Startup airlines hope to capitalize on pent-up travel demand
Dozens of airlines say now is the time to start flying
Amid an absolutely disastrous year, as airlines lost billions of dollars and laid off thousands of employees, imagine telling someone you're planning on launching a new airline.
"People go, "Whoa. What are you doing? Are you nuts?'" said Ravinder Minhas, a founding board member of upstart Canada Jetlines.
And yet, Minhas believes there's never been a better time to launch an airline in Canada.
"Where it looks like things are down, that's the best time to get in," he said.
Things are definitely down.
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In February, Air Canada's outgoing president and CEO Calin Rovinescu called 2020 the "bleakest year in the history of commercial aviation." The airline lost $1.16 billion in the fourth quarter of 2020.
But as restrictions begin to lift and the prospect of more normal times beckons, the airline industry stands to gain. For more than a year now, people have been cooped up inside.
Millions lost their jobs when the pandemic hit. But millions more simply shifted to working from home. They saved money by not travelling, not eating out and not commuting. CIBC says households have saved a staggering $100 billion.
Now Canadians are starting to plan for life on the other side of the crisis.
Economist Amit Damadoran, who works with the online travel site Hopper, says U.S. travel agents are already seeing a major uptick in bookings.
"With the vaccine rollout, we've seen a lot of that pent-up demand start to translate into more bookings, both for late spring and summer," he said.
That's why entrepreneurs see an opportunity.
The Wall Street Journal, citing an aircraft leasing company called Avalon Holdings, says more than 90 airlines are launching this year.
'It's now or never'
There's Wizz Air in Abu Dhabi, Flyr in Norway, Flypop in the U.K and Ego airlines in Italy. They're all trying to nudge in on competitors and take advantage of the low cost of entry to the industry right now.
"It's now or never," said Ian Lee, an associate professor at Carleton University's Sprott School of Business.
He says new airlines have none of the baggage the legacy carriers have had to shoulder over the past year. None of the sunk costs, none of the lost billions. New carriers have been able to negotiate lucrative deals amid the crisis, he said.
"The slots are cheaper," he says referring to fees airports charge airlines to take off and land. "The planes are cheaper. The labour is cheaper."
Minhas says newer airlines are poised to take advantage. He also says travellers are ready to flock back onto planes. Canada Jetlines will soon offer flights to sun destinations with cheaper fares than legacy carriers, in part because they were able to strike those good deals.
"We were able to get airplanes at one heck of a price," he said.
Consumers pining for experiences
Minhas says plane manufacturers found it harder to sell aircraft this past year simply because most airlines had too many planes and not enough spots to park them.
But getting the equipment and the permits right is only part of the picture. The real question revolves around demand. Just how quickly are consumers going to flock back onto crowded airplanes?
The past year has been incredibly cautious. How long will it take for that caution to recede?
Lee says he kept reading experts claiming everything was going to change.
"I have rejected that theory from the beginning," he said.
Lee says there's always been a stark divide between the stuff we buy and the things we do. This past year has made that divide even more clear. Sure, consumers could buy endless amounts of things online. But what they've missed more than anything are experiences.
No one knows when travel will boom again
So, as the pandemic restrictions pull back, Lee predicts consumers will flood back to services that provide experiences. And he says tourism will be one of the biggest beneficiaries
"There's going to be an explosion in air travel," says Lee.
But like everything else in the economy right now, there are more questions than answers. It seems all the crystal balls broke during the last crisis. The fact is, no one knows how and when travel will start booming again. The International Air Transport Association doesn't expect things to fully normalize until 2024.
The airline industry is one of the most intensely competitive in the world. New entrants have an incredibly low success rate in Canada, as giants like Air Canada have devoured competitors one by one.
But each of these upstarts believe this time will be different. And that starts with COVID cases coming under control.
"We're starting to see that recovery," says Minhas. "It's going to happen. We just need to hold on and have a little bit more patience to get there."
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