Before I begin, I wish everyone at Lynx the best. I was rooting for them to be successful, but the ULCC business simply does not work in Canada right now. It could work in an individual province or across a few provinces, but not across the country.
First, although taxes and fees are equally levied across all operators, they are nevertheless a very large barrier to entry. Air Canada and WestJet, the so-called duopoly in Canada, have decades of growth behind them, and cash in hand to weather increases in fees and taxes. Operators like Air Transat and Porter have slowly built their network over the years, again putting themselves into a position where they can absorb costs. But when one starts out importing aircraft and being, in Flairs example, $67 million behind in import taxes, that’s a huge anchor to future growth. Not many investors are willing to stomach that type of potential loss. In the case of Lynx, Indigo was obviously not interested in providing yet another bridging loan to help pay these costs.
Second, aviation pays in American dollars for almost everything of importance except wages. In Canada, that means you’re taking a 30% hit right off the bat because of the exchange rate. Granted, this equally applies to every airline. The difference is that Air Canada and WestJet bought or leased airplanes with terms that began when the exchange rate was closer to parity. Indeed, when WestJet began expanding in 2004 the exchange rate went from almost where it is now to achieving parity early 2011, to the CAD being ahead of the USD from mid 2011 to late 2012. The CAD began to slip from then to now being back to a 30% difference. If they were smart, the likes of WestJet were able to pay off hundreds of thousands of dollars in debt or hedge fuel prices for years just from a beneficial exchange rate. That’s not happening now, and all airlines are paying that additional 30%. It’s just another barrier to entry when an investor knows their ROI is that badly affected that they look for somewhere else to park their money.
Third, population density is a problem in Canada. We have 38 million people divided into arguably 12 main geographic areas (YVR, YYC, YEG, YXE, YQR, YWG, YYZ, YOW, YUL, YQB, YHZ, YYT). Approximately 22 million live within a roughly 1,000km stretch of highway between Windsor, Ontario and Montreal, Quebec. Or put another way, within an hour and a bit flying time of each other. The next two most populated locations - Alberta and British Columbia - have 9 million between them and are some 2,700 to 3,300 km away (4 to 5 hours flying time). When going from Ontario to Alberta, one will overfly only another 3 million people. The remaining population groups are spread out to the east.
Put into context, a flight between London, England to Paris, France - a straight line distance of 348 km - will overfly roughly 39 million people. You overfly the entire population of Canada. To do the same in Canada is a distance of 5,068 km, or nearing a 7 hour trip. In the 3,900 km between Lisbon to Moscow you overfly the bulk of the 746 million people living in Europe. Do the same in the United States, and you overly 332 million people.
Thats why a ULCC works in Europe and to some extent the US. You have so many more people who want to go between London and Rome, Los Angeles and Boston. You can charge a low price because you’re going to fill up that plane and likely recoup money through ancillary fees. Likewise, the stage lengths between major cities are so much shorter. You will at least cover the cost of the gas, which is not what happens with many ULCC flights in Canada. Likewise, taxes and fees are somewhat lower, meaning the passenger is not paying even more out of pocket, so more people are in a position to afford to fly.
There is no one solution to making a ULCC work in Canada, but boy are there a million or so hurdles, any one of which will rapidly sink the ship . But Lynx starting out in the pandemic with low exchange rates and a fleet grounding for two years certainly did not help their cause. Flair may yet make a go of it, but it too is apparently in such financial dire straits that it may not last without continual injections of capital. Given that 777 Partners apparently wants to own all of soccer, that may end up being too much of a drain.