Why do so many discount airlines fold? Lynx Air is latest in a line of failures
Lynx Air ceased to fly this week, the latest in a long line of discount carriers to bite the departures dust - brought down in part by stiff competition, high fees and Canada’s vast geography.
Lynx, which filed for creditor protection Thursday, marks at least the eighth budget airline to take off and then fizzle out since 2000, joining the ranks of Roots Air, CanJet and Swoop.
Most failed to clear the same barriers that have blocked the runway for decades.
Despite increased competition, Air Canada and WestJet continue to dominate the market with more than three-quarters of seat capacity for national airlines. The veterans have deeper pockets than young upstarts, allowing them to more easily match ticket prices in a race to the bottom.
“There’s a fundamental issue with how the dynamics of competition work in the Canadian marketplace,” said John Gradek, who teaches aviation management at McGill University.
“The duopoly that we have in Canada is allowed to take on these discount carriers aggressively and use their competitive power to basically drive these carriers into bankruptcy.”
Other industry observers have suggested the Canadian market has trouble supporting more than two large national carriers, though Porter Airlines aims to become an exception as it undergoes a rapid expansion from regional player to continental airline. The Toronto-based company aims to grow its fleet to 79 planes — nearly two-thirds of them jetliners — by 2025, up from 29 turboprops in 2022.
“If you look at history for the past 30 years, other than WestJet, there have not been that many successful ventures,” noted Jacques Roy, a professor of transport management at HEC Montreal business school.
High fees and incumbent perks at large airports can work against newer airlines. Lynx, which launched its first flight in April 2022, pointed to rising costs and airport charges as among the culprits behind its demise.
Canada has high “airport improvement fees” relative to other countries, though that’s partly because airports are nonprofit entities that receive much less federal funding than those in the U.S., for example. Indeed, Ottawa took in more than $400 million in “ground rent” for airports’ use of federal land in 202223, basing the annual tally on their revenues.
The fees — the same for both big and small airlines — raise the base price of a ticket, potentially deterring fliers with less disposable income, a key customer pool for discount carriers.
“They don’t rely on their business model to steal traffic from WestJet or Air Canada,” said Robert Kokonis, president of consulting firm AirTrav Inc. “They bring affordable travel to the folks that either never travel by air or who perhaps would like to travel more if the price were right.
“But when your starting point to stimulate the market is already so much higher because of the sum of all these taxes, fees and charges, it’s very, very difficult to offer a price point that targets and fits the needs of that demographic,” he said.
In Toronto, Pearson’s airport improvement fee on a no-frills, one-way Flair Airlines flight booked this week between Toronto and Vancouver for March amounts to $35, or 25 per cent of the $139 ticket (most U.S. airports charge US$4.50). Taxes make up another $16 of that total, on top of a $7 security charge.
However, Canadian Airports Council president Monette
Pasher said the improvement fees are comparable to large European airports such as Frankfurt in Germany and Heathrow in London that also operate under a user-pay regime. She called on Ottawa to try “tweaking the model” by reinvesting the ground rent in airport infrastructure.