Lynx Air Shutdown
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Lynx Air Shutdown
The Canadian ULCC has just announced they have failed to secure more funding and will cease operations Monday. Canada’s other ULCC, Flair Airlines has also paused their growth plans and cut their ASM’s significantly. Swoop the ULCC arm of Westjet was shut down last fall and their airplanes and crew absorbed into the mainline fleet
So far nobody has been able to make the ULCC model work in Canada
So far nobody has been able to make the ULCC model work in Canada
Canada loves taxes, and they love increasing them. Basically they just starve new entrants from oxygen. Conducting a return flight in a domestic country should not have one liable for $200 in taxes. It’s just madness.
Most domestic flights in USA or OZ are in the order of $20-$50 taxes each way tops.
Most domestic flights in USA or OZ are in the order of $20-$50 taxes each way tops.
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The bigger problem is that Canada is a big country with a small dispersed population. Overall demand is much lower, and average stage lengths are longer than in the USA, Asia or Europe. You can't sell 180 seats and fly 10 sectors/aircraft a day. JetsGo, CanJet and now Enerjet/Lynx keep proving the same point.
Problem is the architect of this disaster was shown the door last fall. But don't worry because the millstone won't hang around their neck, they'll get another job and drive that into the ground too
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I'm very concerned about Flair given statements like this prior to Lynx's shutdown:
“My thinking was there’s going to be a reverse takeover,” he said, noting that Lynx is the “more financially secure airline” with “deeper pockets.”
dailyhive dot com/canada/flair-airlines-lynx-air-rumoured-merger (put in dots as I'm not allowed to post URLs yet)
If Lynx was the "more financially secure" airline, that does not bode well for Flair...
“My thinking was there’s going to be a reverse takeover,” he said, noting that Lynx is the “more financially secure airline” with “deeper pockets.”
dailyhive dot com/canada/flair-airlines-lynx-air-rumoured-merger (put in dots as I'm not allowed to post URLs yet)
If Lynx was the "more financially secure" airline, that does not bode well for Flair...
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Lynx Air CEO sees room for all amid cutthroat market crowded with carriers | CTV News"She started as CEO of Virgin Australia Regional Airlines in 2013, returning it to profit within three years by focusing on charter flights for mining and resource companies, and continued to juggle that job after becoming chief executive of Virgin Australia Cargo.
Before taking a career break just before the pandemic struck, McArthur shifted to CEO of Virgin Australia's low-cost Tigerair Australia in 2018, where she assembled a management team that achieved gender parity.
“I perhaps have a natural tendency to embrace diversity, because I do think that creativity and innovation is driven by people being able to bounce different ideas around the table,” she says."
Sounds like diversity was a priority. After reading the article, I was thinking maybe that is such a wonderful idea. Is there more to the story with the Go Woke, Go Broke people perhaps having a point?
Maybe some Aussies have more info.
Sounds like diversity was a priority. After reading the article, I was thinking maybe that is such a wonderful idea. Is there more to the story with the Go Woke, Go Broke people perhaps having a point?
In a statement, Lynx Air cited the following factors:
inflation
fuel costs
cost of capital
regulatory costs
competition
Is the assumption that a business can always work through these factors with better management?
Last edited by BFSGrad; 26th Feb 2024 at 14:22. Reason: Correct spelling error
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http://cfcanada.fticonsulting.com/ly...22,%202024.pdf
See Exhibit 38 in the CCAA filing to review the payment terms Lynx was given by the Canada Revenue Agency on the $25m + 10% annual interest paid quarterly owed on 9 tails.
Hint: It jumps from $100k a month in Dec 2023 to $700k a month in April.
Flair owes $67m + interest on 18 tails.
Flair’s repayment sched will be at least double Lynx’s given the revenue generating potential of their 20 tails vs Lynx’s 9 tails.
$1.5m a month paid monthly until Dec 2028; a total of $89m including interest.
It’s a big number and nothing to sniff at, especially when Flair’s cash is already extremely tight, and their historic source of cash, albeit at 18% interest, 777Re in Bermuda and Haymarket are battling with their respective regulators to stay afloat. Google it.
Just because Lynx failed doesn’t mean a couple more in Canada, one with a carbon copy business plan, aren’t also on in serious trouble with one operating on a day to day basis.
See Exhibit 38 in the CCAA filing to review the payment terms Lynx was given by the Canada Revenue Agency on the $25m + 10% annual interest paid quarterly owed on 9 tails.
Hint: It jumps from $100k a month in Dec 2023 to $700k a month in April.
Flair owes $67m + interest on 18 tails.
Flair’s repayment sched will be at least double Lynx’s given the revenue generating potential of their 20 tails vs Lynx’s 9 tails.
$1.5m a month paid monthly until Dec 2028; a total of $89m including interest.
It’s a big number and nothing to sniff at, especially when Flair’s cash is already extremely tight, and their historic source of cash, albeit at 18% interest, 777Re in Bermuda and Haymarket are battling with their respective regulators to stay afloat. Google it.
Just because Lynx failed doesn’t mean a couple more in Canada, one with a carbon copy business plan, aren’t also on in serious trouble with one operating on a day to day basis.
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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.
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.
Canada loves taxes, and they love increasing them. Basically they just starve new entrants from oxygen. Conducting a return flight in a domestic country should not have one liable for $200 in taxes. It’s just madness.
Most domestic flights in USA or OZ are in the order of $20-$50 taxes each way tops.
Most domestic flights in USA or OZ are in the order of $20-$50 taxes each way tops.
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All good points, but keep in mind that in March 1996, WS operated three 20+ year old 737-200's worth $5m a pop with an ASL of about 450 miles and managed to get 8+ sectors a day / 9.5 hours utilization, going head to head against both AC and CP. Both were formidable competitors at that time.
WS broke even in their third full month of operations in May 1996.
WS was able to put about 2,880 seats a day into the market with 3 aircraft worth $15m. That's about $5,208 per seat.
Porter gets about 7.25 hours a day each out of 29 E2 tails that cost $30.6m with an asl dancing around 1,200 miles.That sort of ASL's tells me they have no feed network to speak of and they aren't trying to stimulate the market.
Porter currently averages about 9,600 seats a day in the market with 29 tails worth about $887.4 m. That's about $93,200 per seat.
WS's asl when they had 27 tails in 2002, six years into the program, was 458 miles and they made 12% operating margins that year.
I'll guarantee Porter's margins are at least 22% pts below that these days.
There's a way to do it in Canada, but it seems all the new entrants steadfastly refuse to follow best practices.
WS broke even in their third full month of operations in May 1996.
WS was able to put about 2,880 seats a day into the market with 3 aircraft worth $15m. That's about $5,208 per seat.
Porter gets about 7.25 hours a day each out of 29 E2 tails that cost $30.6m with an asl dancing around 1,200 miles.That sort of ASL's tells me they have no feed network to speak of and they aren't trying to stimulate the market.
Porter currently averages about 9,600 seats a day in the market with 29 tails worth about $887.4 m. That's about $93,200 per seat.
WS's asl when they had 27 tails in 2002, six years into the program, was 458 miles and they made 12% operating margins that year.
I'll guarantee Porter's margins are at least 22% pts below that these days.
There's a way to do it in Canada, but it seems all the new entrants steadfastly refuse to follow best practices.
Last edited by Speedboat; 26th Feb 2024 at 21:47. Reason: Typos and detail
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WS broke even in their third full month of operations in May 1996.
When WestJet started operations in 1996, the price of jet fuel was US$0.56/gallon. Adjusted for inflation, that same barrel in 2024 would cost US$0.82/gallon. Except, that's not the current cost of jet fuel. The current price is US$2.102/gallon, with fluctuations to as high as US$4.00/gallon in 2022.
This isn't about an LCC or Legacy carrier starting up and charging a fare that will pay the bills. Porter is smart. They've not survived by charging ultra-low fares. They've survived by charging a fare that makes them a bit of money and providing stellar service. ULCC doesn't work in Canada because they're charging far too little to even come close to breaking even. There simply are not enough people in Canada to drive the type of revenue that is required. You are correct that any airline can enter using best practices. Just not by charging ULCC fares. That's been proven multiple times now in Canada and, unfortunately, the concept just claimed its most recent victim.
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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.
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What about de-icing costs?
But we could argue that it would be close to a drum per frost spray, and possibly as much as two drums of Type 1 and 1 drum of Type 4 to remove ice and add protection in active conditions for a 737. So, call it between USD$1,930 to $6,420 for a single 737. In the discussion about Canadian carriers, that's CAD$2,622 to $8,724 per tail. But then, just this last week we had a case where we also needed our radome and fuselage sprayed because of heavy snow build-up. The fuselage area of the -800 is a few hundred square feet less than the wings, but let's say it uses another half drum or so to de-ice the fuselage...that puts us at over CAD$10,000 per tail. That's going to be an overestimation, and it's not normal to get the whole plane done, so I'll stick with the previous figures as they keep us in the ballpark.
The busiest de-ice pad I saw this past week was in Calgary. We had 6 company airplanes being de-iced and another 6 waiting behind us. I don't know how many others were waiting on the taxiway or at the gates, but all needed to be de-iced and anti-iced, so let's say that's at least CAD$100,000 just from what I could see out the window. That storm didn't last all day though, and it's possible that the storm only affected 20 or 30 flights. But, I have seen days where every flight we have would need to be de-iced. Given the number of departures we have from that one airport on a day, that could be a de-ice bill of between CAD$524,400 to $1.74 million.
Now, that type of storm doesn't happen every day, nor do they often last any more than a morning or afternoon - and then they might only happen twice a winter, if that. I've had whole years where I de-iced maybe once or twice from September to April, and other years where I've de-iced four times in a day, but did that only two or three times. I'd say on average, I might de-ice once or twice a week. But across a fleet and all of winter, we can see it can rapidly increase into the tens of millions range, so not an insignificant consideration for a ULCC that operates in a country where if you want to fly, you can't avoid de-icing.
Buddy flew a Lr35 out of YYZ about 13 years back. Company execs wanted to go to head office Xmas party. Load up, starts snowing taxi to the central delay facilities. Long story short 2 hrs in line, timed out prior to takeoff, return to hangar as they missed the party. A week later edict comes down from head office "flight operations in YYZ are to be suspended during snow events". The bill was over 16k$
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Hey don’t be sorry hard on the folks that run YYZ, I mean who could have predicted it would snow in Toronto in December so ensuring they had a good de-ice program is asking a lot; right 🙄