CAN–India travel market. Why is it key for AC? Air Canada has recently restarted India flights again. This market (including extended market) has been long under served for direct flights from Canada and still has lot more potential.
MARKET DYNAMICS 6th freedom: In airline world, 6
th freedom air right is the right of an international carrier to pick up a passenger in 1
st country, bring them to airline home country and then transit it to 2
nd country. This right allows global carriers to exploit non home markets. E.g. Lufthansa/British Airways picks up passenger in Delhi/Africa and bring them to Frankfurt/London and then fly them to US/Canada.
India/North America market: Just before COVID, Air India, BA, Lufthansa/Swiss, Air France/KLM, Emirates, Etihad, Qatar, Turkish airline (and 1-2 Indian players) have been flying anywhere between 5-15 daily flights each between India and Europe/Middle East. Europeans carriers flying about 20-25 daily flights on WideBody and MEA player about 40-50 daily flights on mix fleet. The transit passengers on these flights range on lower side from 25% (BA) to 70% (KLM). Conservatively speaking, at least half of these passengers are coming to North America. Many of these Canada bound passengers are picked up by Air Canada from Europe and Middle East.
For decades, Europeans dominated this market. Then MEA captured this market in last 20-25 years. From last 10-15 years US airlines entered and Air Canada was last one to re-enter (2015). Pre-covid, there were about 8-9 daily direct flights between US and India and 2-3 daily direct flights between Canada and India.
Air Canada Market share: For years (since 2006-2015) Air Canada missed participating in this (direct) traffic and other airlines nearly captured all the market. With new fleet and strategy the focus was brought back on this market (2015) and Air Canada did very well. Unlike before (1990s and 2000s direct flights), load factors were consistently higher (90%-100%) all through out the year.
There were/will soon be (pre-covid and will ramp up by next year) many thousands (and growing) of passengers coming daily from that part of the world to North America on direct or connecting flights. Immigration has been very strong in last 10 years and will be in next 4 years. There is a high preference for direct flights and people are ready to pay premium for these flights. COVID has created lot of pent up demand for this market, which will unfold over 12 months.
At some point, Air India will increase their stake in this market but before that, they have lot of work to do to restructure.
FLEET In absence of right type of airplanes (787 now), it was difficult for carriers such Air Canada/United Airlines to fly profitably and competitively point to point between India and North America. 787 changed the dynamics and made these routes economical feasible even at higher fuel prices. That initiated the new direct flights between Indian subcontinent and North America (new 787, also 787 replaced 777/747) creating a challenge for European and Middle Eastern players.
AIR CANADA STRATEGY Air Canada has following strategy for this market:
- Direct flights: Capture most of the direct flight market between India (DEL, BOM and may be a 3rd city (787-800) in some time). Competitor can only be an India player. Air India has lot to deal with in coming year with new ownership and restructuring. Jet Airways is still grounded and might start operations in few months with new ownership. Air Canada will dominate this market.
- Indirect flights via Europe/MEA: Some of the indirect market (via Europe/Middle east) will move to direct flights. Overall, there will be a net flow of traffic from European/MEA carriers to Air Canada. Because
- Loyalty/Aeroplan
- Home country airline
- Reduced travel time, connecting time, missed baggage.
- Service could be debatable esp considering first class of MEA players. But Air Canada is very strong in business and economy.
- Indirect flights via US: Some of the indirect market could also shift to Air Canada. e.g. DEL – NYC – OHIO could shift to DEL-YYZ-OHIO. Reverse is possible but to a lesser extend as Air Canada is/going to expanding/expand the footprint now compared to US airlines.
Air Canada will have (in 3 weeks) about 20 weekly flights (7 Vancouver, 10 Toronto and 3 Montreal) to India.
CURRENT PRICING I have talked about this few weeks back. Ticket prices are higher than pre-covid times for YYZ-DEL and YYZ-YVR.
I checked Montreal-Delhi flight on the day it was announced and price was $22XX return journey (Nov first week). Today it is about $26XX. Six weeks out, the price is about ~$1900. Usually, 6 weeks out is a good estimate of average price of the flight. Pre-covid times, the 6 week out price for Toronto-Delhi flight was around ~$1600. Clearly prices have gone up and this has been the prediction for key markets all throughout the covid. Fuel prices will impact but this market will withstand. IATA monitor tells us that fuel prices are similar to of 2018/19. You can predict for yourself if it will stay here for long. Even if current fuel price is new average, Air Canada will generate lots of cash flow with increasing capacity/demand. They have done this in 2018/19 years with similar fuel prices.
To compare, Toronto-Hong Kong fares have been cheaper than Delhi flights.
POTENTIAL I see this market expanding more for Air Canada. There is a potential for adding 1-2 more daily flights (Toronto-Mumbai and one more). Remember Toronto has evolved as one of the preferred transit points in North America. To run 4-5 daily flights operation, AC would need 10-12 787s aircraft. That will be approx. 7-10% capacity by ASM.