Lynx Air succumbs to market realities. What next for Canada's crowded airline landscape?

Summary

• The Canadian ULCC start-up Lynx Air succumbs to market realities.
• Market changes have occurred since Lynx made its debut.
• Flair could come under scrutiny as Canada's sole remaining stand-alone ULCC.
• Are other changes in store in Canada this year?

Canadian start-ups are small-scale operators in a tough market

Lynx Air made its debut in April-2022, and has a fleet of nine Boeing 737-8s, according to the CAPA - Centre for Aviation Fleet database.

Its order book consists of 17 Boeing 737-8s and 20 Boeing 737-8200s.

The database shows that all nine in service aircraft are currently leased - and given the tight leasing market, finding new operators for those jets should not be a challenge.

Lynx Air: fleet summary, as of late Feb-2024

Source: CAPA - Centre for Aviation Fleet Database.

At the end of 2023 CAPA - Centre for Aviation concluded that Lynx Air and Flair did not have the same network depth as Canada's largest airlines - the country has a smaller population, is a high-cost market to conduct business, and it has two entrenched leading airlines that are all too aware of increased domestic competition.

See related CAPA - Centre for Aviation report: Outlook 2024: will the current churn in North American aviation continue into 2024?

The reality is that the start-ups do not have scale in the market.

Data from CAPA - Centre for Aviation and OAG show that, combined, Lynx Air and Flair account for nearly 8% of Canada's domestic available seat kilometres (ASKs).

Domestic ASKs (current) by airline in Canada, as of late Feb-2024

Source: CAPA - Centre for Aviation and OAG.

Changes have occurred in Canada's market since Lynx Air's launch two years ago

For its decision to end service, Lynx Air cited rising operating costs, high fuel prices, increasing airport charges, and a difficult economic and regulatory environment.

It has obtained an initial order for creditor protection.

There have been some market changes since Lynx Air officially debuted almost two years ago.

WestJet has undertaken a strategy shift, doubling down on its cost performance and leveraging its strength in Western Canada. Both WestJet and Lynx Air are based in Calgary.

WestJet has also decided to fold its ultra-low cost subsidiary Swoop into its mainline operations. Swoop was one of the ultra-low cost start-ups to emerge in Canada's market over the past few years, joining Lynx Air and Flair.

Aviation Week Network has reported that it is understood that executives from Lynx Air had been perusing a potential merger with Flair.

Lynx Air was supported by Canadian investors and Indigo Partners, which backs many ULCCs, including Volaris, Frontier Airlines and Wizz Air.

It is a rare miss for Indigo Partners, and reflects, in part, the challenges of operating in Canada.

Each Canadian airline has a strategy - for now, Flair's is pausing growth...

Although Lynx Air seemed, unsuccessfully, to pursue consolidation in the Canadian market, its exit will naturally create a bit less capacity in Canada.

Now Flair is likely to come under scrutiny for its staying power.

Flair has had its own challenges over the past year: in early 2023 Flair and the aircraft leasing management company Airborne became embroiled in a public dispute over Airborne's decision to seize four Boeing narrowbody aircraft from the airline.

See related CAPA - Centre for Aviation report: Flair Airlines could face challenges in executing growth after aircraft seizure

More recently, Flair has had to clarify that Canada's government is not seizing airline property over taxes owed.

It recently stated that it was current with its plan to repay CAD67 million that it owes to the Canada Revenue Agency.

Obviously, Flair will gain some benefit from Lynx Air's market exit, but it still lacks the scale of other Canadian airlines.

And perhaps its larger rivals have more viable strategies.

For now, Flair appears to be pausing its growth plans. The new outlet Bloomberg quoted the airline's CEO Stephen Jones explaining that the airline's expansion would be suspended for at least a year, due to delivery delays and unpaid debts.

He described 2024 as a "more muted year", with the airline returning to growth mode in 2025.

Air Canada is leveraging partnerships; WestJet returning to low cost roots

Air Canada is leveraging its partnerships and connectivity to make an international push, but its network breadth is also attractive to domestic customers.

WestJet remains focused on returning to its low cost roots, and also has a large network to appeal to a wide swathe of customers.

Porter Airlines and Air Transat are expanding their partnership

As a means of building up their own respective scales, current codeshare partners Porter Airlines and Air Transat are expanding their relationship into a joint venture in 2024, pending regulatory approval.

Air Transat has determined that codesharing with Porter generated more than 60,000 additional passengers for Air Transat in fiscal 2023.

The two airlines have estimated that at the 10-year deal's full potential, Porter's connecting flights are forecast to account for 15-18% of Transat passenger traffic, based on assumed fleet growth at both airlines.

Immediately after the JV was announced, Porter exercised options for 25 additional Embraer E195-E2 jets, bringing its total firm order for the type to 75.

What other changes could occur in Canada during 2024?

A lot could happen between now and when Flair plans to resume its growth.

Although there were always underlying questions about the viability of start-up ULCCs in Canada, Lynx Air's decision to end operations seemed somewhat sudden.

Now industry observers are watching to see what other changes could unfold in Canada's aviation market during 2024.