A WestJet plane on the tarmac at Yellowknife Airport.Jeff McIntosh/The Canadian Press
When was the last time a company flatly turned down an offer of cash from the government?
In early June, WestJet Airlines Ltd. came out strongly against the federal Finance Department’s plan to lend up to $150-million to carriers, money meant to offset soaring jet fuel costs.
WestJet did more than just turn down the loan.
The Calgary-based company challenged Ottawa’s whole approach to the sector. WestJet issued a press release urging the government “to abandon the cycle of corporate charity and focus on long-term stability by fixing the overdue foundational cost issues that hold our entire industry back.”
WestJet is making the right call.
There’s a strong case for the government to simply wind down the month-old loan program, known as the “liquidity for airline sector resilience facility.” The problem the loans were meant to solve is solving itself, even though the open-ended program continues.
WestJet joins Air Canada in hiking baggage fees to offset high jet fuel costs
Since the government launched the liquidity facility, oil prices have dropped as Iran and the U.S. try to paper an uneasy truce. Jet fuel prices are down 24 per cent in the past month, though still up 32 per cent over what airlines paid a year ago.
If an airline can’t turn a profit with fuel prices back at historic averages, does it deserve to fly?
It’s also time to end airline bailouts that started with COVID-19 era. Carriers such as Montreal-base Transat A.T. Inc. are developing a habit of reneging on this debt. Last July, the government took a 20 per cent stake in Transat in an agreement to forgive a portion of the COVID loan.
WestJet calculates that in 2025, “taxpayers lost around $400-million on COVID-related airline loans that were forgiven by the federal government.”
There is a lesson in the U.S. government’s decision to let discounter Spirit Airlines Inc., which was headquartered in Dania Beach, Florida, fail in early May, in part due the Iran war-inspired hike in fuel costs.
The federal government’s objective in providing the liquidity facility was to ensure air travel remains affordable, a laudable goal, and keep airlines flying through the turbulence of the Iran war. There are better ways to achieve these objectives.
Ottawa offering financial aid to airlines under pressure from high jet fuel costs
In April, when oil prices jumped, Ottawa gave the entire sector a boost by cutting taxes on aviation fuel by 4 cents per litre, part of a broad program that trimmed gasoline levies by 10 cents and the lowered the cost of diesel by 4 cents. That’s sensible policy, as it treats everyone equally.
The loan program, in contrast, favours carriers such as Transat and Toronto-based Porter Airlines Inc. that cater to bargain-hunting passengers. When oil prices soared in April, all the airlines added fuel surcharges to ticket prices, typically upping the cost of a flight by about $40. Analysts said the price hike, which has since been partly rolled back, hit Transat harder than rivals WestJet and Montreal-based Air Canada.
In the most recent quarter, Transat lost $79-million compared with a $23-million loss in the year-ago period.
“Transat’s price sensitive customer base looks to be structurally less able to absorb sustained fare increases compared with the premium/business travellers who comprise a large share of mainline peers,” Krista Friesen, a CIBC Capital Markets analyst, said in a recent report.
To build on the benefits that came from fuel tax cuts, Ottawa and the aviation agencies and airports it controls should take an axe to the myriad of fees passengers must pay every time they head to the airport.
Transat plans to make use of Ottawa’s emergency loan fund after reporting $79-million loss
Travellers in Canada face some of the highest levies in the world – an average of $148 per flight – for airport improvement, security and navigation fees. The equivalent cost for U.S. airlines is $49 per flight.
A federal government that has already eliminated carbon taxes could boost the entire aviation industry by delaying imposition of potentially expensive, United Nations-backed environmental program known as the carbon offsetting and reduction scheme for international aviation, or CORSIA.
Domestic airlines are already setting aside money to meet their future obligations under CORSIA. Moving back deadlines, to reflect the turmoil in energy markets, would boost airlines while still keeping carriers focused on reducing emissions.
The industry’s wish list would also include reducing or eliminating payouts available under the passenger bill of rights, which was introduced in 2019. The program counts as a signature consumer initiative for former prime minister Justin Trudeau’s government. It forces airlines to fork out up to $2,400 to customers whose travel is delayed or cancelled.
Frequent flyers frustrated by flights that never seem to leave on time welcomed the introduction of a passenger bill of rights. Capping claims, on a temporary basis, may be a sensible compromise.
What’s not sensible is continuing to lend taxpayer dollars to airlines with a track record of never paying back the government.