Vancouver Airport’s priority is Asian market

Courtesy The Province

Announcing his planned retirement next year, Vancouver International Airport (YVR) CEO Larry Berg can be proud of the Canadian airport being rated as one of the best in the continent. However, in light of concerns that the airport may be losing traffic to nearby airports across the border, such as Bellingham and Seattle, which offer cheaper flights (See Canadian airports lose five million passengers annually to US border competitors, Oct 5, 2012), Mr berg is not ruffled. “The door swings both ways,” he said.

In his opinion, YVR’s focus must be: “Keep costs low, services high, and market to Asian customers.”

Granting that all airports will want to keep their costs low and maintain high service standards, it is clear where YVR’s priorities lie. And by Asia, Mr Berg was thinking topmost about China. YVR and other government officials have been courting the Chinese to look to Canada, and to use Vancouver as the western gateway to the North America. Canada’s agreement with China to give Chinese residents “preferred destination status” has helped promote leisure travel to Canada.  In 1992, there were 17 weekly flights between Vancouver and Chinese ports; this has increased to 61.

Other Asian destinations do not matter as much.

For YVR, the loss of traffic to US border airports is a small price to pay since these passengers are likely to travel short-haul across the United States when it can redirect its resources to attract more international traffic. YVR’s edge will be to provide the connections, convenience and facilities that its competitors do not offer. That, Mr Berg is hopeful, may result in more Americans choosing to travel to Asia via Vancouver.

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Sichuan Airlines lands in Vancouver: The Chinese are coming to Canada!

Sichuan Airlines became the fourth Chinese carrier to operate scheduled flights between China and Canada when it landed its inaugural Chengdu-Vancouver flight at the Vancouver International Airport (YVR) on June 22. From then on, it is scheduled to be three times weekly.

The other three Chinese carriers that make scheduled calls at YVR are Air China, China Eastern Airlines and China Southern Airlines.

The Canadians have long been courting the Chinese at the national level, exploring opportunities not just in the field of aviation but also in the wider economic context covering other industries. It is only to be expected that increased trade between the two countries will trigger increased travel as well as the demand for more cargo capacity and flights.

Vancouver Airport Authority (VAA) is wasting no time to position VIA on the Canadian west coast as the gateway to not only Canada but also North America. It is optimistic that passenger traffic from China to Canada will increase considering China’s population of 1.33 people and the growing class of the wealthy, and as China relaxes the rules for Chinese to travel overseas and Canada makes it easier for them to obtain visas to visit.

There is already a healthy trend as according to the British Columbia Ministry of Jobs, Tourism and Innovation, Chinese arrivals increased by 24.9 per cent to 25,598 in Q1 of 2012.

Like any other airport, VAA is keen on enticing more airlines to YVR and sees Chinese carriers as contributing to that growth. According to VAA president and CEO Larry Berg, there are 61 weekly flights between Vancouver and China (including Hong Kong). He said: “That’s probably about the most of any airport in North America.”

Yet there seems to be an implicit fear of YVR’s isolation because of its geographical far-northwest location. As the region grows economically and attracts more tourists, there is also the fear of loss of traffic to competing airports in the region.

Seattle-Tacoma International Airport, which positions itself as America’s gateway to the Pacific northwest, is probably YVR’s closest rival although Chinese carriers have yet to make scheduled calls there. Located just south of the US-Canadian border, it is only a hop away.

However, YVR is also concerned with intra-competition as it keeps a close eye on growing airports in neighbouring provinces, such as Calgary International Airport.

Air Canada goes budget

AS the popular folk ballad ‘Blowing in the Wind’ goes, “When will they ever learn?” In announcing plans to consider launching a long-haul budget carrier, has Air Canada not learnt from the failure of Hong Kong-based Oasis Airlines, which commenced operations first between Hong Kong and London in 2006 and then between Hong Kong and Vancouver in 2007 only to fold up its wings in 2008?

So also is it said that fools rush in where angels fear to tread, but can Air Canada do it any differently in order to succeed where other hopefuls had so quickly failed?

Besides Oasis Airlines, Air Canada could have also considered very carefully the case of defunct fellow carrier Harmony Airways, which started as HMY Airways in 2002 and was renamed in 2004, operating to various destinations within Canada and beyond to the United States, Mexico and United Kingdom. The airline received favourable customer feedback and was eyeing the growing China market, but that was to be an unrealized dream when it ceased operations in 2007.

Harmony Airways preferred to be called a niche player than a low-cost carrier as it took pride in providing good service and serving hot meals on board. But it was hurt by soaring fuel prices in a highly competitive environment. It did not have the muscles to stand up against the larger carriers like Air Canada and WestJet. According to spokesman Peter Bruecking at the time, Harmony Airways had banked its future on gaining access to the China market, but delays in agreement between the two countries inevitably forced it to reshape its course, hence its demise.

Perhaps it was this very disappointment expressed by Harmony Airways then that has given new hope to Air Canada today as both China and Canada relax the rules for more Chinese travellers and carriers to enter Canada. Vancouver International Airport (YVR) has been working hard to promote itself as the gateway to North America and not just Canada. As admitted by President of the airport authorities Larry Berg, “Much of Vancouver Airport Authority’s focus in attracting new routes, passengers and airlines over the past number of years has been on Asia, given the growth potential of markets in the region.”

Three major airlines from China, namely Air China, China Eastern Airlines and China Southern Airlines, are already operating to Vancouver. A fourth airline, Sichuan Airlines, will inaugurate services on 22 Jun. YVR is also well served by other Asian carriers such as Cathay Pacific, China Airlines (Taiwan), EVA Air, Japan Airlines, Korean Air and Philippines Airlines.

How well the new Air Canada carrier will fare against the competition is a real poser, especially when the parent airline itself is highly prone to industrial disruptions and not as highly regarded for service as some of its competitors. However, as a low-cost operator, the new carrier will understandably compete on price, but considering the low fares charged by some of the established carriers, the differential may not be adequately compensatory for the deprivation of creature comforts on a long-haul flight.

Yet again, this raises the question as to whether the budget long-haul is a viable proposition, having seen the dissolution of Oasis Airlines and, lest you cite AirAsia X otherwise, you will note that the Malaysian carrier has ceased its long-haul operations from its home base in Kuala Lumpur to London, Paris and Christchurch, and is refocusing on shorter runs.

All said, Asia is still the Holy Grail that most airlines are after. Interestingly, when Air Canada chief executive officer Calin Rovinescu first mooted the idea of a budget carrier, he was thinking of Europe, But with the economic crisis hanging over Europe, the priority shifted to tapping the potential of Asian destinations instead.

Unfortunately, geographically, Air Canada is not as fortuitously positioned as, say, Qantas, to penetrate the region, which leaves it to either dress up or dress down its operations and to rely on sustaining the flow of long-distance traffic between Asia and North America. That is why China, with its growing nouveau riche, is an attraction. Yet, unlike Qantas, which believes the demographics favour a regional premium carrier (however, understandably so considering the proximity of Australia), Air Canada intends to go low-cost to attract the masses.

Almost paradoxically too, when the Harper government of Canada has been courting businesses in China to connect with Canada, and its successes would boost traffic between the two countries.

 It may be said that Air Canada has been somewhat slow in latching on to the frenzy of budget travel beyond its national borders. Mr Rovinescu has said the launch of a budget carrier is a top priority. In a speech to shareholders, he said: “We need to participate in this segment of the market in one manner or another.”

A more interesting development in the plans allegedly is for Air Canada to eventually operate only domestic flights and flights to the United States, Mexico and the Caribbean. All other flights beyond these countries will be handled by the new budget carrier in which Air Canada will participate as a partner. When that happens, Air Canada will have completed its transformation from full-service to budget status, since its domestic and regional flights are already largely no-frilled. O Canada, can you see that day coming?

Vancouver International Airport shifts cost burden from airlines to passengers

Travellers departing Vancouver International Airport (YVR) for destinations outside the province of British Columbia (BC) (with the exception of Yukon) will find it more expensive doing so when the airport raises the airport improvement fee from C$15 to C$20 from May 1. The fee for travel within BC and to Yukon remains at C$5.

The reason given by YVR president and CEO Larry Berg is unsurprisingly one of economics. The airport needs funding to launch a C$1.8 billion upgrade to fend off growing competition from other airports, and interestingly YVR fears how growing compatriot airports notably Calgary and Edmonton in the neighbouring province of Alberta may be poaching its gateway traffic.

Indeed, Mr Berg recognized how gateway traffic has been increasingly eroded by the capability of airlines to operate point-to-point traffic, not just to nearby Calgary and but beyond those points to Toronto and even American ports such as Seattle, Chicago and New York. It is no secret that YVR’s key interest is the growing traffic from China.

YVR is Canada’s second busiest airport after Toronto. It recorded a throughput of 17 million passengers last year (capacity 23 million passengers). Already named as North America’s best airport by more than one survey, it plans to further improve its facilities, all the more the need to do so as other airports are trying to catch up.

There was even a hint that YVR’s success story – growing from connecting six US cities to 22 and from hosting 15 weekly flights to Hong Kong to 15 – in itself is justification enough for the hike in the airport improvement fee, which was introduced in 1993 and has since become a permanent feature. Besides, other major Canadian airports such as Montreal and Toronto are already charging C$25.

Yet tongue-in-cheek, Mr Berg was quick to cast doubt on the expansion plans of YVR’s closest competitors; Edmonton is opening 12 international gates next month and Calgary is constructing a new runway and 22 new gates to be opened in 2015. He reportedly said: “Neither Calgary nor Edmonton has the passenger traffic to fill those gates today – so guess whose traffic they are looking at?” (The Globe and Mail, Jan 25, 2012)

Mr Berg said: “The aviation industry is a very competitive industry and if YVR wants to continue the sort of growth projections that we’ve enjoyed in the past, and the job creation, we have to attract more carriers.”

Such reasons – with a strong dose of self-preservation – are a safe bet to push an agenda that may be a bitter pill to swallow in these not-so-good economic times. More carriers mean more revenue and more jobs. But that which may not have been adequately highlighted is how the cost burden has shifted from the airlines to the travellers; while increasing the passenger fee, YVR has decided to freeze airport charges to airlines for five years and to remove the provincial tax on jet fuel.

Clearly, YVR wants to not only anchor present operators but also attract new and more airlines and flights. Cost is a key consideration for gateway traffic, and that is probably why the threat of Edmonton and Calgary loom large on YVR’s radar. BC with its lure of beautiful tourist spots can be easily reached not only from Edmonton and Calgary but also across the national border from Seattle.

So it is conversely true that travel beyond BC needs not originate from YVR but from these neighbouring airports. In fact, there is a already a concern that Canadians are crossing the border to commence their journeys (especially for travel to destinations within the United States) to save not only on costs of the tickets but also surcharges imposed by the US government for entry by air by Canadians. This has largely affected the border airports such as Toronto and YVR, and in the case of the latter, Seattle and Bellingham in Washington State are attractive alternatives.

The carrot that YVR gives to its operators and that which it dangles before potential ones may yet soften the impact of the 33-per-cent increase in the airport improvement fee if it means there is no less reason for airlines to also increase their fares. But that would be wistful thinking, and certainly it is not something YVR expects of its airline customers. Nor would the airlines feel it behoves upon them to do so.

In the end, it is Canadian travellers that will feel the pinch most. YVR has probably done its sums that the nouvea riche from China and other parts of Asia will probably more than make up for the small drift by comparison of local travellers to neighbouring airports or the unlikelihood of a cutback in their travel. Besides, most airports would not deny that they exist first for the airlines, then the passengers – who will come with the airlines. And, with no exception this time, passengers do not, if seldom, have the choice.