General aviation

Sunday reader: Flair hits the reset button

A Flair Airlines Boeing 737-400, in its original livery, lands at Vancouver International Airport, March 2, 2019 (photo: Brett Ballah).

It’s been almost a year since David Tait was brought in as the Executive Chairman of Canada’s Flair Airlines, amidst much fanfare. The airline was in the midst of a revolution, passing from a charter airline into the world of scheduled service, and straight into the crosshairs of some of Canada’s most established and recognizable brands. Bringing in a self-described maverick seemed like the next logical step.

“I’m the David in the David and Goliath story, let’s put it that way,” said Tait in a wide-ranging interview with Western Aviation News.

But this particular David is no young upstart. He brings with him a wealth of experience, having helped launch, and for 20 years build, Virgin Atlantic, as well as a two-year stint at Air Canada as the Senior Vice President of Customer Service. He is affable, knowledgeable, and keen to discuss both the aviation industry as a whole, and the peculiarities of transitioning from life as a charter airline to the perilous world of scheduled service.

“We’re sort of moving out of the old Flair into the new.”

It’s been anything but a smooth transition, with Flair facing everything from possible strike action to over reaches that led to humiliating retreats and public backlash.

“As I learned from [Virgin founder Sir Richard] Branson, one of his favourite sayings was ‘If you have to make mistakes, then make them quickly.’ And that’s what I think we did.”

A Flair Airlines Boeing 737-400 lands at Vancouver International Airport March 2, 2019 (photo: Brett Ballah).

Among existing airlines, Flair is unique, in that it is headquartered in Edmonton – a move designed to tap a young and growing labour pool. It’s the first airline to emerge from the Alberta capital since another charter-turned-scheduled carrier Wardair tried to take on two established carriers who dominated the market – at the time Air Canada and Canadian Pacific/Canadian Airlines International. Like Wardair, Flair has just seven aircraft wth plans to grow, like Wardair, Flair boasts of its independence, and like Wardair, Flair has national and international ambitions to deliver a unique product. And like Wardair, flair sees itself as a pioneer, offering value to budget conscious travellers.

“What we’re working on creating an airline that where possible has got the most competitive prices out there, we won’t always have the lowest fare. We’re also in the business of making money, so we don’t necessarily always want to have the lowest fare. But what we want to create here is an airline that people like. ‘Remember that?’

But there, the similarities end. While Wardair once advertised that its economy class was equivalent to business class on “the other guys,” Flair is the great unbundler.

Flair’s business is centred around a low-cost model. Basically, the ethos is, if you want it, pay for it. Want a coffee? Pay for it. Want to check a bag? Pay for it. Want to carry a bag on? You’ll pay for that too. Tait makes no apologies, arguing passengers should be in control of their on board experience.

It makes business sense too. In the airline business, a plane on the ground is a waste of money. So the quicker you can get a plane offloaded, cleaned, and passengers back on board, the better.

“One of the things there that I take great delight is when people say ‘that’s terrible, you guys charge for carry on baggage.’ Well, yeah, but we do that for a very deliberate reason. It’s not to make money. By charging more to carry it on than to check it, we’ve created an incentive to check it. Whereas the other guys, by charging to check it but not carry it on have created an incentive to carry everything you can possibly take on board on with you.

“Our boarding and deplaning is a thing of beauty compared to everyone else because we have about 20% of our passengers taking a wheelie on board, and 80% check it.

“It’s become pretty much ubiquitous that pre-boarding announcement of ‘ladies and gentlemen we have full flight today so we’re looking for volunteers to check a bag and it’ll be free. In other words, they’re cheating the system by getting it to the gate, and if they get it on board, they have to find the overhead space, and boarding is delayed. I was on the back of an Air Canada 321 the other week, and it took me 25 minutes to get off just ‘cause everyone was struggling to get stuff out of the overhead.”

A flight attendant shows off Flair’s new uniform on board a Flair 737-800 aircraft (supplied).

It’s not that Flair’s business idea is new or unique. In Canada, Tait says Westjet used occupy the budget-conscious air travel niche, but has been moving away from it, onto the global market. That has opened up the lower end of the market for Flair, and the long-delayed Canada Jetlines, which has announced a December 2019 start date.

“I’ve always been intrigued that this country doesn’t have the carrier that Westjet proved when it started service that the country embracingly needs. Westjet proved that beyond all credible doubt, and has since proceeded to, sort of, turn its back on the market that it created. I’ve never seen anything like it.”

Tait says Flair would probably have stuck to the charter airline business if the market hadn’t opened up for them. And that is a direct result of decisions made by the competition, namely Westjet, which was, at the beginning, modelled along the lines of Southwest Airlines in the United States.

“Southwest is no longer particularly cheap, but they have loyal passengers who get a good deal and who understand what they’re getting, and Westjet had that going for them.

“They’re morphing into another Air Canada, which is what they were fighting against in the first place. I firmly believe that if it were not for Flair, there probably wouldn’t be a Swoop, but then again, why isn’t Westjet serving this market in one way or another? They haven’t even got the base fare that other people have.”

The competition, it seems, is often on Flair management’s radar, guiding not just decisions about where the market is underserved, but also right down to what cities Flair chooses to serve.

While Flair originally funnelled its passengers through a hub in Edmonton, its strategy has evolved over the past year to incorporate more point-to-point flights.

“We got out of Hamilton and went to Toronto because Swoop can’t really go into Toronto. We went into Calgary, Swoop can’t go into Calgary. I say can’t, but Swoop has stated quite clearly they won’t.”

That’s not to say Flair is abandoning Edmonton, it spent the past year moving its operations to the city from Kelowna, British Columbia. Flair’s head office occupies three floors in an old control tower office building at the International airport, and Tait says the company is actively investigating ways to integrate itself into the community.

“Edmontonians, most of whom are flying us for the first time, say ‘gee I wish I’d tried you guys earlier because this is great.’ So I do think there’s a degree of pride in having an airline that has chosen to be here.

“It’s a great central point to operate from. Winnipeg is the closest, New Leaf was based out of Winnipeg, but we felt Edmonton was the place that we wanted to be, and the airport wanted us here, that really helps.”

One of the main challenges in running a low-cost airline is the need to keep costs down. Tait says the key is simplicity – operating only one type of aircraft, with standard options on board. But when Flair made the transition to scheduled service, it brought with it legacies with its from its days as a charter airline. For instance, charter airlines don’t need crew resource management operations, scheduled airlines do. And Flair was hampered by union contracts negotiated while it was still a charter operator.

That led, inevitably, to conflict. Most notably, just before Christmas the Canadian Union of Public Employees, the union representing Flair flight attendants, served strike notice, unhappy with demands to lower the starting wages for new cabin crew.

“Because of our charter heritage, we were paying way over the odds for flight attendants. Because flight attendants in a charter environment don’t get the fixed guaranteed hours a month, so you pay a little bit more to get good people who will work fewer hours in a month.

“We were paying quite a bit over the odds compared to Rouge and Swoop, even Air Canada for that matter. So we had to do something about that.”

A solution did emerge. While neither side is offering specifics, CUPE members ratified a 10-year deal with Flair, an almost unheard-of duration for a collective agreement.

At the same time, a new level of professionalism is coming to Flair’s head office. The company recently hired a new flight attendant manager, whose mandate is to improve the passenger experience in the air, all while keeping an eye on the bottom line.

It has also had to improve its corporate systems. For example, as a charter airline, Flair did not have to maintain a crew resource management system to keep everything operating. And Tait says in the early days, if one person went home sick, the whole department shut down. That can’t happen when there’s a schedule to maintain.

The next challenge is to get people to try Flair, not an easy thing to do when people don’t know you exist, and the advertising budget is almost non-existent.

“We don’t have mass advertising budgets or promotional budgets so we have to do it organically, we rely very much on social media and so forth. It hurts you if you have bad social media, and we’ve gone through periods when we did cancellations and stuff where you don’t get rave reviews, but from a health of the company standpoint, sometimes you have to make those decisions.”

And Flair got more than its share of bad press, when it decided to suddenly pull out United States markets, leaving passengers stranded, most of whom vowed never to return.

Frustrated passengers took to social media to complain about having their holiday plans ruined. Several told Western Aviation News they were forced to spend thousands to salvage their vacations, and have not seen any compensation for those extra costs.

Tait points to an article published by a professor at the University of Toronto, arguing, “Had Wow behaved the same they might have come out a little bit better.”

Chastened, Flair is vowing to return to the U.S., but on a much less ambitious scale. The challenge, then, is to get people to try the service.

“It’s not easy, but if you put a good product out there, that gets better; we’ve flown a million people in the past year, 99% of whom were flying us for the first time and 99% of those had a good experience, so it’s kind of an organic build at this stage.”

Tait when they do try Flair, passengers are pleasantly surprised.

“My vision for Flair in Canada, is that Canada needs a hybrid, high quality, high service, competitively priced airline. Which is what Westjet was in the beginning. I don’t really believe Canadians are ready for or will accept the kind of Ryanair or Spirit ‘screw it if they don’t like us they can bugger off and someone else will buy the seat’ approach to business.

“When you can have people get away from the devil that they know and see that hey, these low-cost people aren’t necessarily a bunch of brigands who are just out to rip you off.”

Flair’s first Boeing 737-800NG with new livery (photo: Flair Airlines).

When asked to project the airline a year out, Tait focuses on the fleet, seemingly confident other aspects of the airline’s operations are coming together as they should. Flair’s aircraft are old, fuel-guzzling Boeing 737-400s, painted in a rather bleak brown and gold livery. They have limited range, and a relatively small capacity.

“We need to get the fleet updated, not just from a cost perspective but also a passenger perspective. Once upon a time, charter airlines used to get away with flying crappy old airplanes. That’s no longer the case, from either a customer expectation standpoint or an operational cost standpoint.

“Within the next couple of months, we’ll have introduced a couple of -800s, fairly new ones, which saves us about 20% on fuel burn over the -400s. So by this time next year, we should probably be all NG, maybe a couple of remaining -400s, but we should have migrated out of it by then hopefully.”

The challenge is getting the right aircraft for a decent price. That’s become more difficult recently with the grounding of the newest Boeing 737, the Max, around the world after a pair of deadly crashes less than five months apart.

“The Max situation has kind of muddied that market up a little bit because there were a lot of people who were going to be getting rid of their 800s when they took delivery of the Maxs who are not now taking delivery of their Max. There’s other people who have Maxs who can’t fly them who are looking for short-term leases on 800s, so it’s kind of confused what was a fairly straightforward market.”

That confusion is leading to higher hosts.

“Due to the 737 Max situation, we are hearing that 737-800 lease rates are being bid up by 10-15% at the moment,” said David Andrews, Managing Partner – Transport at Hudson Structured Capital Management recently told a conference organized by Air Finance Journal.

“It’s been a case of every silver lining has a cloud and every cloud has a silver lining,” says Tait. “Particularly in the early days of the Max grounding, we were filling every seat. Out of Edmonton, for instance, we were bracketed. We have a five o’clock in the evening departure for Toronto which had an Air Canada Max departure an hour before, and another one an hour after, so we had people beating down our doors to get on our airplanes. So it helped our yield and helped our load factors for a while there.”

Flair is a private company, so it doesn’t report its key indicators the way its key competitors do. (UPDATE May 13, 2019: Onex to buy Westjet, take company private.) Factors such as passenger loads, available seat miles and cost per available seat mile can only be inferred, based on the schedules the airline is offering. That means, from the outside, it’s difficult to get a precise picture of how the airline is doing.

Last month, Flair took on an American investor when 777 Partners bought a 25% stake in the airline. Though no terms were disclosed, Flair President Jim Scott said in announcing the news “The financial strength of 777 Partners ensures that Flair is in a stronger position to compete and continue on our strong trajectory for domestic growth while meeting the clear demand for ULCC airline options in Canada.”

“There’s a good buzz around here,” says Tait. “Our costs are across-the-board down, our ancillary sales are running ahead of what we’ve budgeted at this point, so it’s all pointed in the right direction.”

More importantly, Tait believes his airline is helping re-write aviation history in Canada.

“I think we’re going through a generational change. I have a 21-year-old, an 18-year-old and a 16-year-old, boys, and they’re growing up in an industry where paying for checked bags and paying for buy on board… I prefer to call it the à-la-carte model, rather than the ultra low-cost model. The analogy I love to make is imagine if every restaurant in town only had a prix-fixe menu, so that’s $50 and if you don’t want the soup, you don’t want the dessert, you don’t want the coffee, you just want they entree, that’s ok, but you still have to pay $50. Well that is the legacy airline model.

“People who are used to the old model don’t get that quite yet.”