Harmony Ends Scheduled Service as Consolidation in Canada Continues

Harmony Airways announced today that it will end its scheduled services, starting with its Vancouver-Toronto flights on March 30, and the remainder of its services by April 9. Harmony has struggled to diversify itself as a Western leisure carrier, as WestJet and Air Canada have expanded service in the region and lowered fares. Harmony mostly flies seasonal flights between the Vancouver-Victoria, BC area to Hawaii. The airline operates flights from Vancouver, Victoria, Kelowna, Calgary, and Edmonton to Hawaii, as well as additional flights from Vancouver to Las Vegas, Palm Springs, and Toronto. At one point, Harmony was also interested in serving the China market, and the airline had hoped that China routes would diversify the company's routes, but due to regulatory issues, the airline was unable to get authority to serve China routes. Unfortunately, Harmony encountered tough competition on Hawaii routes from WestJet, which flies from Vancouver to both Honolulu and Maui on 737 aircraft, as well as the heavyweight Air Canada, which operates multiple daily flights on twin-aisle 767 aircraft to those markets. Now that Air Canada has restructured itself to be leaner and more cost-effective, it is able to compete with low-cost carriers like WestJet and Harmony and can offer even better values to consumers because it operates larger, more cost-effective aircraft on Hawaii routes. Harmony was unable to undercut WestJet and Air Canada's fares in most markets, and the airline had very little else going for them. Unlike Harmony, WestJet is well-liked and well-known in Canada, and passengers like it for many of the same reasons passengers in the States like Southwest. WestJet provides reliable, few-frills service at low fares. Because of this, passengers are much more likely to flock to WestJet, which is a name they can trust, rather than Harmony, which may or may not provide an acceptable experience, particularly since Harmony's fares were often more expensive than WestJet's. Harmony did not do a very good job bundling its flights with hotels and car rentals to create vacation packages, which could have offered customers a better travel value than Air Canada or WestJet. Vacation packages are an excellent mechanism to fill seats, and it's how charter carriers succeed in their businesses. Harmony's inability to effectively bundle vacation packages with flights almost certainly hurt load factors.

The only real surprising thing about Harmony's demise was how soon it came. Harmony's peak season is the winter months, when freezing British Colombians and Albertans head for the sun of the American Southwest or the Hawaiian Islands. Harmony probably could have held out a few more weeks, since there is still substantial Hawaii traffic over the spring break period, since the weather hasn't quite warmed up yet. However, if it didn't come this week, it was bound to come within the next month, because Harmony simply didn't have a coordinated strategy to make it through the off-peak summer months.

It's likely that Harmony will now be able to succeed in leisure markets they currently serve as a scheduled carrier, because the company will create a different strategy. Harmony will probably evolve into a smaller charter operation which will provide air travel to travel companies that sell vacation packages. Harmony could either provide lift for tour operators who need lift, or build their own travel business and sell their own vacation packages. This transition in the long run will benefit the company because a good charter airline or travel company is able to offer consistent profits for its shareholders, albeit at low margins. Harmony will likely serve many of the same routes it does now, but on a less frequent basis. If Harmony were to transform into a charter carrier or a travel company, the vast majority of its passengers would purchase vacation packages, which will help boost load factors and profitability. Harmony could become much like Air Transat, a charter carrier which serves many Florida, Caribbean, and European routes from major Canadian cities. That company has done quite well, and Harmony's best opportunity for transformation is a similar business model on routes to Hawaii and Las Vegas. If Harmony makes the transition between scheduled and charter service with a long-term, but realistic outlook, then it should be able to reshuffle its operations and successfully either market its services to tour operators who need lift or build its own travel business to sell packages. But if Harmony thinks only about short-term gain, then it will be unable to develop many of the long-term relationships necessary to succeed in the charter business, and as a result, it will be forced to end all operations.

Now the low-cost market in Canada has become even smaller, and oddly enough, the routes being targeted by low-cost carriers aren't the traditional short-haul routes, but rather longer routes. Medium- and long-haul flights will become the target of niche carriers in Canada, as Harmony's demise proves that Air Canada and WestJet have the short-haul domestic and US market locked up. Air Transat serves and Harmony will likely serve the important charter market to leisure destinations 4-8 hours away, and Zoom will continue to serve the legions of transatlantic travelers who desire cheap long-haul flights to Europe. Zoom has expanded rapidly in its short history, building its operation by offering cheap, nonstop flights from many Canadian cities to popular destinations in Europe. Zoom is offering much-needed competition to Air Canada, which is forcing Air Canada to be more rational in its international pricing structure. As a consequence of this expansion, Canada seems poised to accept two or three Canadian airlines on most routes, which will likely bring satisfactory, stable competition, and relatively low fares that ensure a reasonable profit for airlines. This new era in Canadian aviation will probably be better for companies than consumers, but it will ensure that many Canadian cities receive adequate service, including nonstop service to many major markets, and that Canadian customers receive reasonable fares. Gone are the days when Air Canada can charge whatever it likes, other airlines, particularly WestJet, will provide real competition. There will still be niche carriers, such as Porter Airlines, the startup out of Toronto which focuses on providing reliable service to business travelers, but they will be less important in the future, now that the two main players, Air Canada and WestJet, have been established for US and Canadian routes and that two or three main players, including Air Transat and Zoom, are firmly established on leisure routes to compete with Air Canada. Now that Harmony has decided to reshape its business plan, Canada's aviation industry should be relatively stable for the time being, but the biggest threat to airlines right now seems to be the economy. If passengers are there to travel, there are a suitable number of airlines to transport them. If passengers hold off on travel, particularly leisure travel, then every Canadian airline will be hurt and more turbulence could follow.