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RR RUEHGA RUEHHA RUEHQU RUEHVC
DE RUEHOT #2388/01 2212111
ZNR UUUUU ZZH
R 092111Z AUG 06
FM AMEMBASSY OTTAWA
TO RUEHC/SECSTATE WASHDC 3414
INFO RULSDMK/USDOT WASHDC
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RUEAHLC/DEPT OF HOMELAND SECURITY WASHDC
RUCNCAN/ALL CANADIAN POSTS COLLECTIVE

UNCLAS SECTION 01 OF 02 OTTAWA 002388 
 
SIPDIS 
 
SIPDIS 
 
WHA/CAN,  EB/TRA 
 
DOT FOR INTERNATIONAL AFFAIRS (CARAZZO) 
 
FAA FOR INTERNATIONAL AFFAIRS (FRANCESCHI) 
 
DHS/TSA FOR SUSAN WILLIAMS 
 
E.O. 12958: N/A 
TAGS: EAIR CA
SUBJ: American Low Cost Carriers service to Canada set to increase 
 
 
¶1. (U) Summary: On May 25, Frontier Airlines became the first 
American Low Cost Carrier (LCC) in over a decade to fly scheduled 
passenger service between U.S. and Canadian destinations.  Recent 
developments in aviation technology coupled with the seven (soon to 
be eight) CBP preclearance sites in Canada have created increased 
economic desirability of some transborder routes for LCCs. 
Frontier's route start-up may be the beginning of a trend as other 
LCCs will soon contemplate transborder routes or are in the process 
of converting from domestic to international air carriers.  End 
summary. 
 
¶2. (U) Under the 1995 Air Transport Agreement between Canada and the 
United States, as amended last November, there are no government 
imposed restrictions preventing U.S./Canada routes by any U.S. or 
Canadian passenger carrier; carriers are limited only by the 
economic viability of the routes.  Canadian LCCs such as WestJet and 
CanJet have recently begun transborder flights, but the absence of 
American LCCs from any transborder routes for the past 10 years 
indicates the economics of such routes has been questionable from 
their perspective, until now. 
 
¶3. (U) On May 25, Frontier Airlines began flying a route between 
Denver and Calgary, becoming the first American LCC to fly a 
transborder route between the U.S. and Canada since ValuJet Airlines 
flew from U.S. cities to Montreal in the mid-90s.  Frontier now 
flies two non-stops per day between the two cities through its 
JetExpress service on 70 seat regional jets operated by Horizon Air. 
 Alaska Airlines also flies to Canada mostly through similar 
regional jets operated by Horizon Air, though it is debatable 
whether the air carrier should be actually classified as a LCC.  In 
either case, even with the new transborder flights, there are 
relatively few LCC flights operating between the U.S. and Canada 
versus those to Mexico and the Caribbean.  If Alaska Airlines is 
included, then two separate American LCCs fly to Canada, serving six 
Canadian destinations.  By contrast, U.S./Mexico transborder routes 
are served by five American LCCs and include flights from U.S. 
cities to 14 Mexican airports.  Likewise, the Caribbean region is 
served by five American LCCs, flying between U.S. cities and 16 
destinations. 
 
¶4. (U) Factors contributing to the relative lack of US LCC 
transborder activity in Canada include additional taxes and fees 
relative to domestic operations (e.g. International Departure and 
Arrivals taxes, Customs Inspection fees and so on) and the 
difficulty of starting new service at the major hubs of Montreal, 
Toronto and Vancouver to successfully compete with entrenched legacy 
carriers.  But it is the availability of U.S. CBP staff that appears 
to be the overriding "limiting factor."  Though LCCs can travel to 
any Canadian airport, return flights require customs inspections for 
customers and aircraft when coming back in the US.  Such inspections 
can double the time a plane is on the ground between flights, and 
also limits routes to designated "international airports."  For an 
LCC with a "time is everything" business strategy the lost time is 
lost money.  LCCs' traditionally prefer to use secondary airports 
with lower overhead, but which may not be a designated international 
airport and therefore have no or limited availability of CBP.  Thus 
CBP preclearance at the Canadian airport is a key factor in the 
QCBP preclearance at the Canadian airport is a key factor in the 
business decision to undertake service.   In talking to 
representatives of Frontier, and another American LCC, Airtran, both 
noted that the presence of preclearance sites was a "prerequisite" 
to even considering a route to a Canadian airport.  Airtran 
specifically commented that they had considered Hamilton, Ontario 
but had dropped the plan in large part because of the absence of CBP 
personnel there. 
 
¶5. (U) The use of Regional Jets (RJs) coupled with the expansive 
array of Canadian CBP preclearance sites in Vancouver, Calgary, 
Edmonton, Winnipeg, Toronto, Ottawa, Montreal, and beginning in 
October 2006, Halifax may have made more routes economically viable 
for American LCCs.  Both legacy carriers and LCCs have been 
increasingly using 50- or 70-seat RJs as an alternative to larger 
jets.  The advantages of these RJs, many of which are produced by 
Canadian-based Bombardier, are two-fold.  The operating cost per 
hour of use for RJs is significantly less than the LCCs' more 
traditional jets like the Boeing 737 and Airbus A320.  Secondly, 
smaller jets can adjust for a smaller potential volume of 
passengers, thus keeping costs down by flying full RJs rather than 
half-filled larger jets.  With lower costs, American LCCs are now 
finding additional incentive to fly to Canadian cities with CBP 
preclearance sites than under previous conditions. 
 
¶6. (U) Comment:  Since the Air Transport Agreement of 1995, there 
 
OTTAWA 00002388  002 OF 002 
 
 
has been very few impediments to American passenger carrier 
operations in Canada and vice versa.  The remaining impediments will 
be remedied by the recent amendment to the 1995 Agreement (expected 
to come into force in the fall of 2006); however, the changes to the 
1995 Agreement will have negligible impact on LCC decisions to enter 
the transborder passenger marketplace.  Rather, economic viability 
of service is the sole factor - and the key elements for viability 
are CBP preclearance coupled with RJ operations.  Indeed, Frontier's 
new Denver-Calgary route was made economically viable through the 
use of regional jets and the ability to fly a route to a smaller 
airport sufficiently large to have CBP preclearance facilities. This 
suggests that we may see more American LCC operations into Canada's 
secondary airports such as Calgary, Edmonton, Winnipeg, Ottawa and 
Halifax, rather than into the three major international hubs. 
Frontier's venture into transborder travel should be looked at in 
the bigger LCC picture.  In its May Directors Meeting, Southwest 
Airlines addressed this issue.  Southwest management concluded that 
transborder routes were a definite possibility as soon as the 
carrier changes over from domestic to international carrier status. 
Southwest estimated this would be done by 2008.  ATA (please note 
this LCC has no affiliation with the similarly named Airtran 
Airways) will be investigating transborder routes during mid-2007. 
And then there are a number of Canadian LCCs, including WestJet and 
CanJet, showing the economic viability of many routes by opening up 
over a dozen transborder routes in the past three years alone.  All 
these indications suggest that there is potential growth of U.S. LCC 
operations on transborder routes.  End comment. 
 
Wilkins