Canada's upstart Wardair wants to fly business class. Customer wins in frequent-flier bonus war

Canada's three major airlines are locked in a price war. And the little guy started it. Wardair, a charter airline-turned-scheduled carrier, has been offering fare discounts and frequent-flier bonuses to lure customers away from Air Canada and Canadian Airlines International.

The two larger airlines fought back and upped the stakes. Now all three are offering as much as six times the regular mileage for flying domestic routes. It means that a business traveler flying from Montreal to Vancouver can earn enough bonus points on one trip to fly free the next time.

``The frequent-flier bonuses could be a real accounting problem if lots of people start cashing them in,'' says Steven Garmaise, an airline industry analyst with First Marathon Securities in Toronto. ``The airlines have been restricting inventory, giving up only some seats to frequent fliers. That could well change as people build up huge amounts of frequent-flier points.''

Mr. Garmaise says it could become an accounting problem, since the frequent-flier mileage liability does not show up on the balance sheet. While all this is great for the customer, it has already taken a toll on airline profits. All three airlines had total profits of $108 million (Canadian; US$89 million) for the first nine months of the year, compared with $213 million for the same period a year earlier.

The battle is for the business traveler. Wardair built its reputation first as a bush airline, then as a charter carrier. ``Wardair started with zero percent of the business market, and it wants to establish itself as a business carrier,'' Garmaise says. ``The other two airlines are reluctant to give up what is the only truly profitable part of the airline market.''

In addition to frequent-flier programs, there are also fare discounts, including ``books of tickets'' which are sold at a discount of about 25 percent of the regular fare. The tickets are full-fare economy- or business-class tickets with no restrictions on when they can be used.

Analysts have a hard time predicting who is going to win the price war. There seems little doubt that Air Canada will survive; it has 55 percent of the domestic market, both in terms of revenue and passengers carried. It is the 14th-largest airline in the world.

``Fare wars might continue for some time as Wardair seeks to establish itself in the Canadian domestic market,'' said a research report by RBC Dominion Securities of Toronto. It predicted Air Canada would easily outlast its rivals.

Like Air Canada, Canadian Airlines International has extensive domestic and international routes. It flies to South America, the Far East, and Europe. Deregulation may mean more competition on those international routes as well.

The wild card is the upstart, Wardair, still run by its founder, Max Ward, who started his business life as a bush pilot. ``Wardair would seem to be the one who is going to lose this fight,'' says Garmaise. ``But it has a lower cost base and provides better service. It is really too early to predict who is going to win.''