Why airfares in Canada aren’t as low as in the U.S.

U.S. airfares in January reached a 15-year low — excluding peak pandemic fares — but while our two countries have a lot in common, experts say Canadian travellers shouldn’t expect the same deep discounts here.

Despite the cost of living in North America creeping upward in most other respects, airfares in the United States were down 6.4 per cent in January compared to the same month in 2023.

Not only were ticket prices down year-over-year, they were actually three per cent lower than pre-pandemic airfares in January 2020, and down 15 per cent compared to a decade ago, according to consumer price index data from the U.S. Bureau of Labor Statistics published in February. In fact, prices in January were the lowest they’ve been in the U.S. in 15 years, excluding during the peak pandemic years, when air travel slowed to a trickle.

In Canada, airfares fell 14 per cent in January compared to the same month in 2023, and 23.7 per cent compared to December 2023, but still sat at 10 per cent above pre-pandemic levels in 2019, according to Statistics Canada.

John Gradek, head of the aviation management program at McGill University, said January’s drop coincides with seasonal travel patterns – January typically represents a slump for the industry as holiday travel demand gives way to post-holiday homebody habits. Not only is it likely to be temporary, but he said it caps off a year of low airfares and is probably the last time we’ll see prices drop in Canada for awhile.

“Going forward, when we look at the consumer price index for March, April and May, the air transportation component of the index, will show a reversing trend and we’ll see fares go back up again,” Gradek told CTVNews.ca in a telephone interview on Friday.

“You’re seeing, even today, significant increase in the price levels across Canada.”

Competition is key

Competition between airlines has been a major factor driving down airfares throughout 2023 and early 2024, Gradek said.

Last year was a boon for commercial flight in both countries as travellers made up for time lost during the pandemic. According to the American Express Global Business Travel Air Monitor 2024 report, Canadians took more than 10 million trips abroad between January and April 2023 – a seven per cent increase compared to the same period in 2019. At the same time, inflation and rising costs of living threatened to put an end to the honeymoon as would-be travellers tightened their belts.

In both countries, low-cost carriers competed against one another and the larger, more established airlines for a share of the market, offering attractive fares and forcing their competitors to do the same. In the U.S., those airlines include budget carriers like Frontier, Spirit and Allegiant.

“The U.S. is seeing very aggressive competitive posturing by guys like Frontier, Spirit, Allegiant,” Gradek said. “They are aware that the economy has slowed down and that there’s less disposable income…so they’re being very aggressive in the marketplace by pricing products that would attract people who have a lesser availability of discretionary income.”

Similarly, budget airlines Flair and Lynx each vied in 2023 to become Canada’s lowest-cost carriers, Gradek said, and airfares dropped significantly as Air Canada and WestJet tried to match them.

A passenger walks by an empty Lynx Air check-in counter at the international airport in Calgary on Friday, February 23, 2024. Officials with the Calgary-based company announced Thursday evening that it is ceasing operations, effective at 12:01 a.m. MT on Feb. 26, 2024, after filing for creditor protection. (THE CANADIAN PRESS/Todd Korol)

However, less than two years after its inaugural flight, Calgary-based Lynx Air filed for creditor protection and ceased operations last month, citing “the compounding financial pressures associated with inflation, fuel costs, exchange rates, cost of capital, regulatory costs and competitive tension in the Canadian market.”

Since then, Gradek said, airfares have begun to creep up.

‘Totally different’ markets

Even had Lynx not shut down last month, Gradek and Ken Whitehurst, executive director of the Consumers Council of Canada, both caution that competition can only go so far toward lowering airfares.

The reality is that certain elements of the Canadian market will always keep airfares higher here than in the U.S.

“The Canadian and U.S. airline markets are totally different,” Whitehurst told CTVNews.ca in a telephone interview on Friday. These differences, he said, make it hard to compare the two.

“The U.S. has simply more carriers and Canada has a lot fewer carriers, and even fewer that actually want to fly everywhere in Canada. So that’s been a historic challenge, particularly if the country wants to have an airline industry of its own.”

In addition to being a smaller market with fewer carriers to choose from, Canada’s physical size makes air travel more expensive, since there’s so much distance between major Canadian cities. Because of its size, as Whitehurst pointed out, smaller carriers tend to prefer offering regional, rather than cross-country routes.

Canada also has less air-travel infrastructure than the U.S., as well as different airport fee and tax structures, Gradek explained.

“It’s expensive to fly in Canada. There’s no doubt about it,” he said.

“I would recommend Canadians kind of shy away from doing a direct comparison between Canada and the U.S.. Do your shopping in Canada, compare the different fares, beware of hidden charges for baggage and fees, but really, enjoy travelling in Canada. We still have a pretty good system that’s in place and fares are still reasonable.”

Still, Whitehurst said Canadian consumers would benefit from more transparency when it comes to pricing, something he said went to the wayside when Canada deregulated the industry more than 40 years ago.

“There’s still this lingering question (of) whether we really know if consumers are getting the best deal that they can get,” he said.

“We don’t know because we just don’t have the level of regulation anymore that gives us insight into airline costs.”

By contrast, when it comes to natural gas and electricity utilities, he said the public has access to a breakdown of companies’ costs in order to better understand the basis for their rates. This is not the case with aviation in Canada.

“There should be a lot more validation with the Canadian consumer that they are getting fair value and good service,” Whitehurst said.