Varcoe: As Lynx exits, questions surround future of ultra-low-cost air travel in Canada

While some experts and insiders cite high costs for airlines in Canada, others say ULCCs can operate profitably in the country.

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When the CEO of newly minted airline Lynx Air stepped in front of the microphones at the Calgary airport in November 2021, she laid out a simple formula for success.

The new Calgary-based carrier would “transform aviation in Canada forever,” by offering deeply discounted fares designed to stimulate the travel market.

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“Lynx Air will be adopting the ultralow-cost model, which has revolutionized air travel in Europe and the United States,” Merren McArthur, the former head of Tigerair Australia, told reporters.

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“This is a long-term commitment from us. … We are patient, we will take our time and we’ll attract passengers through ultralow fares.”

Flash forward 27 months, and the patience has run out.

In a move that surprised employees, Lynx announced Thursday night it will cease operations on Monday, having obtained creditor protection from the courts.

The airline, which made its maiden flight in April 2022 from Calgary to Vancouver — offering some fares as low as $39 — built up a small fleet of nine Boeing 737 Max 8 planes flying to 18 destinations, just as the sector was recovering from the pandemic.

It employed about 500 people across the country.

Ultra-low-cost carriers (ULCC) such as Lynx offer discounted fares, with customers paying extra for ancillary services, such as checked luggage or improved seat selection.

In a news release Thursday, Lynx cited several factors that led to the fateful decision, such as soaring fuel expenses, regulatory costs and rising airport charges in Canada.

“Unfortunately, we have been unable to secure adequate funding for this airline,” Lynx interim CEO Jim Sullivan, who replaced McArthur last year, said in a memo to staff.

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“The compounding financial pressures . . . and competitive tension in the Canadian market have ultimately proven too steep a mountain for our organization to overcome.”

Merren McArthur
Merren McArthur, former CEO of Calgary-based Lynx Air. Photo by Gavin Young /Postmedia

McArthur, an airline industry veteran who returned home to Australia last fall, lamented the turn of events on social media.

“The airline industry is not for the faint-hearted at the best of times, but it takes a special kind of courage and commitment to launch a startup airline in Canada in the middle of a pandemic,” she wrote on her LinkedIn account.

The demise of Lynx, however, shows the precarious nature of the fledgling ULCC market in Canada. Two main carriers — WestJet and Air Canada — largely dominate the passenger market, while smaller discount airlines have been striving to gain a bigger foothold.

“We were one of the last markets in the world without a ULCC,” said Robert Kokonis, president of AirTrav Inc., a Toronto-based aviation consultancy.

“And now, it turns out, there’s probably a good reason for that.”

Last year, WestJet announced it would fold its own ULCC division, Swoop, into its main operations.

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Edmonton-based Flair Airlines has been growing more aggressively in the ULCC market than Lynx, and now operates 20 aircraft while employing 1,250 workers.

Earlier this month, reports indicated merger talks could see Flair take over Lynx.

“The discussions were pretty well advanced. And we were ready to move as quickly as we could,” Flair CEO Stephen Jones said in an interview.

“Ultimately, though, it was a Lynx decision to do what they did today and we had no input on that.”

Lynx was previously known as Enerjet, which specialized in providing charter operations and flying workers in the energy sector before it shifted into the ULCC market.

Tim Perry, president of the Air Line Pilots Association (ALPA) Canada, which represents 160 pilots at Lynx, said it appears the ULCC model is not easily transferable to a country like Canada with a vast geography and low population density.

“Anyone coming into the industry thinking there’s an easy answer to being sustainable and profitable and growing is mistaken,” he said.

Lynx Air creditor protection
A deserted Lynx Air check-in desk is shown at the Calgary International Airport on Friday, February 23, 2024. Jim Wells/Postmedia

The head of Calgary-based WestJet has also highlighted the inherent difficulties facing the ULCC market in Canada.

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In an article last September explaining the company’s decision to absorb Swoop, WestJet CEO Alexis von Hoensbroech pointed out that European low-cost airlines have a relatively simple business model — flying one type of plane and achieving high aircraft and crew productivity levels while moving large volumes of customers.

However, high structural costs, such as various airport fees, are a major barrier to stimulating air travel in Canada, he said.

A round-trip flight from Calgary to Toronto on a Boeing 737 plane would face more than $160 in various fees, including landing and terminal costs, airport improvement fees, security charges, sales taxes and NavCanada fees.

South of the border, those fees would be around $80, von Hoensbroech noted.

Jones, an airline industry veteran, agrees the cost structure is higher in Canada than in parts of Europe, but remains convinced the model will work in this country.

“Any market can actually sustain a ULCC, if it’s done correctly. People love two things. People love a deal and people love to travel,” he said.

“It’s proven around the world to work and it will work here in Canada. It’s just a question of time.”

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Analyst Chris Murray with ATB Capital Markets believes there’s likely room in Canada for about 50 Boeing 737-sized aircraft to serve customers in the ULCC market.

But rules limiting foreign ownership of Canadian airlines, barriers for airlines to raise capital and high fees on tickets all contribute to making it difficult, he said.

Jones agrees there are challenges, but believes low-cost air carriers will prevail.

“It’s an industry that is littered with bankruptcies and failures,” he said.

“It has been a very tough period. And, unfortunately, Lynx has been a casualty of that. But I think over time … absolutely, ULCC will be successful in Canada.”

Chris Varcoe is a Calgary Herald columnist.

[email protected]

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