Flair Airlines is now Canada’s lone low-cost carrier. Can it rise to the moment? | Globalnews.ca
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The recent demise of Lynx Air leaves Flair Airlines alone holding the banner for ultra-low-cost carriers in the Canadian airspace.
Heading into the busy summer travel season when airlines make much of their money, some experts say travellers booking tickets across Canada will have to weigh cheap airfare against the reputational and financial uncertainty dogging Flair.
The CEO of the Edmonton-based carrier tells Global News that he is confident there’s a place for the airline among “price-sensitive” consumers, but experts say Flair faces headwinds in making the ultra-low-cost fare model work in Canada.
Calgary’s Lynx Air announced in late February that it would close up shop and file for creditor protection. Filings show Lynx had hoped an acquisition by rival Flair would help it avoid bankruptcy, and Flair has said it is eyeing Lynx jets in plans to grow its own fleet.
Stephen Jones, CEO of Flair Airlines, says it was a “sad day” when Lynx left the market. He says he feels for people at Lynx, particularly because they had the shared vision of bringing into Canada the ultra-low-cost-carrier or “ULCC” model that’s worked well in Europe and the United States.
But Jones tells Global News that he is not discouraged to see the collapse of another company with the same model. Flair has seen a “big uptick” in demand for its seats since Lynx’s departure, he says.
“We are the sole low-cost carrier left in the market, and it’s a great place to be. We have the price-sensitive leisure market here, really, to ourselves,” he says.
Low-cost flight options are limited outside Flair in Canada between Air Canada’s Rouge banner and WestJet’s Swoop, which it absorbed last year. WestJet also plans to wind down Sunwing and integrate the low-cost carrier into its main business by October. Canada Jetlines also flies primarily to warm weather destinations out of a few Canadian hubs.
While Flair has been a player in Canadian airspaces for over two decades, its modern iteration as a ULCC started with its rebranding in 2019. Lynx Air, once known as Enerjet, took to the skies as a low-cost carrier during the COVID-19 pandemic in late 2021 and folded just a couple years later.
Jones argues that Lynx did not have the time to build up the “economies of scale” needed to succeed in the Canadian market. He says the failure of Lynx does not have any bearing on whether the same business model can succeed under Flair.
“There’s nothing about Canada that says that the ULCC model shouldn’t work. People love to travel and people love a deal,” he says.
Challenges of the low-cost model in Canada
Jacques Roy, professor with the department of logistics and operations management at HEC Montreal, tells Global News that “it’s very difficult to operate a low-cost airline model in Canada.”
The low-cost model that originated with Southwest Airlines in the U.S. and later spread to Europe relies on having reliable “city pairs” where airlines can squeeze many seats into a suitable aircraft to lower their cost-per-customer enough to drive down the price of airfare, Roy says.
The distances between the cities in Canada can mean a less comfortable ride for longer, he says, which affects the value proposition for domestic travel.
Weighing down the bottom line for all air carriers in Canada are costly airport improvement fees that make taking off and landing domestically a considerable cost eating away at airlines’ margins, Roy says.
Flair itself has acknowledged the impact of landing fees at Canadian airports.
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In shifting its spring schedule to reduce its overall number of flights but boost service to sun destinations outside the country, the airline indicated in a statement to Global News last week that it was saving more money on the longer trips. Flair also said it was responding to Canadians’ demand for more sun destinations in the spring months.
Jones says the high fees imposed in Canadian air travel are unique to the market, and that ultimately means those costs are covered by the customer in the price of airfare.
“The fact that the airport fees are high here does mean that, at the margins, people will choose not to travel because they can’t afford it,” he says.
Duncan Dee, the former chief operating officer at Air Canada, says the decision to pivot away from Canadian destinations in the spring season “absolutely” makes sense when it comes to reducing airport fees.
Airlines are being levied charges of around $50 per passenger when they take off and when they land at various Canadian airports, he says, a fee that Flair can effectively cut in half every time if flies an international route.
The high airport improvement fees tied to Canadian hubs are a primary reason why Dee believes it’s “extremely difficult” for the ULCC model to work at-scale in the country.
“What you end up with is a very, very high starting point for many of these ultra-low-cost carriers, from a fare basis,” he says.
“It’s virtually impossible for ultra-low-cost carriers like Flair to take a page out of their American, European, Asian counterparts, which are able to use extremely low fares to stimulate the market.”
Dee says the failure of Lynx reflects the need for change in the Canadian market, which he says is the only one in the world where air travel infrastructure is “100 per cent funded by fees and taxes that are charged to, ultimately, the fliers.”
Flair has faced a number of public legal and financial challenges in the past few years, though CEO Jones says much of the turbulence facing the airline is behind it.
Flair’s made-in-Canada bona fides were up in the air for months amid an investigation from the Canadian Transportation Agency, which ultimately ruled the airline met the requirements for Canadian ownership in June 2022.
The company faced a seizure order for its property from the federal government back in November related to $67.2 million in unpaid taxes. Jones confirmed to Global News that the airline still has a plan to pay that amount to the Canada Revenue Agency, saying the company has a “good relationship” with the tax authority.
A year ago, Flair had a number of its planes seized by the manager of its jet leases which alleged the airline was behind on its payments there as well; Flair has since sued that company and its lessors. Jones claims the seizure was “unlawful” and says the company’s current fleet of 20 jets is “100 per cent secured.”
And just last weekend, Flair faced a technical issue that took down its booking platform for multiple days until Tuesday when services were back up and running.
Jones says that the outage was related to an issue in switching over payment providers and that there were no flight disruptions related to the problem.
While Flair had previously said it was having a financial dispute related to its payment processor, the Peoples Trust, Jones says that has been resolved and Flair is back working with the Vancouver-based financial services firm.
Until speaking with Global News on Wednesday, Flair hadn’t said publicly what caused the interruption in service on its website.
Dee says that headlines about Flair’s financial or technical difficulties can be hard for the company to bounce back from in the eyes of customers.
“It’s easy for consumers to lose confidence in an airline that has an inability to manage its own communications and its inability to address many of the concerns that have been raised by the media publicly,” he says.
Jones doesn’t believe Flair is losing its appeal in customers’ eyes, pointing to a surge of new flight bookings on Tuesday when the company’s system came back online. It was the company’s “biggest sales day ever,” he says.
“The consumers, I think they’re voting with their feet,” he says. “People were waiting for our system to come back online and they were hungry for it.”
Flair servicing ‘price sensitive customers’
Consumers are “absolutely price sensitive” right now after a long bout of elevated inflation and a rapid jump in interest rates over the past two years, Jones says.
“In a world where affordability is one of the biggest challenges for everyone, having some competition in the airline market is critically important to them,” he says.
Dee isn’t convinced that Flair has found its niche in the market yet. He says that the airline is helping to drive down offers from competitors on the routes that it serves, but that it’s limited in how much it can undercut WestJet and Air Canada and is not yet widespread enough to have “huge impact” on prices consumers pay.
And in instances where fliers can save some money on their tickets, he says that some travellers might still opt to stick with the larger airlines if they have points built up in their loyalty programs.
Roy also says he thinks many travellers might forgo Flair and spring for a bit of extra legroom on longer flights in Canada.
But he agrees with Jones that consumers are price sensitive right now, and are increasingly viewing flights as a means to an end.
“They just want to get there as quickly and as cheaply as possible,” he says.
Despite the challenges of the ULCC model, Roy is hopeful that Flair can become a viable third alternative to the Air Canada-WestJet duopoly.
“I hope they will succeed, because I wish there was a third airline in some of the markets in Canada. It would really provide for more competition,” he says.
Jones’ own outlook for the airline is unsurprisingly rosy. He tells Global News that the skies are clear for the ultra-low-cost carrier, with expectations for a strong summer season and a runway to ramp up the company’s fleet again starting in 2025.
“I think it’s going to be a busy summer for all airlines, but certainly for Flair,” he says.
“We’ve got some great fares out there. We’ve got really great destinations. And I think this is going to be our best season ever.”
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