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Arajet latest entrant to Canada's crowded budget airline market

A plane is silhouetted as it takes off from Vancouver International Airport in Richmond, B.C., on May 13, 2019. THE CANADIAN PRESS/Jonathan Hayward

MONTREAL — Arajet, a discount airline based in the Dominican Republic, is set to launch flights between that country and Toronto and Montreal this fall, marking the latest entrant to an already crowded field of low-cost carriers.

The announcement — four round trips per week to each of the two cities — comes just two weeks after U.S. budget airline Breeze Airways made a pitch to Quebecers bound for Florida.

Unlike many low-price players, Arajet CEO Victor Pacheco said his strategy will bank on a hub-and-spoke model that connects passengers from far-flung airports via the airline's hub of Santo Domingo, his home country's capital.

As proof, well over half of the 10,000-plus Arajet tickets sold to Canadians so far are for other destinations in the Caribbean and Central and South America, to be reached via connecting flights from the Dominican Republic, he said.

"The ULCCs (ultra-low-cost carriers) are mainly point-to-point airlines," Pacheco said in an interview. "We’re bidding on connections. And if we didn't have that, it would be very difficult then to compete with Canadian carriers."

Though no other airlines fly direct between Santo Domingo and Canada, Air Canada, United Airlines and American Airlines all touch down there regularly. Meanwhile, rapidly expanding discount carriers try to woo Canadians with cheap flights to an array of sun-splashed destinations.

"We have been in an absolutely unprecedented period of boom demand. 2023 is largely eclipsing 2019, which was one of the best years prior to the pandemic," said aviation consultant Rick Erickson.

Despite the spread of travel fever, "it's increasingly becoming a crowded market, certainly here in Canada," he continued. "If this was a Canadian operation, I would say they wouldn't have a hope in hell." 

Erickson cited "visiting friends and relatives" as well as vacation properties as big drivers of international air travel.

More than 700,000 tourists from Canada visited the Dominican Republic last year, according the latter's tourism ministry, following an "open skies" agreement in February between the two countries that allows carriers to operate freely between them.

“I think the pie is growing," Pacheco said. "Competitors do react to us, they lower prices as well. And that means that now more people have access to travel even with them."

By the end of next year, Flair Airlines aims to beef up its fleet to 26 planes from 21 now, and Lynx Air to 17 aircraft from its current nine. The latter's inaugural flight only took off in April 2022, while Flair launched in late 2017, illustrating Canada's increasingly congested skies of late.

Canada Jetlines also flies to a handful of sun destinations, while Porter Airlines — though not a budget carrier — plans to grow its fleet to 79 by 2025 from 46 currently.

Meanwhile, Utah-based Breeze Airways said the two-year-old company will fly passengers between Orlando and Plattsburgh, N.Y. — about 100 kilometres south of Montreal — three days a week starting at $80 in late November.

Ironically, the door to the travel market opened up when international travel shut down during the COVID-19 pandemic, Arajet's CEO said.

“The grounding of the Max combined with the pandemic — I think that there was a moment or a small window of time where there was an opportunity (for low-cost airlines) to be able to access and get deals," he added, noting how carriers sprouted after airlines, leasing companies and manufacturers sought to dump planes in 2020.

He said the greater availability of the Boeing 737 Max 8 was a key selling point — for Arajet as well as other small airlines such as Flair and Lynx that rely heavily on the 189-seat narrow-body.

The Max 8 was grounded for 20 months after two crashes in 2018 and 2019 that killed 346 people, including 18 Canadians.

Backed by Boston-based majority investor Bain Capital, the 10-aircraft Arajet will launch direct routes to Santo Domingo from Toronto and Montreal on Oct. 24 and Nov. 7, respectively, with one-way trips starting at $98. A single carry-on bag can cost between $40 and $100, depending on when it's selected — during booking or at the check-in counter, for example.

Bain's deep pockets as well as its majority stake in Virgin Australia and minority slice of Icelandair mean Arajet has "the backing in order to purchase aircraft directly from Boeing" — rather than relying solely on leases, as many start-up ULCCs do — Pacheco said.

The company, which has ordered 20 planes from Boeing with an option for 15 more — on top of the 10 currently in its fleet — now flies to 22 destinations in 15 countries.

“We're bringing Latin America basically at the feet of Canada," Pacheco said.

This report by The Canadian Press was first published Oct. 2, 2023.

Companies in this story: (TSX:AC)

Christopher Reynolds, The Canadian Press

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