Come Monday, Canadian travellers booked with the ultra-low-cost airline Lynx Air will be out of luck and its employees out of work. A plane arrives at Vancouver International Airport in Richmond, B.C. on March 18, 2020.JONATHAN HAYWARD/The Canadian Press
Jonah Prousky is a management consultant and freelance writer who focuses on business, technology and society.
Just a couple years ago, Canada’s aviation industry reached what promised to be a major turning point.
As ultralow-cost-carriers Lynx Air and Swoop began operations in 2022 and 2018, respectively, it looked like vacationing on a budget was about to get much easier – just as it has in Europe and the United States.
Now it’s clear that the ULCC model that works so well in other parts of the world was, here in Canada, only a pipe dream.
Last week, Calgary-based Lynx Air filed for bankruptcy protection and announced it would cease operations on Monday. The news left many Canadians scrambling to rebook their travel plans with other carriers, or pleading with their credit card companies for a refund.
That had come after the end of another budget carrier. Last year, after just five years, Swoop, Canada’s first true ULCC, was absorbed under the WestJet banner. WestJet chief executive officer, Alexis Von Hoensbroech, explained the move in a blog post, claiming Swoop’s ULCC model, which he mentions works brilliantly in Europe, is ill-suited for the Canadian market. The country is too big, the population is too small and airport fees, taxes and other structural costs are too high for ULCCs to flourish, he wrote.
That leaves Flair Airlines, now Canada’s only major ULCC. Will it go the way of Swoop or Lynx?
Well, the carrier announced recently it was retrenching, and put its expansion plans on hold in order to meet mounting debt obligations. Obligations such as the US$1.3-million it owed in lease payments that led to the seizure of four of its aircraft last year. The airline is also behind on $67-million in payments to the CRA.
So, what went wrong?
The collapse of Canadian ULCCs was partly fuelled by fallout from the pandemic and the inflationary run-up that followed. For instance, the pandemic left in its wake an unprecedented pilot shortage, which led to a sharp rise in pilot wages – to the tune of 24 per cent in WestJet’s recently negotiated collective bargaining agreement.
Making the ULCC model work in Canada also turned out to be even more difficult than Swoop and Lynx executives anticipated. Canadian ULCCs banked on being able to “stimulate demand” where none previously existed. In other words, they hoped the draw of ultracheap fares would entice Canadians to fly more. That didn’t happen.
Eddy Doyle, chief executive of Canada Jetlines, told the CBC that “it’s more difficult in Canada to stimulate new demand when your starting price is composed of a lot of taxes.” And therein lies the part of this debacle that was largely avoidable. Canadian ULCCs are handicapped by the taxes, fees and structural costs regulators impose on them.
Mr. Von Hoensbroech writes that “to buy a return trip from Calgary to Toronto on one of our Boeing 737-800s, as an example, your ticket is burdened with $70 in AIF, $28 in landing and terminal fees, $30 in GST/HST, a $22 Nav Canada fee and a $14 security fee (this doesn’t even account for other infrastructure fees such as loading, apron usage, de-icing, slot administration and more).”
According to Mr. Von Hoensbroech, that’s double what it would cost to fly an equivalent route in the United States.
The Globe ran a story on airport fees in 2022 and the numbers are damning. Toronto Pearson’s AIF – airport improvement fee – for departing flights is $35 per passenger. It’s just US$4.50 south of the border. Security checks conducted by the federal government run as high as $25.91 per passenger. In the U.S., those run about US$5.60.
If the goal of ULCCs was to stimulate new demand through ultralow fares, as much as $50 in additional airport fees just for operating in the Canadian market is crippling – and in the case of Lynx, deadly.
High fees such as AIFs are owing to Canada’s unique airport funding model. Unlike in the U.S., where airports receive billions in government investment each year, Canadian airports rely on fees and taxes paid by the airlines to fund infrastructure projects. All the while, the government collects billions in rents from the non-profits that operate the country’s largest airports on government-owned land.
The government treats airports as “cash cows,” wrote Gabriel Giguère, a policy analyst for the Montreal Economic Institute. “Compared to the billions of dollars it collects in rent, the federal government invests little, if anything, in maintaining airport infrastructure.”
Until that changes, Canadians will have to pay a premium to fly. Or, jump in the car and drive to an airport south of the border, where that country’s government just announced an additional US$1-billion in airport investments.