Americas aviation: ambitions ride high among Canada’s ultra-low cost start-ups
Up until a few years ago, Canada was one of the last major air travel markets without the consistent presence of an ultra-low cost carrier (ULCC).
But that has quickly changed in the recent past as Flair Airlines, WestJet's Swoop and, more recently, Lynx Air, have launched to take advantage of what those entities deem as pent-up demand for cheaper air travel.
Whether or not the Canadian market will absorb all the growth planned by those airlines is yet to be revealed; or if changes will eventually take place among Canada's ultra-low cost start-ups.
But for now, particularly for Flair and Lynx Air, their growth will continue unabated.
- Flair Airlines plans to expand its fleet to 27 aircraft and increase capacity by 50% by summer 2023.
- WestJet's ultra-low cost subsidiary, Swoop, will continue to play an important role in the company's strategy, with a cost structure 30% lower than mainline airlines.
- Lynx Air, a new ultra-low cost airline in Canada, is expanding into the US transborder market with flights to Orlando, Phoenix, Los Angeles, and Las Vegas.
- The Canadian aviation market may face excess capacity as Canadian airlines plan to add over 100 aircraft to their operations in the coming years.
- Consolidation among new ULCCs in Canada may be necessary to achieve scale and compete effectively.
- Competition in Canada's aviation market will intensify as new entrants continue to grow and larger incumbent airlines defend their positions.
Summary
- Flair Airlines continues its march to build a fleet of 50 aircraft.
- Swoop continues to grow; but its role remains murky as WestJet shifts its focus.
- Lynx Air spreads its wings into the US transborder market.
- Will consolidation need to occur among new Canadian ULCCs?
Flair Airlines believes Canada's market is ripe for its growth plans
Flair is the veteran among Canada's new crop of ultra-low cost airlines. During 2017 the company transitioned from a charter operator to the ultra-low cost model.
In Oct-2020 Flair named Stephen Jones as its new CEO. Mr Jones was the former deputy CEO of ULCC Wizz Air.
The airline recently tabled plans to bolster its capacity by 50% during summer 2023 in the Northern Hemisphere. It will also grow its fleet to 27 aircraft.
In early Oct-2022, Flair had a fleet of 22 aircraft.
Flair Airlines: fleet summary, as of early Oct-2022
Beginning in Mar-2023, Flair plans to bolster frequencies on numerous domestic routes.
Flair's ASK growth has consistently been above pre-pandemic levels since early May-2021, and the company's capacity will continue to grow as it adds breadth and depth to its network.
Flair Airlines: weekly system ASKs from 2019 through Oct-2022
During the CAPA Americas Aviation & LCC Summit in May-2022, Flair's CEO Mr Jones explained that the airline's goal was to build up to a fleet of 50 aircraft in five years.
He said that although it was ambitious growth, "...it's not ambitious growth in the context of [Canada's] market".
How will Swoop evolve in light of WestJet's shift in focus?
WestJet's wholly owned ultra-low cost subsidiary Swoop made its debut in Jun-2018, and was WestJet's answer to the growing number of ULCCs that were working to make their debut in Canada.
The development of Swoop attracted high levels of scrutiny from the analyst community - largely due to WestJet creating Swoop at a time when it was in the midst of widebody expansion on trans Atlantic service to Europe.
There was also trepidation about the less than stellar airline-within-airline model - particularly in North America.
See related CAPA report: Swoop Airlines: low competitive threat, high opportunities
But the previous management of Swoop stressed that the new airline was not stealing passengers from WestJet, but was genuinely stimulating traffic.
But both WestJet and Swoop have undergone changes in upper level management during the past couple of years, and as a result, WestJet's focus has shifted.
In Jun-2022 WestJet's new CEO Alexis von Hoensbroech unveiled a strategy shift for the company, which included a pause in Boeing 787 widebody investment, focusing on its network in Western Canada, and the rightsizing of its fleet of De Havilland Canada DHC 8-400 aircraft, operated by its regional subsidiary Encore.
During an interview with CAPA's sister publication Aviation Week, Mr von Hoensbroech explained that Swoop would continue to play an important role for the WestJet Group, noting that Swoop's cost structure was approximately 30% lower than those of mainline airlines. He stated that WestJet and Swoop were planning more complimentary networks to collectively meet the demands of leisure travellers.
He also said that WestJet had lost some of its competitive advantage, and would evolve once again to "being the low-cost airline Canada deserves."
It is not clear how WestJet and Swoop will ultimately coordinate more closely on schedules. But data from CAPA and OAG show Swoop's capacity is steadily increasing throughout the remainder of 2022.
Swoop: weekly system ASKs from 2019 through Dec-2022 (projected)
Swoop operated a fleet of 13 aircraft as of early Oct-2022.
WestJet has not outlined any future fleet plans for Swoop, but the company did recently announce an order for 42 737-10 aircraft.
Perhaps some mainline narrowbodies could be assigned to Swoop as more new aircraft are added to WestJet's operations, but at this point Swoop's ultimate scale is unknown, given the decision by its parent company to undertake a shift in strategy.
Swoop: fleet summary as of early Oct-2022
WestJet has also announced its intent to acquire Sunwing Travel to ensure that it remains competitive in the leisure traveller sector.
And again, at this point it is not clear how Swoop's role will evolve if WestJet is successful in its pursuit of Sunwing.
Lynx Air broadens its reach with a planned push to new US markets
Lynx Air is the latest ultra-low cost airline to enter the Canadian market after launching service in Apr-2022.
Lynx operates a fleet of six Boeing 737-8 narrowbodies, and the CAPA Fleet Database shows that it has an unconfirmed order for 43 Boeing 737 MAX aircraft.
Lynx Air: fleet summary, as of early Oct-2022
As of early Oct-2022, Lynx's network comprised 10 domestic destinations.
But the operator is making a transborder push in early 2023, when it launches flights from Toronto Pearson International to Orlando International. It is adding three transborder flights from Calgary to Phoenix Sky Harbor, Los Angeles and Las Vegas.
Lynx is based in Calgary, which is also home to WestJet, and bills itself as Canada's new ultra-affordable airline. In many of its markets, it goes head-to-head with Air Canada and WestJet, and has some overlap with its fellow ULCC, Flair.
Does the Canadian market face the possibility of excess capacity?
Air Canada and WestJet still dominate the Canadian market, and that will continue for the foreseeable future.
But given the number of aircraft Canadian airlines expected to add to their operations over the next few years - well in excess of 100 shells - there is the danger that excess capacity could develop in the country's aviation market.
That leads to questions about more consolidation within Canada.
Would it make sense for some of the new ULCCs to consider banding together to achieve a certain level of scale in order to compete more effectively?
Competition in Canada will intensify as new entrants plot growth
For now, those new entrants would likely conclude that there are enough opportunities to simulate passengers travelling within Canada, as well as to and from leisure markets in the US, Caribbean and certain points in Latin America.
But competition will only continue to intensify as larger incumbent airlines mount their defences to the new entrants.
Yet for now, those start-ups have no plans to abandon their plans to shake up Canada's aviation market.