Who the F*&@ is Connect Airlines?

Connect Airlines, Who the F*&@ Is

When it rains it pours. After years of no significant startups in the US, we now have a third entry in a very short time after Avelo and Breeze — or least, I’m told Breeze will actually, eventually, maybe, probably start. Connect Airlines has less cash and less flash, but if one thing goes right for the airline, it has a fighting chance. Today, let’s take a look under the hood now that the airline has filed its plans with the Department of Transportation.

The whole reason for Connect’s existence is to carry travelers from Toronto/City Airport to the US and beyond. But wait, doesn’t Porter already do that? Sort of. Porter DID do that before it shut down at the onset of the pandemic, but Porter was a mostly closed network. Its only significant airline partner was JetBlue. The other four — Azores, El Al, Icelandair, and Qatar — didn’t add up to much. And Porter focused primarily on Canada. Connect’s plan is different.

Instead of relying on local business travelers that are likely primarily Canadian, Connect is establishing itself as a US-based airline but one with Canadian crews so it can pay them less. Is that even legal? It definitely is if the airline is flying between the US and Canada, but there are other parts that confuse me.

Original “Central Connect Airlines, OK-CCC, Saab 340B” image by Anna Zvereva is licensed under CC BY-SA 2.0

Connect will take some old flybe Q400s for cheap — it has secured two and hopes to get 3 more early next year — and will fly them around on short-haul routes. Which routes? Well, Connect recently filed some additional docs with its initial plan.

The airline will stat with Toronto/City to Baltimore, Boston, Chicago/O’Hare, New York/JFK, and Philadelphia. It will also fly beyond Boston to Philly and Baltimore, which is where I get confused. As a US airline it can do this, but could it really fly it with Canadian crews? That seems unlikely, though admittedly I don’t know the actual law on this if it’s sold as a continuation of the flight from Canada.

If you’re wondering about why these cities were chosen, I think there’s a pretty clear answer. The key to all of Connect’s success is in this one sentence from the cover letter in its filing with DOT.

Furthermore, the applicant is in advance discussions with a U.S. major carrier for the provision of “CPA” flying utilizing the Applicant’s planned turboprop aircraft.

A CPA agreement is what nearly all regional flying in the US falls under. The major airline pays a fixed fee to the operator to fly the airplane under its own brand. Variable costs like fuel are usually passed through. If this is real, then it can’t be United which is in bed with Air Canada. Delta is unlikely thanks to its WestJet partnership. But American? Well, isn’t it convenient that these flights go to American hubs and focus cities (excluding Baltimore).

Connect also talks about codesharing with other airlines, and that’s nice but it’s not going to make the airline succeed like a CPA would with one airline. If Connect flies as American Eagle, then it’ll be just fine. If not, well, it’s going to have a really tough time.

The airline has a complex ownership structure. Its parent is Waltzing Matilda… I’m not kidding. That refers to the Australian song Waltzing Matilda, probably because founder CEO John Thomas is an Aussie. You might be wondering how an Aussie is allowed to start a US-based airline. Wonder no more. He has dual citizenship.

But Waltzing Matilda is a current charter operator that apparently grew out of the owner’s private jet. Must be nice. Waltzing Matilda will own 51 percent of a new company while investors will own the other 49 percent. That company will own the Connect Airlines brand, but Connect will then contract with Waltzing Matilda to operate the aircraft in the schedule. So I guess it would be American Eagle operated by Waltzing Matilda for Connect Airlines? Uh, yeah. That sounds like a great opportunity for transfer pricing shenanigans that I as a minority owner would not appreciate.

Anyway, they are only trying raise $10 million for this venture which is not enough for any kind of start-up… unless it has guaranteed profits built in with a CPA deal.

You can see how this kind of deal would be good for American. Toronto/City is very convenient to downtown and is a good business airport, but it can only accommodate turboprops. None of the big three have contracted for any turboprop flying for quite some time, so existing operators wouldn’t be looking to fly it. With American lacking a Canadian partner, this would be a good way to get in there, especially to compete with United and Air Canada.

If the CPA happens, then great. This has a real chance. If not? Well, then the airline is going to need a lot of luck to end up better than the swagman in the song.

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30 comments on “Who the F*&@ is Connect Airlines?

  1. Cranky,
    Two questions please:
    1. I love Porters service both on the ground and in the air. How will CA compare?
    2. How can any startup expect to take to the air with only a $10MM capital raise? And where did this cash come from?

    1. Angry Bob – 1) Beats me. You can read the filing which has their presentation but it doesn’t give much details on the experience.
      2) If you have a CPA, then you can be instantly profitable. You don’t need a lot of money. I don’t believe the investors have committed yet. But if you show me a CPA with a major airline, I’m probably happy to invest.

  2. Is Toronto City really so much more convenient than YYZ that people will pay a premium to fly on a turboprop (I love Q400s, but I know many others don’t) and save a little time? I don’t know the Toronto market, but it doesn’t look like YYZ is that far of a drive from downtown Toronto, especially compared to big airports in other major cities.

    Not sure if this is possible under the current rules, but I’d be a little less skeptical this were planned as a “shuttle” style service from LGA to Toronto City, with more than a few daily departures, as both NYC and Toronto are the financial capitals of their countries, or if the schedule were expressly designed to make daytrips possible (such as how Ultimate Air Shuttle planned some of its routes out of LUK for Cincy-based travellers). However, if a business traveller is going to have to allow plenty of time to get from downtown Manhattan to JFK anyway, I’m not sure that saving 30 or 60 minutes on the Toronto end of the trip will add that much value… Then again, I don’t bill hundreds of dollars an hour, or have a 6-figure annual expense account, so I may well be wrong.

    1. Toronto City is a LOT more convenient to downtown Toronto; in fact, one could make the argument that it’s within walking distance. YYZ, OTOH, is typical of a huge international airport that was built and designed long ago but which undergoes periodic facelifts: it’s subject to traffic delays, overcrowding, long lines, obnoxious delays at immigration, etc…..and the traffic to get there from downtown can be very heavy. If you’re from the Midwest, think of this as having a lakefront alternative to ORD if you’re going to Chicago (and Mayor Daley didn’t actually destroy Meigs Field in the middle of the night). Many business travelers like the option of taking a relatively short flight from a northeastern city (or Chicago), able to have a meeting in Toronto and then return home. For some, such an option would be very convenient.

      Of course, Porter added the perk of treating everyone as if they’re flying business class with upgraded service and many little perks in the waiting area at Toronto City Airport. I suspect that this airline will be more like your typical regional. Then again, I’m not hearing much about Porter coming back and that’s a shame.

    2. Can’t serve La Guardia (or DCA) without pre-clearance, which YTZ doesn’t have. Pre-pandemic, Porter served EWR and IAD.

      1. Good point. Plus AA flies a couple daily RJs to YYZ from DCA. At least they used to. But yeah, it’s too bad DCA wouldn’t work because it would be perfect for downtown to downtown service.

        If I have to hike up to BWI for a long weekend, this becomes much less compelling. I’d probably just take the easy way outbound from DCA and go into YYZ like everybody else.

  3. I don’t know, but something just seems off about this entire enterprise. I mean only $10-million of liquidity for an airline from the outset? It’s a total headscratcher. Perhaps someone else could explain things a little more so I could understand what it is I’m looking at here.

    Perhaps I just need some coffee this morning. Haha

  4. The gap between YYZ and YTZ for convenience has shrunk with the UP Train (Union Station – Pearson) which leaves every ~15 minutes and goes to Terminal 1. Takes about 20/25 minutes. So when I land in YYZ and head to my office in downtown, from landing, to the train, to the subway (3 stops later) about an hour. If I land at YTZ, can probably be by car 20 minutes to my office, or 40 if I take the shuttle to Union and subway. Car from Pearson to my office would probably be 60-75 minutes by the time you fight through freeway and city traffic.

    Landing at YTZ, especially on a cross-border flight will be more convenient just with the lower volume of passengers in front of you at customs and immigration. So for a daytrip YTZ would probably save 2 hours between lines and traffic

    Coming from Halifax, I would be happy to take Porter more, but it loses out with the stop in YUL/YOW, and their first flight of the day is bit to late in the morning for me to get the start in Toronto I want…

    Sigh, I am actually missing business travel right now!!!

  5. I have to go to Toronto for a work about once a quarter and was pleasantly surprised to see that BWI is a destination. Let’s see if this enterprise gets off the ground though….

  6. Cranky, I didn’t see a start-up date in your post. Do you know what it is?
    And, isn’t the Canadian border still closed to American citizens?
    I wonder how much Canadian traffic they anticipate hauling to the US and back….

    1. Good point – just read that Canada is WAY behind the US in vaccinations and is dealing with another outbreak. They are talking about new lockdowns.

      1. Canada is in the midst of a big third wave which is big news here, but if you actually look at the per capita numbers, Canada at the peak of our third wave is pretty similar to the baseline numbers the US has considered “normal” for some time. That just shows how much better Canada has done overall than the US.

        Canada is about six weeks behind the US in getting everyone one dose. However, because most provinces have gone with 12-16 week delays between first and second doses, we’ll get at least one dose into half the population within the next few weeks despite having had far fewer doses available. (Canada has no domestic production capability because, under NAFTA, we’re supposed to have access to US vaccine manufacturing, but the US completely refused to export either vaccines or raw materials until finally reducing the AstraZeneca vaccine, which of course isn’t even authorized in the US. Canada has relied nearly entirely on European production because the EU is willing to honour purchase agreements and export.) The expectation is that everyone who wants one will have a first dose by Canada Day (July 1), and I think we’re on track to beat that by at least a few weeks. Of course, that means it will be quite a long time before most Canadians are “fully” vaccinated, but one dose should be enough to dramatically reduce transmission and death rates; with most of the elderly and care home population having at least one dose more than a month ago, death rates have stayed quite low through the third wave. Ontario does have new lockdowns, and here in BC non-essential travel *within* the province is prohibited, let alone travel outside the province or to the US.

        Because of all this, it’s likely to be several months before Canada reopens the border. (Politically, opening the border is a non-starter and has been for some time because the US managed everything except selfish vaccination so much worse than Canada.) I doubt there will be much of an advanced announcement, but the speculation is that it will probably be late summer or early fall before Canada relaxes border restrictions and quarantine requirements. I hope that is an overly pessimistic view.

        Travel to Canada (appropriately) requires a 14-day quarantine (regardless of vaccination status); air (but not ground) travellers must spend the first three days of that quarantine in a designated hotel. Only four airports in the country (YYZ, YUL, YYC, YVR) are accepting *any* international arrivals, so YTZ service definitely isn’t starting until that changes. Of course, even if YTZ were open, its convenience is pretty meaningless when you have a 14 day quarantine on arrival.

        1. Thanks for that insight. One question, why is a 14 day quarantine appropriate for vaccinated pxs?

          1. I meant to say that 14 day quarantine is appropriate in general, and separately that Canada does not change the rules for vaccinated people.

            There are a few quibbles with that policy. A ten day quarantine, especially coupled with a negative test on day 7-10, is probably five medically. However, the policy is primarily about the science, ensuring that travelers don’t bring new cases into the country, but secondarily about discouraging non-essential travel, which isn’t allowed anyway but can’t always be enforced. Personally, I take “willing to quarantine for 14 days” as pretty good evidence that travel is “essential“, with the side benefit of quarantined travelers being low risk.

            Re vaccinated travelers: it’s a lot less clear that there’s a scientific justification there, although vaccinated people can still get infected and transmit the disease at a much-reduced probability. To me, the main reason not to change the rules for now is sociological: vaccines aren’t yet widely available, so changing the rules for vaccinated people encourages queue-jumping by the young and healthy and people who can stay home, limiting supply for at-risk people and essential workers. Once the vaccine is widely available, I personally think changing the rules for vaccinated people (partly because they’re safer and partly as a prod to get vaccinated) becomes sensible; that’s when the US CDC started changing recommendations. Canada is getting close to that point if you consider one dose “vaccinated” (based on UK evidence, I largely do, but there haven’t been clinical trials specifically testing that for the three main vaccines that are in widespread use in Canada), but we’re not there yet. And politically, admitting vaccinated Americans while most Canadians aren’t vaccinated — in large part because our NAFTA partner kept vaccines for themselves — is rightly a non-starter.

            Meanwhile, my first dose is in a few hours; excited!

            1. With the news that the supply of vaccines here in the USA is beginning to exceed demand some of that excess supply should head north of the border to help our friends there and get our borders back open again. I live in Portland, OR and miss going up to Vancouver, BC.

    2. Greg – No clue. They have a long way to go to get certification. But there’s no doubt this won’t start until the border is open at the very earliest.

  7. What is the reason for all of the start ups? Cheap planes? Or have you written about this recently and I missed it?

    Still seems like a terrible business to be in unless people are finding funding (money laundering?), then paying themselves a good salary and don’t really care whether it succeeds or fails.

    Doesn’t really add up.

    1. Rich – Well, downturns are always a good time to get in. Cheap and plentiful labor, less competition due to downsizing of networks… and this time there’s also cheap money out there. Of course, some of these have been in the works for years, so the timing is more coincidence.

    2. I think it’s a combination of all of the above. Plus there is a deep talent pool of experience try and do stay in/get back in the industry. Then throw in some airport administrative authorities that are terrified of severely reduced (or terminated) air service as the 50 seaters are drawn down.

      This whole thing is bizarre. Plus when did Canadian labour become “cheap”? If they think they can get away with half of the cr@p non-unionized workers in the US deal with up in Canada they’re in for rude awakening.

    1. Jordan – The filing talks about how that’s been in progress and should be up next year. But then again, there’s been talk about preclearance for a long time, and it’s entirely unclear that there’s a definite timeline.

  8. They sound dodgy. I don’t like that they wish to get cheap labor from Canadia while being a US carrier. Is the Avatar guy involved in this? LOL

      1. At this point, I don’t think any of us would be surprised if Avatar proposed using rocket-assisted landing braking (“RALB”?) and RATO (rocket-assisted takeoffs) to enable it to land and takeoff at Toronto City, but it’s probably best not to give them any ideas. :-)

  9. This sounds good in terms of direct flights. I mean if they are bringing new and more convenient options to the air passengers then it not only won’t harm the industry at all, but will make it more competitive.

  10. Do cabotage laws care at all about the nationality of the crew? I think that, for example, AA union contracts allow Chilean crews to serve SCL-US flights but not domestic US flights, but that’s a union contract, not the law. Crew serving domestic flights may well have to have work visas, though; no idea how that works.

    And is Canadian labour really cheaper? I guess the employer doesn’t have to pay for health insurance. Depends on the exchange rate in part.

  11. They’ve been shut down twice now due serious safety issues. The CEO, John Thomas, was terminated within a year by Virgin Australia. This company is poorly run and unsafe.

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