An analyst believes Lynx Air’s sudden closure is a benefit to the major players in Canada, but is bad news for travellers looking to score a deal. 

On Thursday evening, the low-cost carrier announced it would cease operations, effective Feb. 26, after filling for creditor protection. The airline cited “the compounding financial pressures associated with inflation, fuel costs, exchange rates, cost of capital, regulatory costs and competitive tension in the Canadian market” for its decision to close operations.

In a note to clients on Friday, Cameron Doerksen, an analyst with the National Bank of Canada, wrote that the Lynx network covered about a third of Air Canada’s domestic routes and about a fifth of its U.S. transborder routes, meaning the major player “could see some modest benefit” after Lynx shuts down.

“Despite its rapid growth, (Lynx Air) accounted for just 2.1 per cent of domestic seat capacity and 1.9 per cent of transborder capacity in Q1, so the immediate impact on the competitive environment will be limited,” Doerksen wrote in the report.

“However, Lynx had publicly outlined plans to eventually grow its fleet to 46 planes, so its failure eliminates a future competitive threat and significantly reduces future capacity growth in the market.”

Karl Moore, a business strategy professor at McGill University with expertise in the airline industry, said Lynx’s downfall simply comes down to the number of established players in the Canadian market.

“It’s a difficult environment for airlines to make money in Canada, because of the regulatory environment that we have in Canada, the number of competitors and the seasonality,” he told CTV News Channel in a television interview on Friday.

“There’s just too much competition out there and their time came to an end.”

Doerksen also believes Lynx’s shutdown could signal a warning to any future startup airlines looking to fly in Canada’s skies.

“One of the financial backers of Lynx was Indigo Partners, a successful private equity investor in numerous low-cost airlines globally,” he said. “The fact that even with the help of an experienced investor, Lynx Air was unable to have success … and was also unable to source additional capital to sustain its operations speaks to the challenges any startup airline faces in Canada.”

“In this context, we would not be surprised to see other rapidly growing airlines' growth plans scaled back.”

Last week, Air Canada announced it was slowing down its planned ramp-up, while Flair put its own expansion plans on hold last month, as it deals with government debt and aircraft delivery delays.

Moore said he isn’t so convinced Lynx’s downfall will lead to hesitation from potential startup airlines, however.

“Some optimists will come in there in the next year or so and we’ll see another airline take a run at it,” he said.

Airfare prices to climb

With Lynx out of the market, Doerksen believes airfares will climb.

“With Lynx's capacity exiting the market, we could see a modestly positive impact on pricing in the shorter term,” he wrote. “Lynx has been among the most aggressive on pricing on certain routes, both domestically and to the U.S.”

Earlier this week, Statistics Canada reported airfare prices had fallen 14 per cent in January compared to a year prior, but remained 10 per cent above 2019 prices.

Experts believe the drop in prices is largely due to a levelling off in demand following a post-pandemic surge.

With files from The Canadian Press