elbow room, with 18.25-inch wide seats.

 

  • If you’re traveling long-haul, aim for Air Canada’s lower-density Boeing 777s (32″ between rows, seats 18.5″ wide) or Air France’s A330-200s (32″ between rows, seats 18″ wide). A bonus of flying the A330 is that the majority worldwide are in 2-4-2 configuration, meaning that you’re never more than one seat away from the aisle.

 

Aircraft to avoid:

  • WestJet Encore’s Q400s: These new turboprops mainly fly on short-haul routes like Winnipeg-Regina, where comfort is perhaps less important. But with rows spaced as little as 30 inches apart and all seats being just 17 inches wide, the Q400s have some of the smallest passenger spaces outside of the deep-discount charter market.

 

  • Delta’s Boeing 737s and 757s, and United’s Airbus A319s and CRJ-700s: These aircraft are not commonly seen in Winnipeg,  but if you fly through their respective Twin Cities and Chicago hubs, there’s a reasonable chance you’ll end up on these high-density airplanes with not much more personal space than you’ll find on the Encore Q400s. Most of these aircraft offer as little as 30 inches between rows, and seats only 17.2 inches wide.

 

  • Air Canada Rouge — the entire airline: This airline-within-an-airline targeting price-sensitive vacationers debuted last year to horrific reviews, with one reviewer noting that the seats were packed in so tight that “my 9 year old son also had his knees touching the seat in front of him and a seat in the face as the other uncomfortable passenger tilted their seat back in hopes of finding some extra space.” Rouge’s Airbus A319s offer very little leg room (29″ between rows, seats 18″ wide), while the Boeing 767s offer a tiny bit more legroom (30″) but less elbow room (17.5″).

Or, you could pay extra on a growing number of airlines to sit in the roomier “preferred”, “economy comfort” or “plus” seats for an additional charge ranging from $16 to $125 each way on Air Canada, $9 to $180 per segment on Delta or $15 to $53 per segment on WestJet.

New airline betting that hope will triumph over experience

“Starting an airline is like getting married for the second time,” goes an old joke. “The triumph of ‘hope’ over ‘experience’.”

Despite there being more than just a grain of truth behind that joke, there continues to be every so often a new attempt to launch an airline with the hope of making millions of dollars in profits.

The names of the startups have come and gone at Winnipeg Airport over the years. Canjet, Vistajet, Jetsgo and Greyhound Air each tried their hand at offering Winnipeggers a low-fare domestic alternative to Air Canada and the now-defunct Canadian Airlines. Zoom and Iceland Express did the same on international routes. Royal and Canada 3000 tried a mix of domestic and international services.

Of all the post-deregulation startups to fly into Winnipeg, only one still serves the city: WestJet, which launched out of Calgary in 1996 with three second-hand Boeing 737s, and is now the country’s second-largest airline.

The industry’s high infant mortality rate is not deterring Jetlines, a Vancouver-based corporation that hopes to begin flying around western Canada in 2014 as a self-styled “ultra low cost carrier”.

In a Nov. 14 business briefing, Jetlines outlined its plan to offer lower fares than either Air Canada or WestJet on routes from its Vancouver base, including a $143 one-way fare to Winnipeg. The airline would charge not just for food, baggage and seat selection as its competitors do, but even charge customers to call its reservations centre, to pre-board the aircraft, to get their bags put on to the baggage belt first, and even to pay.

Yes, that’s right: you would have to pay to pay. At least as long as you’re using a credit card, on which the airline will levy an extra service charge. Use a debit card instead, which transfers the cash directly from your bank account to the airline’s, and you can avoid the extra cost.

How much they would charge is not yet known, but Ryanair, a European low-cost carrier which Jetlines plans to emulate, charges $29 Cdn. to book through a reservation centre and $10 for priority boarding, and collects a two percent handling fee on the total amount charged to a customer’s credit card.

But while Jetlines follows a model used to some degree of success by other low-cost carriers such as Europe’s Ryanair and EasyJet and the U.S.A.’s Allegiant and Spirit Airlines, there appears to be a flaw in their early plans.

Ryanair and EasyJet succeeded in Europe in no small part due to their ability to sell the dream of travel: of London’s work-hard-party-hard City types being able to spend the weekend living it up in Latvia or to escape to second homes in France or Spain with the same ease that Winnipeggers flock to cottage country. Or of Germans and Scandinavians being able to fly to Poland for the cheap cosmetic surgery they can’t get back home.

It doesn’t hurt that European Union member-states have abolished limits on the value of goods that citizens can bring home from each others’ countries.

Jetlines, on the other hand, plans to start with a list of destinations that doesn’t exactly get the wanderlust going, as the Financial Post reported:

Jetlines would be based in Vancouver and aim to fly to underserved markets or those without any service. Potential destinations include Prince George, Winnipeg, Kamloops, Prince Rupert, Regina, and Edmonton.

Eventually, it aims to add international destinations like Orlando, Cancun, Las Vegas and Cabos San Lucas.

Why the airline does not start with the latter set of destinations is a bit of a mystery. Spirit Airlines has succeeded in the U.S. by focusing on taking northerners away to warm southern destinations. Allegiant specializes almost entirely on north-south travel.

Jetlines, on the other hand, is betting its early survival on being able to stimulate demand for flights to and from a set of cities of which only one — Vancouver — is among North America’s top 40 tourist destinations.

Stimulating demand for domestic travel within Canada by offering low fares will be difficult for other reasons as well. Unlike many European cities, which are densely populated, explorer-friendly and (particularly in the larger centres) blessed with an active nightlife, many North American cities away from the coasts are dreary replicas of one another. All but a few offer little more than a past-its-prime central business district that is deserted more than half the week, and little or nothing that is interesting to explore on foot aside from a somewhat revitalized old warehouse district.

Even cities like Atlanta and Dallas — cities with a population and head office base to (theoretically) support a cultural and nightlife scene that would make them tourist magnets on other continents — are barely thought of as tourist destinations at all outside of the smaller cities in their economic orbits.

Thus, Jetlines is taking a grand risk by focusing first on going head-to-head with Air Canada and WestJet to cities that have little price-sensitive, mass-market tourist appeal. Instead, it could be carving out a niche of its own selling the dream of cheap city-breaks in North America’s more attractive coastal cities (aside from its Vancouver home base), or even selling more imaginative packages, such as the ability to explore Havana — a city that should be a far stronger tourist draw and far more accessible than it currently is — before it emerges from its 1950s time warp.

Wish the new airline luck. Just by virtue of being in that industry, they will need it.

Why it can cost the same to fly 1,500 kilometres as to fly 9,000 kilometres

takeoffAre you a pack-a-day smoker? Kick the habit for just 100 days, and you’ll have saved enough money — about $1,100 altogether — to cover airfare for two for a Spring Break holiday in Vancouver, Toronto or Montreal; or airfare for one to Bermuda, with a couple hundred dollars in change.

Had your heart set on Churchill, in Manitoba’s north? Sorry, you’ll have to save up a little bit longer — round-trip airfares between Winnipeg and Churchill, a distance of about 1,000 kilometres (621 miles) each way, sell for almost $1,300 per person round-trip if you buy in advance, or about $2,000 if you need to travel on short notice.

This is one of the enduring mysteries of how airlines set their airfares, not to mention those curious seat sale promotions that offer, to use just one example, a lower fare to fly from Canada to Istanbul via Amsterdam than to fly to Amsterdam itself.

What is the method behind their apparent madness?

A hint at the answer might be found by looking at the airlines’ annual reports, particularly the section where the airline shows its expenditures by category.

WestJet’s 2012 Annual Report, for example, shows the airline having spent slightly more than $3 billion in 2012 to move 17.4 million passengers around its network — or $175 per passenger — with the average flight traveling 978 miles between take-off and touchdown.

Many people assume that fares are based on distance — if you travel twice as far, you should expect to pay twice as much. There is, in fact, some tendency for longer journeys to come with higher fares, but not as much as there was in the days when airfares were government-regulated and often set on a per-mile basis, a politically useful but economically absurd way of going about it.

Some of WestJet’s costs, averaged out below on a per-passenger basis, are indeed strongly or somewhat proportional to distance traveled. Fuel, for instance, is strongly proportionate to distance — the further you go, the more of it the plane tends to burn, even though burn-per-passenger-mile tends to be higher on shorter flights than on longer ones, and on aircraft with higher ratios of kilograms of fuselage to passenger carried. But fuel only accounted for about one-third of WestJet’s total operating costs in 2012.

WestJet Operating Costs

Many other costs have little or nothing to do with distance traveled, such as airport operations, marketing, aircraft leasing or maintenance.

Some of these costs are incurred based on the number of staff required to keep aircraft moving, which explains why point-to-point carriers that spread their flights out over the course of the day have a cost advantage over hub-and-spoke operations that require large numbers of staff to be on duty all at once.

Others are fixed costs that can only be reduced on a per-passenger basis by pushing more people through the system, or are proportional to the number of take-offs and landings regardless of the number of people on each flight or how far they are traveling. (The people who work at the check-in counter, for example, are paid the same to check in a flight with 80 passengers on board as one with 150 passengers, and are paid the same to check in a passenger traveling to the next province as to check in the next passenger traveling to the opposite side of the world.)

Thus, because of the high fixed costs that the airlines have to pay no matter how many flights they operate or how many people are on each flight, it only makes sense to base airfares on a high up-front cost for passengers to use their network — regardless of whether they are traveling 300 or 3,000 kilometres — and then to add gradually to the cost of the ticket to cover distance-related costs such as fuel burn and the amount of food and beverages that need to be loaded on board.

Therefore, it is entirely rational that a round-trip to Minneapolis/St. Paul (635 kilometres each way) might cost $662 round-trip; a round-trip to Los Angeles (nearly four times as far from Winnipeg as the crow flies) might cost just over $120 more; and a round-trip to London might cost only twice as much as a round-trip to the Twin Cities despite being nearly 10 times as far away.

Lowest 2014 Spring Break airfares from Winnipeg, as of Nov. 3, 2013. (Click on image to see updated prices.)

Lowest 2014 Spring Break airfares from Winnipeg, as of Nov. 3, 2013. (Click on image to see updated prices.)

The airlines also make educated guesses about how much they can charge on a given route. On a heavily competitive route, or where a rival is offering a lower fare to get the public’s attention, an airline might offer a lower fare just to bring more revenue in and to fill seats that might otherwise go empty. This might mean charging a lower price to fly from A to C via B than they would charge a passenger to fly from A to B.

They also have a rough idea of what percentage of passengers traveling between two cities are traveling because it seemed like it would be a nice thing to do, and what percentage are traveling because they need to, and aren’t about to quibble over a couple hundred dollars.

For instance, if you’re travelling from Winnipeg to Honolulu on a Wednesday in mid-January, it’s pretty much assured that you are a price-sensitive leisure traveler, so the airline will offer a low fare knowing that a seat with a posterior in it bringing in $500 round-trip for the airline is a lot better than an empty seat bringing in $0, at least until their software indicates that demand is starting to exceed supply, at which point the fare will go back up.

But if you’re going to Gillam, Manitoba — where no one but a masochist would go for fun in the dead of winter; not that many people would fly to Winnipeg for that purpose in mid-January, either — they’ll pretty much have figured out that you most likely have no choice and will pay whatever the going price is to be on the flight. (Not to mention that the smaller airlines that fly those northern routes have to spread their fixed costs among far fewer passengers, and serve destinations that most of the population wouldn’t even visit for free.)

Finally, don’t worry that the airlines might be gouging you. According to WestJet’s annual report, they made earnings before income taxes of $340 million in 2012 on revenues of $3.4 billion, averaging out to $19.53  of profit per passenger or about $1 of profit for every $10 in revenue. At RBC Royal Bank, by comparison, profits before taxes came to about $1 for every $3 in revenue, which goes to show that there is far better money to be made in the financial sector than there is in the airline business.

Traveling with children? Better to pay extra for seat selection.

It’s nearly Labour Day, which means that another summer travel season is nearly over. For some traveling with children, those summer trips have brought some unpleasant surprises this year as parents found out the hard way that airlines no longer guarantee that they will be seated with or even near their children unless they pay extra for seat selection.

“I recently discovered that Air Canada does not have a policy whereby a 4-year-old child will be guaranteed to sit next to her parent even when the seats were booked together,” one passenger recently noted on the Skytrax airline review web site.

“Air Canada personnel chastised me for not paying the fees in advance and said it was my fault that my child and wife would not sit together.”

The situation was scarcely any better on Delta: “We tried to book our seats in advance and noticed that all 3 of us, 2 adults and one child of 9 were seated apart,” one passenger complained.

“No one at the gate would help us . . . [the flight crew] made it clear that it would be my job to negotiate with other passengers if I wanted to sit with my family.”

Such unpleasant surprises have been one of the consequences of the airlines’ shift toward charging passengers extra for all the extras, including seat selection. While paid-for seat selection offers passengers the assurance of getting the seats they want, and is an important source of revenue, they also deprive the airline of flexibility in seat allocation.

Those who have paid for seat selection have already volunteered to pay more than the lowest possible price. It would be foolish of the airline industry to inconvenience these passengers in favour of more price-sensitive buyers who clicked on the “No Thanks” button when presented with the seat selection option.

Yet the airlines could do a better job of alerting customers to the importance of paying extra for seat selection if it is important for them to be seated next to their travel companions.  Air Canada, for example, does not promote the usefulness of seat selection during the purchasing process, even if the user is obviously looking for flights for a combination of adults and children. This might be leaving people with the mistaken impression that the airlines will be as accommodating in seating families together as they were in the bygone all-inclusive era.

WestJet, to its credit, notes on its web site that pre-paid seat selection “gives you the peace of mind that comes with knowing you’ll get the seats you want on the aircraft and you won’t be separated from your family, friends or colleagues”.

That fee-free all-inclusive era will not be returning. The fees might be unpopular, but they don’t stop people from traveling, and they were worth $27.1 billion (U.S.) to the global airline industry in 2012 — greater than the entire economic output of Estonia. So, if you’re traveling with children or know people who are, let them know that paying extra for seat selection might be worth their while.

Seat Selection Fees — Airlines Operating at Winnipeg Airport

Air Canada: $18 to $31 per passenger each way on flights within North America, depending on distance. Complimentary on longer flights.

WestJet: $5 to $17.25 per passenger per flight segment for regular seats; higher for exit row and roomier seats.

Delta: $9 to $59 per passenger per flight segment for certain aisle, window, bulkhead or exit row seats. Higher for roomier Comfort seats.

United: Seat request available when booking, but seats are not guaranteed. Economy Plus seats available for an additional fee.