Why Toronto is a Bad Idea (for Virgin America)

It’s apparently Canada week here on the blog since this is my second post about that frozen country up north. This time, it’s about Virgin America’s entry into Toronto. They announced they wanted to go into Toronto back in March, and now that they have finalized the regulatory issues, they’ll start service in June. I’m still not a fan of this plan.

It’ll be morning flights to and from San Francisco with evening flights (a redeye heading east) to and from LA. Virgin America is launching with the “stellar” deal of $212 each way from LAX and $222 from San Francisco. Wait, that’s not stellar at all. Double that up for the roundtrip and add tax and you’re right around $500 a ticket. It’s actually $487.73 from LA, 19% of which is tax. Yikes. Here’s the breakdown:

Canadian Tax Breakdown

And you thought domestic tickets were overtaxed. So how does a low cost carrier succeed in Canada? Well, it’s not by offering low fares, that’s for sure. This sale fare is actually more expensive than the lowest fares in the LA market right now. And they aren’t looking to offer cheap deals for last minute travel either. Their lowest fare for travel with less than a week’s advance purchase is right around $2,000 roundtrip. That’s lower than Air Canada but significantly more than American in LA.

I suppose the plan is to compete on product, though Air Canada offers a pretty strong product of its own. The corporate guys are likely bound to either Air Canada/United or American, so they’ll be looking at the small business guys who aren’t being super cool with their teleconferencing software.

I like the longer distance in this market and the fact that it’s business-based, but it’s hard to make good money in a market with such high taxes and a decent level of competition.

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