Low-cost carriers | The Canadian market is hostile to takeoff

A string of high fees, a vast territory to serve and seasonal demand among travelers: the recent debacle of Lynx Air illustrates how merciless the Canadian market is for ultra-low-cost carriers – the ultra low-cost carriers. The ingredients are there to make life difficult for this business model, which is successful elsewhere in the world.

Since the sudden death of Lynx Air on February 25, less than two years after its inaugural flight, only one Canadian player remains in this niche: Flair Airlines. The name of Lynx, which offered flights from Montreal-Trudeau and Jean-Lesage (Quebec) airports in the province, is added to the list of low-cost carriers that have crashed in Canada. There have been nearly 10 failures since the start of the 2000s.

“It illustrates how difficult this industry is,” said Flair President and CEO Stephen Jones in an interview with The Press.

The Edmonton company’s planes, which were launched in 2017, are still flying despite the financial challenges. Flair is in debt. In addition, she owes 67 million in unpaid taxes to the Canada Revenue Agency, which had managed to obtain an order for the seizure and sale of her property. The company was able to come to an agreement with the tax authorities to avoid the worst, for the moment.

According to Mr. Jones, who has worked for carriers such as Air New Zealand and Wizz Air (Hungary) during his career, all the fees (landing fees and general charges) imposed in Canada are giving carriers a hard time, especially low priced ones.

This situation is attributable to the means of airports to finance themselves. In Canada, they are non-profit organizations that must pay a lease to the federal government. They receive much less government funding compared to what we see in the United States, in particular. To finance themselves, they therefore impose fees on airlines and others – airport improvement fees – which are reflected in the price of the ticket.

Mike Arnott, an airline industry consultant, is on the same page as Flair’s president.

“Airports can only finance themselves through their own means and must do so through fees,” he emphasizes. The consequence is that these costs are high. It is difficult for [les Flair et Lynx] to operate in Canada because these fees impose a burden on the fares they can offer to travelers. »

For example, in 2022, “aeronautical activities”, landing fees and general charges, as well as airport improvement costs represented approximately 70% of the total revenues (652 million) of Aéroports de Montréal (ADM), manager and operator of the Montreal-Trudeau and Mirabel airports. Fees imposed solely on airlines alone account for 37% of ADM’s total revenue, up three percentage points compared to 2021.

“This is a major difference from the United States and many countries in Europe,” says aviation expert and lecturer at McGill University John Gradek. We decided to go with a user-pays model. The question we must ask ourselves is whether we want all taxpayers to finance part of the airports or only users. »

Several ingredients

Other elements also come into play. The business model of carriers like Flair is based on the use of secondary airports, where fees are lower. It is difficult to deploy this strategy in all provinces in Canada. In Quebec, we do not yet find this type of infrastructure, even if the Montreal Metropolitan Airport (Saint-Hubert) wishes to become an alternative option for Montreal-Trudeau.

An expert in transportation as well as a professor of operations and logistics management at HEC Montréal, Jacques Roy also sees the distance between large Canadian urban centers as an obstacle for low-cost companies.

“Offering one-hour flights on a plane where meals and other services are not offered can work, but doing the same thing for routes like Montreal-Vancouver is less easy. In Canada, how many cities are there where we can continually fill 180-seat planes? After 10 city pairs, we reached the limit. It’s a constraint. »

It is therefore difficult, says Mr. Roy, to copy the model of Southwest and JetBlue, two American specialists in low-cost transport, which offer connections between populous and geographically close markets, which reduces fuel costs, among other things. This strategy also allows them to carry out several flights daily with the same plane.

Here in summer, elsewhere in winter

Another element also complicates the task for airlines. This is the seasonality of the Canadian market. Travelers like to travel domestically during the summer season, but as soon as fall approaches, they turn their backs on the domestic market in favor of sun destinations, in particular.

Difficult, therefore, for carriers like Flair to count on connections that can play the role of cash cows all year round.

“I think that’s something we didn’t understand properly when we started,” says Jones. In 2022, perhaps 35% of our winter traffic was southbound. Now it’s the majority [pendant l’hiver], and the domestic market represents 75% of summer traffic. We must therefore enter and leave cities on a seasonal basis. »

The opinions of MM. Jones, Gradek, Arnott and Roy are unanimous: as long as airport fees are as high in Canada, low-cost carriers will have difficulty gaining altitude. A change, however, would result in a modification to the method of financing airports, an issue which does not seem to be at the top of the Trudeau government’s list of priorities.

Read “Low-cost carriers in Canada: failed attempts”