As he walks out the door this week after retiring as Flair Airlines CEO, Stephen Jones has a plea for the Canadian government: Keep an eye on the big guys.
In an already-tough industry, says Jones — especially in a high-cost country like Canada — the last thing fledgling airlines need is ‘entrenched’ competitors pulling the rug out from underneath them.
“The two big incumbents are very entrenched,” said Jones, referring to Air Canada and WestJet. “They’re entrenched as brands, they’re entrenched in airport positions, they’re entrenched in dealing with government. So they’re a force that you have to be able to come in and make your way through. It’s tough doing that as well.”
Jones, who took over as Flair CEO in 2020, has his last day with the ultra low-cost carrier on Friday.
In a theme he has also echoed in appearances before parliamentary committees in Ottawa, Jones said Flair’s presence has benefited all Canadian air passengers — not just the ones who fly the discount carrier.
“Everyone benefits from Flair’s prices, because we force the competitors to bring their prices down. If we weren’t in the market, prices would be a lot higher across the board,” said Jones.
While legitimate competition is fine, sometimes it comes a little close to the line, said Jones, pointing to WestJet’s creation of its own discount carrier, Swoop, which it subsequently reabsorbed.
“They’ll push it to the extent that they’re legally allowed to then try and find the edges on that as well,” said Jones. “So I think what we’ve seen is WestJet’s creation of Swoop is probably one of the best examples.
“Swoop wasn’t brought to the market to bring competition to the market. Swoop’s whole purpose in life was to quell competition, and was used to actively chase Flair around the market,” said Jones. “I’m not going to cry that it’s all unfair. I think the government does need to be able to react quickly when predatory behaviour is undertaken.”
A spokesperson for federal transportation minister Pablo Rodriguez insisted the government wants low-cost carriers — and other start-up airlines — to succeed.
“Canadians want to visit their families and discover other parts of our country. And they want it to be affordable,” a spokesperson wrote in an email. “We’re seeing airlines like Porter and Air Transat work together to compete with bigger airlines like Air Canada and West Jet. There’s a market for low-cost carriers in Canada, and our Government will promote more innovation and collaboration in the sector.”
Jones leaves at a turbulent time for the airline, which earlier this year saw its largest financial backer — Miami-based 777 — cut its stake in Flair from 25 per cent to under 10 per cent. The bulk of 777’s stake was taken over by an affiliate of U.S. insurance company ACAP. As part of the deal, the affiliate restructured Flair’s debt. ACAP didn’t respond to Star requests for an interview.
In February, a deal to merge with Lynx Air fell apart shortly before Lynx filed for insolvency. Last year was no walk in the park either for Flair.
In November, the airline was ordered by the Canada Revenue Agency to pay $67.2 million in taxes and last March, it had four of its planes seized after an Irish leasing company said the airline fell behind on payments.
The idea that incumbent airlines try to undermine new competitors with deep discounts — until the upstarts go out of business or get taken over — is no conspiracy theory, either, said air industry expert and former Air Canada executive John Gradek, noting that Canada’s aviation history is filled with examples of new airlines who’ve vanished. Wardair, Canada 3000, Jetsgo, CanJet, and this year, Lynx Air.
“Governments have been basically hands off, let the marketplace decide whether these guys succeed or not,” said Gradek, head of McGill University’s global aviation leadership program. “And that’s basically, as far as I’m concerned, open season for the established carriers — particularly the duopoly — to take a shot at trying to get these guys out of business. And that’s what’s been going on the last little while.”
Still, not all of the problems have come from competitors playing hardball, Gradek said. Some of it is the higher fees faced by Canadian airlines compared to their counterparts in other countries. Some of it, said Gradek, is because the start-up airlines have shaky finances from get-go. And part of that, he argued, is because governments don’t want to throw too many roadblocks in the way of new carriers, especially discount ones.
“These guys are only required to have 90 days worth of working capital. … And to me, that’s woefully insufficient,” said Gradek.
But the heavy hand of entrenched competitors combined with higher costs make this a tough country for ultra low-cost carriers, even for people who’ve done it successfully elsewhere, like Lynx Air backer Bill Franke, an industry legend and chairman of Frontier Airlines.
“Bill Franke, is probably one of the most successful low-cost carrier operators in the world,” said Gradek. “And if Bill Franke can’t make Canada work, that’s very telling, as far as I’m concerned.”
