New regional carrier Connect Airlines has a memorandum of understanding with a major U.S. airline for a commercial partnership that, upon Connect closing its next round of fundraising, could turn into a significant equity investment.
The name of the “major U.S. airline” was not disclosed in a letter sent by the legal counsel for charter operator Waltzing Matilda Aviation, which owns Connect, to the Department of Transportation on August 4. But prior filings with the regulator for the airline’s certification have named American Airlines as Connect’s commercial partner once it begins revenue flights between Toronto’s downtown-adjacent Billy Bishop Airport and American’s Chicago and Philadelphia hubs. The potential investment was first reported by PaxEx.Aero.
Waltzing Matilda CEO John Thomas declined to name the potential major U.S. airline investor, and noted that “it is not necessarily as previously filed as that was noted simply as an interline agreement.”
An American spokesperson did not respond to an inquiry on the potential investment. The airline is the only major U.S. carrier without a partner on Canadian routes; Delta Air Lines codeshares with WestJet, and United Airlines has a joint venture with Air Canada.
Connect cannot finalize a commercial agreement with American — or any other major U.S. airline for that matter — until it is fully certified to begin operations. That process is partially complete with the DOT having certified it to operate interstate scheduled air transportation in July 2022; Connect is still awaiting its air operators certificate from the U.S. Federal Aviation Administration. It had hoped to begin revenue flights as early as 2021.
That delay with FAA certification has forced Connect to seek an extension to its startup deadline with the DOT to December 31 from October 5.
Connect has raised at least $2.6 million in capital from investors, including Par Capital that has investments in travel companies ranging Expedia to SkyWest Airlines and Southwest Airlines, and Atlas Air Chairman — and former CEO — William Flynn. The airline plans to raise another $40 million in Series B funding with the help of Raymond James during its first year of operations; the airline partner would invest in Connect as part of the Series B fundraising.
Connect is one of a number of startup airlines that is trying to take to U.S. skies since the pandemic. Avelo Airlines, led by former Allegiant Air and United Airlines executive Andrew Levy, and Breeze Airways, the latest airline from JetBlue Airways founder David Neeleman, began flights in 2021 and have steadily expanded ever since. Others, like a reboot of ExpressJet Airlines as Aha!, have been less successful and shut down shortly after their launch.
Crises are traditionally a good time to start an airline. Existing players tend to be in defensive mode, shedding staff, aircraft, and airport space in an effort to cut losses and keep flying. That creates opportunity for new entrants to start up cheaply, and gain access to otherwise hard-to-enter markets.
However, the federal aid U.S. airlines received during the Covid pandemic allowed them to retain much of their workforce and avoid many of the service cuts they otherwise would have made. This kept many barriers to entry in place for startups.
Connect does not seek to disrupt the competition in, say, New York or Los Angeles. Instead, it aims to better connect Toronto Billy Bishop to the U.S. airline network via a partnership with, as mentioned, American. Porter Airlines, the incumbent at Billy Bishop, serves four U.S. cities — Boston, Chicago Midway, Newark, and Washington Dulles — but lacks deep partnerships for travelers to connect beyond those gateways.
And Billy Bishop itself is unique. Situated on an island in Lake Ontario across from downtown Toronto, it is restricted to only turboprop aircraft, like the De Havilland Dash 8-Q400 that Porter flies and Connect plans to fly. No feeder airline for a major U.S. carrier operates turboprops.
“Our view is how do we give people in Toronto more than just a flight to Chicago — or some point in the U.S. — how do we make this a one-stop connection into a massive network,” Thomas said in 2021. It gives us “a much stronger value proposition to people in Toronto.”
And, once Connect launches, it is working with Universal Hydrogen to become one of the first commercial airlines to fly hydrogen fuel cell-powered aircraft. The carrier aims to be the first “emission-free” airline in North America.
Equity investments in partner airlines are nothing new to American. The carrier owns its three largest regional affiliates — Envoy, Piedmont Airlines, and PSA Airlines — and holds stakes in Latin American partners JetSmart and Gol. It even has a small ownership share in China Southern Airlines.