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.


36 Responses to Why Toronto is a Bad Idea (for Virgin America)

  1. Yeah, it doesn’t makes sense to me what Virgin are doing here. If they are going to have such a hard time competing, surely they have the money to buy the competition instead? :P

  2. Bobber says:

    VS were talking of adding LHR-YYZ several years ago – would that feed into a Virgin America foray into Canada sufficiently to make it a little safer for them, Cranky?

    • Given that VS files LON->SFO themselves I don’t see much of a benefit.

    • CF says:

      I’m with Nicholas. There are plenty of ways to get from London to the west coast nonstop, so I would hope they aren’t using that as the reason to fly into Toronto.

      • Bobber says:

        Disregarding Virgin America potentially using a VS LHR-YYZ linkup to sell this new route, the LHR-YYZ isn’t that well catered for, as Scott mentions below. I’m surprised VS didn’t launch this years ago – there’s plenty of UK citizens with family in the Ontario area, and its a key business/tourist destination as well.

  3. As excited as I am about Virgin America entering the Toronto market, I have to agree with you that it’s going to be a tough sell.

    The SFO flights might have made a bit more sense had they timed the flights for connections to LAS and SAN, but they didn’t.

    The LAX flight will only make sense if they end up codesharing with Virgin Blue to Australia like they have with some of their other long-hauls. I haven’t checked to see if the flight times work for that.

    • CF says:

      The flight times sort of work. Here’s what they have:
      V Australia 1 Lv Sydney 830p Arr LAX 510p
      Virgin America 236 Lv LAX 1115p Arr Toronto 7a

      Virgin America 233 Lv Toronto 5p Arr LAX 715p
      V Australia 2 Lv LAX 1020p Arr Sydney 605a (two days later)

      So, they definitely aren’t ideal, but technically they do work.

  4. Tim says:

    I got one of the Twitter promo codes for 50% off….still $295 all-in, 22% taxes.

  5. Brian says:

    I have family outside Toronto (where I’m originally from) and now live in Los Angeles, so imagine my excitement when I heard there was another option for direct flights into YYZ. Ummmm not so fast :(

    Christmas 2008 my wife and I flew round trip for a little more than $400 round trip which seems fairly reasonable all things considered. Since then however I’ve only been flying on miles to YYZ on Air Canada. United has no direct flights but with Star Alliance I can hop on AC.

    I would love to go home more often but the cost into YYZ is expensive, with a lot of it being taxes. Flying into BUF used to be a decent option but lately it’s not any better.

    WiFi, cool lighting and so forth is a nice feature but the lack of price difference with the new Virgin service is something of a disappointment.

  6. Zack Rules, Albany, NY says:

    Virgin America should have used Toronto’s other airport in Buffalo. Roughly 30-40% of BUF passengers are Canadians as it’s an easy drive for anyone east of Hamilton, ON. That’s about 1m people, almost doubling the US side’s 1.2m. Plus, there’s no nonstop service to either LAX or SFO today.

  7. Taxes are high in Canada which is why so many Canadains cross into the U.S. for shopping trips.

    But maybe the ‘hipsters’ in Silicon Valley will want to fly Virgin America instead of tired old UA and AC.

    You would have thought they might have tried Vancouver and gotten the high profile entertainment business from Los Angeles. Flashy Virgin jets seem better then AS and AC in the market. But the fares might have had to stay low, at least YYZ is long haul from California and they can charge a higher fare but provide a nicer service. It will be hard for them against the two Star Alliance carriers from SFO.

  8. Nick says:

    Why should I pay more, for flying less from SFO?

    The only ‘Stella’ thing about it is that Virgin are looking to fly into space, and when you get there you can tell the ‘stars’ that they got it wrong!

    Nick

  9. A says:

    Cranky, I think you’ve been spoiled by the uber cheap flights available to you in the LA market. Some quick internet searching shows that direct flights into YYZ from other major hubs like DFW, ATL and DEN are $400+ for much shorter flights. I see your point that Virgin America isn’t offering people in LA or SF any
    “deal” over the competition, but for flying north of the border California has got a relative load of bargains compared to most of us out there.

    • Direct flights from hubs are always priced more expensively. That is the nature of how hubs work.

      • A says:

        I agree with that to a degree but “hub” airports like ORD, ATL & DFW are also top 10 for O&D traffic. No one airline has a monopoly at Ohare, yet a flight to YYZ still runs close to $300 for a hop over the border.

    • CF says:

      Well then maybe Virgin America should have looked at running flights out of those cities where they could have provided a better deal than from the west coast. (I know that doesn’t fit their plans either.)

  10. There is either a market to serve for them or once they can get into ORD those YYZ flights will just land in Chicago and Toronto will be discontinued.

  11. airceo says:

    From the outside looking in it may appear that this is a bad idea but I will give VX the benefit of the doubt with regards to YYZ. After all VX’s relative youth and lack of bloat means they are already a trimmer operation than other players on YYZ-LAX. Further to this their clever use of social media drives/keeps down advertising/marketing costs.

    Despite the horrible taxation framework we have in Canada, carriers still can make money here. There is no reason VX can’t join the fun.

    What DID surprise me is that the timings to VAustralia flights are bad. A little more buffer in there and they could have carved out a nice little Canada-Australia traffic.

  12. So they shouldn’t serve any market with higher taxes? That makes no sense at all. Adjust the fares so that they cover their costs and charge taxes on top of that. Hardly a big deal at all.

    • CF says:

      If you’re a low fare carrier, you want to avoid high cost airports in high tax markets. This is the king of high cost airports in a high tax market. You can’t just “adjust the fares” to cover costs – it’s never that simple when it comes to supply and demand.

  13. Most interesting thing to me is the $24.90 Toronto Airport Improvement Fee. Does that all go to the airport for improvements? or is it a fancy name for a bundle of smaller fees and taxes

  14. Scott says:

    Taxes; what a fun topic
    USA Taxes on this ticket: $53.82
    CAN Taxes on this ticket: $38.85

    Am I missing something, or are the people complaining about Canadian taxes, really complaining about the wrong govt ? Folks, it’s the USA government’s protectionists taxes that are killing cross border flights? From a Canadian point of view, would the USA please stop doing this.

    Another person asked about the AIF (Airport improvement fee). In US terms this is the PFC, and yes it’s very high in YYZ. YVR’s is $15. Unfortunately in the USA airports are partly funded by the FAA, which they’re not in Canada, hence the higher airport costs.

    It sure explains why so many of us Canadians cross the border by land (where teh taxes aren’t levied), and the fly from BUF, BLI or PBG instead of YYZ,YVR or YUL.

    Lastly someone asked about VS LHR-YYZ. Why shouldn’t they operate it? LHR-YYZ is one of the busiest transatlantic routes out of London, exceeding all but JFK and MIA I think, and certainly way more traffic than most other US cities like ORD, SFO and LAX

    • RE: VS LHR-YYZ. I was commenting on its potential with connecting to VX’s SFO-YYZ. Most people won’t take a connecting flight when a non-stop will do just as well..

    • CF says:

      Not so fast there, Scott. That’s the tax level for tickets from the US. If you switch it around, here’s how the taxes break out for a ticket from Canada.
      Canada – $70.21
      US – $43.88
      Aviation is overtaxed in both countries. Together it makes for insanity.

      • Scott says:

        Ahh, most of that is SALES TAX (aka GST), which isn’t payable on a flight starting in the USA.

        For an AMERICAN traveller (which I assume is most of your readers), the USA charge more tax/fees than Canada on a USA-CANADA-USA flight.

        On a CANADA-USA-CANADA flight, it depends on the price of a ticket. Howevere, if it’s business travel, the GST is recoverable. businesses collect GST, pay GST to all suppliers and remit the difference.

        So for a BUSINESS traveler flying CANADA-USA-CANADA, on VX the taxes are… (really not sure where you’re getting your numbers from)
        YYZ-SFO: 18/08/2010
        SFO-YYZ: 25/08/2010

        Fare: $443.98 (before taxes)

        US Passenger Facility Charge: $4.50
        US Security Fee: $2.50
        US Segment Fee: $7.40
        U.S. Immigration Fee: $7.00
        U.S. APIS User Fee: $5.00

        Can. Security Charge: $12.11
        Can. Airport Fee: $24.60
        Can. Goods Tax: ($22.50) but effectively $0.00 for businesses

        USA: $26.50
        CAN: $36.71

        OK, a giant raspberry for YYZ being one of the most expensive airports in the world, but other than that, they’re pretty close, and going the other way, the USA was $15 more (not the $10 for Canada here).

        • CF says:

          The base fare amount includes the US 7.5% tax – that’s where my numbers come from.

          • Scott says:

            Oh, so there’s another $30 in USA taxes I didn’t count and are buried in the fare, as opposed to the Canadian ones on top of the fare?

            I’m not trying to start a war here, but the topic reads that it’s such a ‘high tax’ place to fly to, when the majority of that tax isn’t Canada’s doing. I do agree that as a whole our AIF’s here in Canada, are a lot ($10-15 more) than the USA, but the rest is pretty similar.

          • Scott, I don’t read it that way. I read it as saying “International tickets are overtaxed above and beyond either domestic Canadian or domestic US tickets, and that doesn’t work well for an LCC operation”

  15. DRG says:

    The YYZ-LAX market is a heavy one for the film industry as there are a lot of productions done in Toronto and Toronto is the center of English Canada’s media industry, so film festivals, movie launches, etc…. There is some good premium traffic on the route, which I believe is the reason why AC maintains a Maple Leaf Lounge at LAX — its only one in the U.S. and one of only three it maintains outside of Canada.

    • Trent880 says:

      I think AA and UA have that traffic on lockdown, and if you’re in that industry, why would you switch to VX and its destinations you can count with your toes?

  16. There was a local story on Virgin America in the paper today and it said besides starting up Toronto and Orlando, they would begin service to three more (unnamed) cities by the end of the year. They were also going to buy nice A320’s from SAS and hire 500 employees in the coming year.

    They seem to be planning for the future. They reported their 4th quarter loss at $18.8 million down from $34.2 million the year before. They revenue increased 29 percent to $153 million.

  17. YYZNativeinCali says:

    I’m not an aviation nut. I’m a regular passenger and I think Virgin America SFO-YYZ is an awesome idea and I can see myself and my family flying it many times a year!

  18. Well if you thought Virgian America to Toronto is bad, what about todays news that they have applied for Mexico service to begin in the winter. SFO-SJD, SFO-CUN, and LAX-CUN. Routes that seem to be more packaged tour travel then business travel and already serviced by UA (SFO-CUN/SFO-SJD/LAX-CUN), AS (SFO-SJD), DL (LAX-CUN), MX (LAX-CUN)

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