Canada Jetlines tweaks strategy in lead-up to launch

Airline executives to be based in Vancouver while operational centre to be in Ontario
Canada Jetlines CEO Stan Gadek said he would reveal his airline’s flight plan the week of September 11 | Chung Chow

Canada Jetlines is set to add clarity to its rapidly evolving business plan and operational strategy in advance of its September 12 board meeting in Vancouver.

The airline (TSX-Venture:JET), which has all of its executives based in Vancouver, plans to make a southern Ontario city what chairman Mark Morabito calls a “focus” city when Jetlines launches next June, but Morabito stressed that Vancouver will remain the company’s base.

“Vancouver is our corporate head office and it will stay that way,” he told Business in Vancouver.

Back in 2014, when Jetlines was in its infancy, its plan was to launch in the spring of 2015 with its main operational cities being Vancouver and Winnipeg.

Plenty of executive changes followed and the company last year vacated office space that it leased in the main terminal of Vancouver International Airport (YVR).

It still leases space at YVR’s south terminal but it is unclear if the airline will fly out of YVR when it launches operations.

“We’ll serve Vancouver,” said CEO Stan Gadek, who started in June.

“When I say Vancouver, I’m saying the market. We haven’t made a decision yet with respect to YVR or Abbotsford [International Airport (YXX)].”

Gadek told BIV in late August that the airline would announce during the week of September 11 whether it will fly out of YVR or YXX. At the same time, he expects the airline to reveal its entire initial route map.

One thing that has not changed is that Jetlines still plans to become an ultra-low-cost carrier (ULCC).

That kind of airline offers the absolute lowest fares possible and then dings customers for privileges often taken for granted, such as a fee for cabin baggage, a fee for using a credit card to book a flight or a fee to select a seat.

Gadek expects Jetlines to launch on June 1, 2018, with two leased 737-800 planes. Operations will then ramp up to 12 of those same planes within two years, he said.

The reason that Gadek plans to launch with a mere two planes is because Transport Canada has a financial stress test that it applies to all new airlines. Operators who launch airlines must have cash, or access to cash through lines of credit, equal to 90 days of operating expenses, assuming no revenue at all, he said.

So if the airline had more planes at the start, Transport Canada would require that it be more heavily capitalized.

Once Jetlines has met the threshold of flying for 90 days, Transport Canada’s capitalization restriction is removed.

As for staff, Gadek does not foresee any pilots or flight attendants being based in B.C. All of those workers will instead be based in the southern Ontario “focus city” that he expects will be named the week of September 11.

Jetlines’ planes will all be based in that city overnight and fly to other parts of Canada during the day before returning at night, he said.

In the winter, flights will head south, to the U.S. and Mexico, he added.

The most likely cities in southern Ontario to be Jetlines’ focus city are Kitchener and Hamilton, and Gadek said that it is possible that Jetlines will fly to both of those cities within a year or two.

Ticketing agents, baggage handlers and refueling technicians at either YVR or YXX – whichever Metro Vancouver airport the airline chooses – will all be outsourced, he added.

“We’re going to outsource to the greatest extent possible,” he said, before stressing that his overriding goal is to minimize expenses. 

Gadek is a past CEO of Sun Country Airlines, where he first steered the airline into Chapter 11 bankruptcy protection and then increased revenue and reduced costs, leading to profitability.

Sun Country Airlines, however, was not an ultra-low-cost carrier (ULCC) when Gadek was at the helm. New executives at the carrier only recently announced plans to transform Sun Country into an ULCC.

Jetlines is still seeking capital. Gadek said that sometime shortly after next week’s board meeting, the airline will open a virtual data room where potential investors who sign a confidentiality document will get to look at the airline’s full business plan.

Former Jetlines vice-president John Korenic, who is now an adjunct professor at the University of British Columbia and teaches a fourth-year commerce course on airline transportation, told BIV that he believes there is a huge market in Canada for an ULCC.

“Airline fares are high in Canada, no doubt about it,” he said.

“I think there’s a need for a ULCC here. It’s a good model as long as you follow a ULCC model and you focus on the principles of a ULCC and cut costs. When you look at Australia and Europe and the U.S., I think you can make a pretty good case for a ULCC.”

In addition to Jetlines, WestJet Airlines Ltd. (TSX:WJA) also has plans to launch an ULCC next summer with that division of the company operating under a new yet-to-be-named brand.

gkorstrom@biv.com 

@GlenKorstrom 

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