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Airline Management, Airline Mergers & Acquisitions, Airline Restructuring, Canadian Operators, Low Cost Airlines, Other Aviation Issues

SUMMARY: Canada’s charter airlines struggle, CanJet Airlines (owned by IMP) future in serious doubt while Air Transat limps along in its recovery, but Air Canada’s Rouge is growing and on its heels. Meanwhile the 3 ultra low cost airline candidates struggle to raise money, with Jet Naked (Enerjet) lost its 3 star ULCC (ultra low cost carrier) executives and now Enerjet is being sued by them for breach of contract. Meanwhile, NewLeaf Travel Co. Inc. ties up with Flair airlines to operate 2 x B737-400’s for it, IF and WHEN it raises sufficient start-up capital. Over in Vancouver, Canada Jetlines orders 5 and options another 16 Boeing B737Max7’s before it even has start-up financing in place ?? Interesting developments in this segment, and worth watching, as Canada needs a ultra low cost airline (ULCC) to offer low cost air travel to Canadians. Canada is the ONLY large country left without a LCC, and is controlled by a duopoly. Troubled CanJet Airlines has the potential to be a ULCC and save itself from doom, but right now it looks like no ULCC will start-up in Canada this year and CanJet will most likely be shut down, leaving NO low cost champion in Canada, and 34 million Canadians are prisoners to only 2 airlines domestically, a country that is only 2% smaller than all of Europe put together !

The first 4 months of 2015, have brought mixed results for some of Canada’s airlines.

In big trouble is one of Canada’s leisure and ad hoc charter airlines, Halifax based CanJet Airlines, owned by IMP Group International, a diversified conglomerate owned by the Rowe family, that now employs 4,500 employees in 6 Divisions in Aerospace & Defence, Aviation, CanJet, Health Care, IMP Solutions and IMP Customer Care.

* MORE ON CANADA’S LOW COST CARRIERS in my February 17, 2015 article.

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Canada’s CanJet has had several business models since 1999, the last one was a desperate move to go it alone after it was replaced at Air Transat by European ACMI B737-700/800 operators. Now, CanJet’s future is uncertain, only 1 x B737-800 operational other 5 are grounded, but there is hope, it can be revised as a ULCC (ultra low cost carrier), either by its owner IMP Group or let others like Indigo Partners or Irelandia Aviation do what they do best, start and manage successful ULCC airlines, the most successful airline business model today (eg. Ryanair, Air Asia, Spirit Airlines, Vueling, etc.).

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The Group was founded in 2007 by Mr. Kenneth C. Rowe as Industrial Maritime Products, and has been growing since, especially in Aerospace, having bought Cascade Aerospace (Abbotsford, B.C.) in 2012, and it owns Innotech-Execaire Canada’s largest business jet operator and MRO with 53+ aircraft in 11 Canadian bases.

Last month CanJet laid off 47 pilots and 68 flight attendants, and grounded 5 of its 6 B737-800’s when it eliminated its planned European operations, which in 2013 entailed 2 x B737-800’s flying for LOT Polish Airlines, but due to a much weaker Euro this year, such operation might have been too expensive for LOT.

Established in 1999, CanJet Airlines has never really moved forward, launched as a division of IMP group and merged with Canada 3000 in 2001 before Canada 3000 went bankrupt. Then relaunched in 2002 the airline operated 9 x B737-500’s as a LCC, serving 15 destinations in Canada and the US, but by 2004 it moved to Hamilton to compete better and away from Air Canada and WestJet. By September 2006 all scheduled services were cancelled as its LCC model was ill-conceived and poorly executed.

Since then it has flown charters for Sunquest but now that is all flown by Sunwing Airlines, which its self has grown since 2006 to 36 x B737-800’s and still bring in capacity from European airlines like Travel Service (Czech Republic), JetairFly (Belgium), Thompson Airways (UK) and others.

The current problem is that CanJet Airlines has been flying for Air Transat since 2009 under a 5 year partnership, which ended last year, and CanJet really had no business plan to go it alone. It started its own CanJet Vacations, but sales were not as good as was hoped, the market is very crowded and competition is tough with razor sharp tight margins for profit.

Air Transat internalized its own B737-800’s with a lease from ILFC in 213 for 4 aircraft, and that was the signal for CanJet Airlines that it had to change its business model fast ! and with a weak brand and a small market position, it has NOT been able to stay profitable on its own. Meanwhile Air Transat has leased in 12 narrowbody aircraft for last winter (10 x B737-800’s and 2 x B737700’s) all from Europe.

I do not see a future for CanJet Airlines, other than it being bought or merged with someone, like one of the new ULCC being planned (Jet Naked, Canada Jetlines or NewLeaf Travel)) or Flair Airlines, we shall see, but I do not expect the CanJet brand to survive into 2016.

The Canadian charter and schedule airline industry is littered with airlines that have gone bust, the early years (1970’s to early 1990’s) saw airlines survive for some time, like:

Canada 3000 (1988-2001) 13 years, some as Canada 2000

Nationair (1986-1993) 7 years

Worldways Canada (1973-1991) 18 years

Skyservice (1986-2010) 14 years

Wardair (1952-1990) 38 years)

But those that followed, did not survive very long, seems that a sustainable business model is missing in the Canadian airline industry, time for a fresh perspective on the business and time for new executives with global experience, Canada has not used seasoned ex-pat airline executives very well till now, preferring the same people over and over, yet you need new ideas, the industry is changing everywhere but in Canada.

Look at what First Air’s CEO/President Dr. Brock Friesen is doing at his airline, making positive changes, and you know where they found him ? Starbow Airlines in Ghana ! yup, straight from Africa by way of Air Malta and others, but he has new ideas, fresh perspectives on how to run and change airlines, which I have fail to see in most home bound Canadian airline executives who have NO idea of what is happening in this industry outside of North America, new business models, new trends, new ways to brand to communicate and deliver profitable service.

Canadian airlines that had a short life are:

 Zoom Airlines (2002-2008) 6 years

Harmony Airways (2002-2007) 5 years

Holidair (1998-1999) 1 year

Roots Air (2000-2001) <1 year

Greyhound (1996-1997) 1 year

VistaJet (1997-1997) <1 year

JetsGo (2001-2005) 4 years

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Can1-GTSF-Air-Transat-Airbus-A310-300_PlanespottersNet_276058

Air Transat (Transat A.T.) is struggling to restructure, step by step, it dropped its relationship with CanJet Airlines to operate its own B737-800’s in 2014, and operates another 21 A330/310’s with the A310 (PHOTO ABOVE) to be replaced by A330’s in the near future. It’s stock is down 18% from a year ago, as net profit margin is only 0.69% and Rouge, Air Canada’s low cost airline is looking to operate 25 x B767-300’s that will be competing with Air Transat, and making things that much more difficult in the next 2-3 years.

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On top of CanJet troubles, Air Transat (Transat A.T.) itself has been struggling as well, but slowly getting better. Air Transat revenue was $C 3.752B in 2014 (up 2.9% on 2013), but the other 2014 metrics do not look good:

Net profit margin 0.69%, operating margin 1.02%, EBITDA 2.45%, return on assets 1.96%, ROE 4.95% and market capitalization of only $277m (only 7.3% of revenue).

Net loss for 1Q/2015 was $C 32.4m and the stock price (TSX: TRZ.A, TRZ.B) is showing the disappointment from the financial community today at $7.14, which is down -18.0% in the past 12 months, while WestJet is +12.4% on past 12 months and Air Canada is up 59.8% a great stock for sure in the past 12 months.

Air Transat this summer will be flying 26 aircraft (5 x B737-800’s and 21 x A330/310’s) as it strived to have a flexible fleet that requires 28 aircraft in the winter (14 x B737-700/800’s and 14 x A330/310’s), a dramatic shift in narrowbody and widebody aircraft each season.

The situation will get worst for Air Transat as Rouge, Air Canada’s low cost subsidiary adds more capacity to the market, presently it has 30 aircraft (20 x A319’s and 10 x B767-300ER’s) but plans to add 20 more aircraft (15 x B767-300ER’s and 5 x A321’s) which will compete with Air Transat, especially to the south in the winter and Europe in the summer. Rouge has 142 seats in its A319’s 12.6% more than the AC A319’s or 16 extra seats and it has 280 seats in its B767-300ER’s or 23.3% more than the AC B767-300ER’s or 53 extra seats, the major source of its competitiveness is extra seats, then to a lesser degree pay scales.

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can1-west

WestJet Airlines is NOT a low cost or low fare airline anymore, it’s yield is the same as Air Canada’s at around $0.19/RPM and Canadians have no choice but to use the duopoly when travelling in Canada, the biggest country in the world NOT to have a low cost airline, it is time the Canadian traveler had a choice other than Air Canada and WestJet, both showing big improvements in 1Q/2015, an easier feat when you have 83% of the market between 2 carriers. WestJet profit up 58% to $C 140.7m while Air Canada reported a adjusted net income of $C 122m from a net loss of $C 309m ?? must have real good accountants ?

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As for Canada’s planned LCC low cost carriers, the plans of Canada Jetlines and Jet Naked are still on, but new comer NewLeaf Travel Co. Inc. needs to raise $C 25m to start later this year, it has the first move advantage as it wants to use Flair Airlines AOC to operate the first 2 x B737-400’s. The airline is headed by CEO Jim Young, ex-CMO at Frontier Airlines and ex-President of Canada Jetline who defected to start this new venture on his own.

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Flair Airlines, operates 4 x B737-400’s and may soon operate 2 more for up-start ULCC NewLeaf Travel Co. Inc. of Kelowna, a Canadian version of Allegiant Airlines of the US, serve mid to small size cities with low frequencies with services to large tourist destinations like Las Vegas or VFR (visit friends and relatives) markets.

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His model for a ULCC (ultra low cost airline) is to fly budget travelers between mid-sized airports like Regina, Saskatoon, Thunder Bay, Moncton, Hamilton and Kelowna and in winter south to Las Vegas, Los Angeles, etc. The business model is based on what Allegiant Travel does in the US, seat only than all else is extra, and you can book hotel and car rentals. The whole business revolves around the price sensitive leisure market that has brought much growth to Allegiant and Spirit Airlines in the US market, the two BIG ULCC there.

The only issue for me is the piggy backing of the AOC, this does not work most of the time, and even Canada we say Greyhound Airlines start up using Kelowna Flightcraft’s AOC and Roots Air used Skyservice’s AOC, and both were short lived airline disasters, and I have seen it in Europe as well.

So, we now have 3 potential new ULCC startups in Canada, NewLeaf Travel can spool up quicker, but as of yet like the other 2 (Canada Jetline and Jet Naked) it does not have the money to start-yet.

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can1-enerjet

Enerjet, runs 3 x B737-700’s and was hoping to convert to Jet Naked, a new ULCC in Canada, but the departure of 3 star executives and the subsequent law suit means that it probably will NOT launch anytime soon.

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As for Jet Naked, it was the front runner as of last year, it had Tim Morgan at the helm, one of the co-founders of WestJet, and now CEO of his own charter airline Enerjet, operating 3 x B737-700’s on charters for the oil and travel industry. When he brought in ex-Spirit Airlines CFO David Lancelot last April, I knew what Mr. Morgan was up to, and it was a good move, hiring an experienced ULCC executive from one of the most successful ULCC in the world. Then came more former US airline executives, Mr. Curtis Berchtold (as CFO) and Cameron Trant as (Chief Commercial Officer and also ex-Spirit executive).

Jet Naked’s plan was to raise $50m and operate up to 25 B737’s within 3 years, using the Spirit Airlines model where ancillary sales (extras like baggage, food, drinks, seat selection, etc.) can be up to 40% of total revenue. But something has gone terribly wrong at Jet Naked.

One year later, the three star executives are gone and now suing Enerjet for breach of contract in a Florida court. The 3 left Enerjet on December 31st and January 19th claiming they were owed severance and other funds under their executive employment agreements. Now Mr. Morgan is tied-up in lawsuits and his star executives are gone and for the time being, it looks like Jet Naked is out of the running for the ULCC role in Canada, where there is room for only 1 airline.

The market potential is big in Canada for a ULCC carrier, I know my own sources that last year Indigo Partners (owner of ULCC carriers Frontier Airlines –USA, Volaris Airline-Mexico, WIZZ-Hungary and ex-owners of Spirit Airlines-USA and Tigerair-Singapore) was eyeing the Canadian market. The co-founder of Indigo is airline veteran William (Bill) Franke, who knows how to get value out of an airline, and if he was eyeing Canada, you know it is interesting.

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Spirit Airlines, the ULCC role model in North America, 26% pre-tax return on invested capital, 67 aircraft, 325 daily flights to 57 destinations, average ticket price $105.42 + average non-ticket revenue of $55.07 and 12.7 hours per day utilization with a CASM 9.7cents/ASM (adjusted), by comparison Delta Air Lines CASM is 59% higher.

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Canada has NO low cost airline, WestJet was, but is no longer a low fare airline or low cost airline, Canada is the only major country in the world without  ULCC services, and it is time.

We have the third suitor for this role, Canada Jetline, which is also seeking to raise $50m to start flying B737-300’s from Vancouver (YVR) and eventually Winnipeg and Hamilton. It has ordered 5 x B737-Max7’s and 16 options, and looking at the Spirit Airlines model with some travel ideas from Allegiant Travel. The airline has seasoned airline executives in CEO Jim Scott and President David Solloway and a business model that has shown to work around the world, with profit margins many times that of long established full service carriers (FSC), carriers like Ryanair, Spirit, AeroColombia, Volaris, Wizz, AirAsia, Vueling, Norwegian, etc. are making like very difficult for network carriers all around the world.

Time will tell who will be the first ULCC in Canada, but the need/want is there and a $50m investment is a small investment given the huge potential. From where I sit at this moment, the best and quickest option just may lay with CanJet Airlines. The airline has 6 x B737-800’s, ready to go and requires some investment to convert it into a ULCC, then it needs real seasoned professionals, people who know the low cost market, no Rowe family member, but professional airline executives that can EXECUTE the business plan.

CanJet was once a failed LCC, and yes it is a failed leisure airline, it has nowhere to go, either it is shutdown for good, or resurrected for a new beginning, IMP Group can turn this around with the right partner, either team up with Canada Jetline or bring in airline investors like Indigo Partners or Irelandia Aviation who know this ULCC market.

Always interesting, thank you for reading my blog once again

 

 

 

 

 

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About Aviation Doctor - Helping aviation companies to transform the present into a more profitable tomorrow

I am a Canadian and EU national with an MBA and 33+ years experience in aviation business development with 20 years overseas and work in 25+ countries. A former investment/merchant banker (mergers and acquisitions to corporate turnarounds). airline and OEM senior executive and past owner of 6 successful aviation companies in 3 countries (executive jet charter/management companies, aircraft sales, aircraft broker, airline/aerospace consulting to aircraft insurance). I have a very diverse aviation background with 75+ aviation companies (45+ airlines of all sizes, OEM's, airports, lessors, MRO to service providers) as consultant, executive management, business analyst and business development adviser. Excellent success track record in International Business Development. Most work with airlines is with new start-ups and restructuring of troubled carriers. I sold new business jets, turboprops and helicopters for Cessna, Raytheon, Gulfstream to Eurocopter as an ASR as well as undertaking sales and marketing of commercial aircraft for Boeing, de Havilland, Dornier, Saab and Beechcraft. Brokered everything from LET-410's to B747's and from piston PA31 to G550 business jets. I look beyond the headlines of the aviation news and analyze what the meaning and consequences of the new information really means. There is a story behind each headline that few go beyond. Picked the name Aviation Doctor, as much of my work has been with troubled companies or those that want and need to grow profitably. I fix problems be in the business, and help with restructuring for a better tomorrow. You can reach me with comments or suggestions at: Tomas.Aviation@gmail.com and I comment a lot on Google+, my Facebook and LinkedIN.

Discussion

3 thoughts on “SUMMARY: Canada’s charter airlines struggle, CanJet Airlines (owned by IMP) future in serious doubt while Air Transat limps along in its recovery, but Air Canada’s Rouge is growing and on its heels. Meanwhile the 3 ultra low cost airline candidates struggle to raise money, with Jet Naked (Enerjet) lost its 3 star ULCC (ultra low cost carrier) executives and now Enerjet is being sued by them for breach of contract. Meanwhile, NewLeaf Travel Co. Inc. ties up with Flair airlines to operate 2 x B737-400’s for it, IF and WHEN it raises sufficient start-up capital. Over in Vancouver, Canada Jetlines orders 5 and options another 16 Boeing B737Max7’s before it even has start-up financing in place ?? Interesting developments in this segment, and worth watching, as Canada needs a ultra low cost airline (ULCC) to offer low cost air travel to Canadians. Canada is the ONLY large country left without a LCC, and is controlled by a duopoly. Troubled CanJet Airlines has the potential to be a ULCC and save itself from doom, but right now it looks like no ULCC will start-up in Canada this year and CanJet will most likely be shut down, leaving NO low cost champion in Canada, and 34 million Canadians are prisoners to only 2 airlines domestically, a country that is only 2% smaller than all of Europe put together !

  1. If I was one of these “newcomers”, I would try as hard as I can to convince IMP Group into a partnership/deal to start a true low cost carrier. The “newcomers” could provide their business and management experience while CanJet provides its proven operational knowledge (safely fly the airplanes!) to establish a true low cost carrier.
    In my humble opinion, this is the only way for such “newcomers” to have a higher chance to survive in this market, at least the first 24 months of operation.

    Like

    Posted by YANNICK | May 22, 2015, 7:28 pm
  2. Absolutely Mark, it is why Canada Jetline is staying away from Calgary, Edmonton, Toronto, lower cost airports and away from AC and WJ. Government fails to see that airports and air travel are part of business development, just look south, all growing towns/cities have growing airports, thanks, Tomas.

    Like

    Posted by Aviation Doctor - Helping aviation companies to transform the present into a more profitable tomorrow | May 22, 2015, 4:49 pm
  3. the ULCC model cannot work in Canada due to the tax regime for plane tickets. Its as clear as day. Why anyone beats this dead horse is beyond me. ULCCs need to be able to fill their seats. They need to be able to cut ticket prices to prevent planes from flying empty. With a big fat tax on each ticket, it is impossible to do this. Perhaps the govt does it to protect Air Canada, I am not sure, but Canada’s primitive view of aviation as a luxury vs an economic platform just like Telecommunications is holding back this country. The govt needs to find a way to wean itself off the crack pipe of aviation taxes.

    Like

    Posted by mark from toronto | May 21, 2015, 4:59 pm
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