Low-cost airlines in Canada have struggled over the last two decades, with the model never seeming to find its footing in the market.
Almost every major Canadian carrier that operated on a low-cost model went bankrupt, changed their business model to resemble a legacy carrier or a tour operator, or was acquired by another airline that did not operate on a low-cost basis.
As a result, many have began to wonder if structural limitations in the Canadian market could prohibit a cheap airline from ever prospering in the country.
To gain a better understanding of why low-cost airlines in Canada have failed and continue to fail, consider one of the country’s most recent high-profile airline disasters.
Lynx Air, technically incorporated as 1263343 Alberta Inc., was one of several high-profile airline failures in Canada. The airline, which launched its inaugural flight under the name Lynx Air on April 7th, 2022, wanted to be the low-cost carrier that broke the mould.
When the airline took off for the first time from Calgary International Airport (YYC) to Vancouver International Airport (YVR), it had a daring aim.
With the strong support of industry titan Indigo Partners, a highly successful private equity group that has launched numerous airlines around the world, many anticipated Lynx Air would be the airline to ultimately succeed in operating this business model.
Lynx Air halted all flight operations and filed creditor protection on February 22nd, 2024, amid severe financial difficulties, becoming the next domino in a long series of high-profile Canadian airline failures.
The confidence that so many had in the upstart airline vanished immediately, and the airline went away, having rarely been referenced since its demise approximately a year before. In this post, we will delve deeper into the narrative of Lynx Air’s demise and what lessons may be drawn from it.
The company’s origin story
Before delving into the causes behind Lynx Air’s final failure, it’s crucial to understand how the firm was founded and the fundamentals of its business plan were. Lynx Air’s journey begins in 2006, when a group of investors led by former WestJet executive Tim Morgan formed Enerjet to solve a shortage of nonstop service between central Canadian cities.
The airline intended to operate as a low-cost carrier, but Enerjet never reached its full potential and instead focused mostly on charter services.
The carrier discovered a unique niche in flying these charter flights, primarily for oil business executives, and avoided commercial rivalry due to the existence of significant and fast developing power competitors such as WestJet.
While numerous attempts were made to operate scheduled flights as a low-cost carrier, the airline had delays due to the extensive grounding of the Boeing 737 MAX and the COVID-19 pandemic, which essentially shut down the Canadian aviation industry.
Enerjet did, however, catch the attention of Indigo Partners, an Arizona-based private equity firm founded by William Franke, the current chairman of Frontier Airlines and Wizz Air.
Indigo Partners owns majority stakes in Frontier Airlines and South American budget airline JetSmart. The company also owns significant stakes in Mexican cheap airline Volaris and Hungary-based European carrier Wizz Air.
Enerjet rebranded as Lynx Air to launch scheduled operations
With the financial backing of respectable Indigo Partners, Enerjet decided on November 16th, 2021, to rename as Lynx Air and begin flying in the first quarter of 2022. During the announcement, the airline stated that it will order up to 46 Boeing 737 MAX 8 jets to be delivered over the following seven years.
The airline had selected a number of routes in Central and Western Canada that it felt would experience growing demand over the next decade, and it determined that these routes would likely be profitable enough to warrant the start of a scheduled carrier.
The airline stated in its initial communications that it will first operate a domestic route network before expanding to foreign destinations.
The carrier followed through, with the inaugural flight scheduled for April 7th, 2022, not long after the airline received its first Boeing 737 MAX. The airline began flights to the United States in 2023, marking its first foray into overseas markets.
However, the flights did not perform as well as the carrier or its backers had intended, and the nascent airline quickly encountered financial difficulties.
Lynx filed for creditor protection with the Court of King’s Bench in Alberta in February 2024, sending shockwaves through the sector and tarnishing William Franke’s Indigo Partners’ previously unblemished reputation.
According to Global News, the airline’s application cited rising operational costs and higher airport fees as major contributors to its financial difficulties.
So what were the biggest factors that led directly to the airline’s collapse
If you believe the airline’s assertions, high-fee surroundings have been the driving force behind the demise of not only Lynx Air, but also other Canadian low-cost carriers. There is some validity to this claim, as Canadian airport fees are infamous for being among the highest in the world.
The reasons for high Canadian airport fees are multifaceted, and they stem from federal regulations that impose large taxes on airlines. While airport fees in the United States are restricted, Canadian airports can charge much higher fees to airlines. Airport improvement fees are an excellent example of this.
According to the Fraser Institute, US airports can charge up to $4.50 per passenger, whereas in Canada, costs average more than $32 per person.
Air transport security fees are also significantly higher in Canada than in the United States, averaging more than $30 versus the US’s fixed $9.11 per person September 11th Security Fee.
Canadian airlines have extremely high fuel prices, as well as an excise tax on fuel and a government carbon tax. Canada also levies a sales tax on aviation fuel, which American carriers are not subject to.
Canadian airports are privately owned but constituted as non-profits, forcing them to function in unconventional ways. For example, they are compelled to pay rent to the federal government, which has been increasing in recent years. Low-cost carriers will eventually pass these expenses on to the consumer.
Low-cost airlines, such as Lynx Air, operate on the premise of offering passengers the lowest feasible ticket costs in order to compete with the fares of large, established carriers.
When costs rise, budget airlines suffer disproportionately because they are forced to raise their pricing, and when fares rise, travellers are increasingly likely to select legacy carriers with better service and established reputations over upstart startups like Lynx.
This is exactly what happened with Lynx Air, and the Canadian airline industry’s high operational costs make it incredibly difficult for low-cost carriers to succeed. If Canada does not reduce these fees, low-cost airlines will continue to struggle to achieve a cost advantage over full-service competitors, which is critical to their business models.
A final note should be made regarding Lynx’s strategy
It is crucial to explore another aspect of Lynx’s strategy that may have led to its collapse. The airline chose to commence flights with the Boeing 737 MAX, an aircraft type that has been grounded extensively following two fatal crashes and numerous other safety-related concerns.
The airline, which was already struggling to survive in a highly competitive and regulatory market, was also burdened with the Boeing 737 MAX’s troubles, which did not assist the company’s financial situation. It’s worth noting that the only carrier Indigo Partners has worked with that uses the Boeing 737 MAX is the now-defunct Lynx Air.
All of the airlines the firm invested in have achieved long-term financial success with Airbus A320 family fleets, while the sole carrier that failed, Lynx Air, built its entire strategy around 737 MAX operations.
FAQ
What caused the collapse of Lynx Air?
The collapse of Lynx Air can be attributed to a variety of factors, including financial instability, poor management decisions, and increasing competition in the low-cost airline sector. Mismanagement of resources, lack of adequate planning, and an inability to maintain profitability under challenging market conditions likely played a role in the airline’s downfall.
What lessons can the aviation industry learn from Lynx Air’s collapse?
The collapse of Lynx Air highlights the importance of financial stability, proper risk management, and strategic planning in the airline industry. Airlines must carefully assess their market strategies, avoid overexpansion, and focus on building sustainable operations, especially during economic downturns or periods of increased competition. The importance of understanding consumer demand and maintaining a flexible business model is also crucial for long-term survival.
Could the collapse of Lynx Air have been avoided?
While the collapse of Lynx Air may have been preventable with better management decisions and foresight, the competitive landscape in the airline industry can often be unforgiving. Strategic missteps, like underestimating operational costs, misjudging passenger demand, or failing to secure sufficient funding, can contribute to the downfall of an airline. In retrospect, more rigorous financial planning and diversification may have helped the airline avoid collapse.
What impact did Lynx Air’s collapse have on the aviation market?
The collapse of Lynx Air left a gap in the market for low-cost carriers, especially in regions where they had established a strong presence. While competitors may have been able to absorb some of Lynx’s routes, the void left by the airline’s closure could have impacted travel options, especially for budget-conscious passengers. It also serves as a reminder for airlines to remain resilient and adaptable in an unpredictable industry.
What should new airlines learn from Lynx Air’s downfall?
New airlines should learn from Lynx Air’s experience by focusing on financial sustainability, strong management practices, and adaptability in a competitive market. It’s important for new entrants to have a clear business model, avoid overexpansion, and maintain flexibility to adjust operations as needed. Building customer loyalty and diversifying revenue streams also play a key role in staying afloat in a tough market environment.
