RE:New article in the Globe and Mail ublished July 25, 2019
After years of struggling to launch its low-cost service, Canada Jetlines Ltd. set a new deadline earlier this year to launch in December. But five months ahead of that target date, the airline is still grappling with several barriers.
Since its inception in 2013, Jetlines has repeatedly delayed its initial flights as it tries to raise money, lock down flight routes and airport slots and secure its airline licence. Jetlines chairman Mark Morabito said Canada’s concentrated airline industry, dominated by Air Canada and WestJet Airlines Inc., has made it hard for new competitors such as Jetlines to offer cheap airfare options.
Other low-cost upstarts struggling to gain market share include Flair Airlines Ltd., currently locked in a competition dispute with WestJet after a year as a scheduled carrier, and Enerjet, a former oil-patch charter airline, that is planning to launch in December after years of trying to transform itself into a discount airline, previously branded as Jet Naked and FlyToo.
Jetlines’ first launch date was set for the summer of 2014 with two planes flying out of Vancouver International Airport, to expand to 16 planes by early 2017. Jetlines continued moving around dates and adjusting flight routes until it went public in March, 2017, listing on the TSX Venture Exchange as a result of reverse merger.
Even after a leadership change and funding boost, Jetlines still found itself in a holding pattern. The company said it would launch in June, 2018, but it delayed again, citing aircraft lease negotiations. More than a year later, the airline announced it has scheduled a new launch date for Dec. 17 with Vancouver International Airport as home base using two leased Airbus A320s – which Jetlines says is still the plan. The fleet, it said, will grow to 23 aircraft by 2024.
However, the airline cannot start selling seats until it receives its licence from the Canadian Transportation Agency, which requires the company to show that it has the cash to manage and operate a passenger airline. With the approaching deadline, Jetlines is running out of time. It has raised about $34-million to date, but needs an additional $40-million before launch, Mr. Morabito said, adding that investors are wary of investing in Canadian low-cost airlines in a market dominated by two major carriers.
The largest investments that Jetlines has attracted this year came from InHarv Partners Ltd., a venture capital and private equity fund based in South Korea that provided $7-million, and Latvia-based SmartLynx Airlines SIA, which put up $7.5-million. Jetlines is also leasing its initial two A320s from SmartLynx.
Mr. Morabito said WestJet’s expansion into the low-cost airline market through its Swoop carrier is impeding his company from attracting investment. In a report sent to the Competition Bureau earlier this year, Jetlines alleges that WestJet purposely targeted Jetlines’ proposed markets to stifle competition.
“Investors are concerned that the dominant players in Canada will be able to engage in what is technically illegal predatory conduct,” Mr. Morabito said. “And that’s a concern because it means that no matter how much money you raise, they’ll just use their balance sheet to run you out of business.”
With Swoop and Air Canada’s Rouge offering discounted airfares as others try to enter the industry, Toronto-based aviation consultant Rob Rennert said the tight market makes it difficult for new players – but that Jetlines has come up against its own headwinds as well.
“I think Jetlines has its own issues in terms of getting its funding in place, but it’s also important to consider that they’re one of the first low-cost carriers that wants to make a mark on the Canadian marketplace,” Mr. Rennert said.
The Competition Bureau launched an inquiry in December to investigate Edmonton-based Flair Airlines’ allegations that WestJet, through its Swoop brand, was offering seats on targeted routes at prices to pressure competitors out of the market.
Jetlines hired Boston-based economic consulting firm Analysis Group to study Swoop’s pricing practices as part of Jetlines’ participation in the Competition Bureau’s inquiry. The Analysis Group report refers to past media coverage and aviation research and alleges that WestJet “acted in a way that is likely to have both substantially prevented and lessened competition.”
WestJet declined a request to comment.
Predatory behaviour is difficult to prove. The passenger and airline traffic data used to evaluate cases such as Flair’s in the United States are not widely available in Canada, leaving companies to rely on anecdotal evidence on flight patterns to make their case, Mr. Rennert said.