Jet Naked Aims To Bring Ultra-Cheap Airline Model To Canada

[Lakelad]

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Jet Naked aims to bring ultra-cheap airline model to Canada

Fri June 27, 2014 - Financial Post
Kristine Owram

A group of seasoned air travel executives is raising money to create a new no-frills Canadian airline they’ve dubbed Jet Naked.

Jet Naked says it expects to offer fares at less than 60% of those currently offered by Air Canada and WestJet.

The company aims to follow in the footsteps of ultra-low cost carriers like Ryanair, Spirit Airlines and Air Asia by unbundling all the services typically built into an airfare, including food, drinks, carry-on and baggage. Passengers will be able to choose whether they want to pay for these services or opt for a bare-bones experience.

WestJet co-founder Tim Morgan is executive chairman of the nascent airline, which already has a fleet of three Boeing 737 planes lined up.

Mr. Morgan, who has been running charter airline Enerjet since 2006, will be joined by David Lancelot, former chief financial officer of Spirit Airlines; Curt Berchtold, an airline restructuring expert; and Cameron Trant, whose background includes a stint at Spirit Airlines.

Jet Naked said in an emailed statement Friday it hopes to attract Canadians who fly out of U.S. airports or who don’t fly very often because of high fares.

The company is looking to raise $30-million to $50-million in private equity financing and has retained Toronto-based investment dealer Octagon Capital Corp. to assist.

Jet Naked said it expects revenue of $120-million in its first year of operation, growing to $750-million by its third year.

The company isn’t the only aspiring ultra-low cost carrier in Canada. Canada Jetlines Ltd. plans to launch an airline called “Jetlines” out of Vancouver in the fall.

Canada Jetlines is the brainchild of aviation veterans Jim Scott, David Solloway and Dix Lawson and aims to fly to underserved markets in western Canada like Prince George, Kamloops and Regina.

Launching an airline in Canada is a risky proposition. Several other ventures like JetsGo, Canada 3000 and Zoom Airlines found that out. They all failed.

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[Seeker]

Bean? Oh Bean....where are you?

[proview]

By a curious coincidence Enerjet has just registered another aircraft, bringing their current fleet to four Boeings. Is one being cynical in suggesting that these items may be related?

Seriously, there have been suggestions over the past year or so that Enerjet was wanting to get into this, and had hired investment bankers and whatnot. Perhaps this one and Jetlines and whatever other ones start up may not survive, but it is probably the point in the business cycle when startups will arise. The Canadian airline industry is dominated by a stable duopoly, profits seem good, and there is a supply of relatively modern aircraft and seasoned airline management. All that is needed is investment capital. It is no wonder both Jetlines and this one claim to be following in the footsteps of Ryanair, Spirit, Alegiant, etc. Those are the names the market wants to hear.

[Moon The Loon]

Sooo...in following in an Irishman's footsteps, will it now be "a Loonie a Leak" instead of "a Penny a Pee" or "a Pound a Poo"??

This concept might work in a highly concentrated market such as Europe but doomed to the Mike The White album of wannabe-Canadian-airlines.

[Seeker]

Well, in one way it's good; serve a large helping of dissatisfaction to a few thousand people and they'll be happy to come back to a real airline like AC or WJ. BTW, it's not the fares that are too high - it's the taxes, fees, AIFs, etc,etc that are too high!

[J.O.]

Precisely. These guys may think they've got a great new idea but without a break on fees and taxes they will have a very hard time competing with the operators using airports south of the border.

[boestar]

Using the fly naked model, passengers will be required to leave their luggage and clothing at home. This will reduce costs by eliminating the peky problem of carrying the weight of luggage and clothing. Passenger seating is the latest in light weight ultra strong latex.

[airt]

Great name...people will remember it

It's only been a matter of time until the ULC's show up in Canada.

I don't see this as a positive developement for the encumbant carriers.

[thor]

Great name...people will remember it

It's only been a matter of time until the ULC's show up in Canada.

I don't see this as a positive developement for the encumbant carriers.

Don't worry, another JetsGo. EnerJet hasn't been able to get beyond 3-4 aircraft in the last 8 years.

[CanadaEH]

Anyone who thinks an ULCC won't be successful is delusional. With the right business plan and the right routes it would cause a world of hurt to every airline in Canada. The marketplace is ripe for a correction, IMO.

[Maverick]

Hard to know for sure but it would have to be run with extreme care. The unavoidable costs in Canada are simply overwhelming when compared to the US.

Tim is a smart guy but he was always on the operational side of early WJ and not the one tweaking the RASM side. Anyone who's been here for more than a week knows that.

With the emergence of Rouge, Encore and WestJet vacations I can't see any gaping holes that they could fill with a small fleet and limited capital.

There is also the fairly predictable response by the incumbents to whatever route they plan on operating.

They've got a tough row to hoe.

[dagger]

They already have one small problem, a unilingual name. Westjet at least is pronounced the same as Ouestjet in French, so people in Quebec aren't turned off by it.

[J.O.]

So far we have rouge and Encore, maybe they could change it to "au natural".

[Fido]

They already have one small problem, a unilingual name. Westjet at least is pronounced the same as Ouestjet in French, so people in Quebec aren't turned off by it.

Maybe they do not care about the Quebec market.

[chockalicious]

I have heard conversations where some fellow WSers at the time would state that people would fly with us because of the service provided, fun friendly etc.

Overwhelmingly /TM Bean/ it seemed the people who had worked thru the Jetsgo debacle would have a collective eye roll because Jetsgo proved that they, or any other irrational competitor, could hammer the margins of the other carriers. So many supposedly loyal customers will cross the street for 5$.

If someone comes in and can pull of the ULCC model with success I think it will have a dramatic impact on the industry in Canada. I don't know if it can be done but it should keep everyone on their toes.

[Seeker]

I hope there's somebody at Westjet that remembers the past (and what needs to be done about a competitor in your backyard).

[Super 80]

I don't see how one pulls this off in Canada without very literally building their own utilitarian airports.

[dagger]

Fuel is another issue, because if fuel is rising as a percentage of total costs, and airport, airnav and taxes are equal for all, then labour is the only flexible cost where a new entrant can gain an advantage. Fleet costs favour the incumbents because they can negotiate the best purchase, lease costs and/or financing terms. In fact, the scale advantages of the current incumbents favour them in every area but labour cost. For example, does any expect a new entrant to get a cost break at major airports that the majors don't have? And both WS and AC are ordering the 737-MAX which will have operating cost advantages of the current A32xx or 737NG aircraft.

[Super 80]

It won’t take much of a dip in fuel prices to effectively nullify the economic advantage of the Neo and MAX.

But when it comes to fleet costs it cuts both ways. There are a lot of deals to be had on a one-off basis of either oddball aircraft or from financers who may only control a couple of identical aircraft. Southwest and Delta are really the only major airlines that are willing to wade into that swamp and do those small deals in the regular course of business. If you're in the startup phase and you just need to put together a small and similarish fleet and are willing to do the legwork it can be done.

But I'm pretty sure in YEG's ongoing temper tantrum directed at AC they would probably cut these guys a deal.

[Zan Vetter]

There are too many dead airlines in this space to even bother listing them anymore.

[props2you]

Using the fly naked model, passengers will be required to leave their luggage and clothing at home. This will reduce costs by eliminating the peky problem of carrying the weight of luggage and clothing. Passenger seating is the latest in light weight ultra strong latex.

Let's hope they use leather seating, it will be easier to get rid of the skid marks.

[CanadaEH]

Fuel is another issue, because if fuel is rising as a percentage of total costs, and airport, airnav and taxes are equal for all, then labour is the only flexible cost where a new entrant can gain an advantage. Fleet costs favour the incumbents because they can negotiate the best purchase, lease costs and/or financing terms. In fact, the scale advantages of the current incumbents favour them in every area but labour cost. For example, does any expect a new entrant to get a cost break at major airports that the majors don't have? And both WS and AC are ordering the 737-MAX which will have operating cost advantages of the current A32xx or 737NG aircraft.

Costs are one thing but the ULCC model is one that provides little to no amenities and charges for everything. AC/WS operate a very much pay-per-use system but not nearly to the extend an ULCC would..... at least in my opinion.

Does AC or WS charge for pop?

Do they charge for first bag? (not yet but I'd imagine very soon)

Do they charge for carry on?

Do they charge for checking in at the airport?

Do they charge for ..............

[dagger]

Costs are one thing but the ULCC model is one that provides little to no amenities and charges for everything. AC/WS operate a very much pay-per-use system but not nearly to the extend an ULCC would..... at least in my opinion.

Does AC or WS charge for pop?

Do they charge for first bag? (not yet but I'd imagine very soon)

Do they charge for carry on?

Do they charge for checking in at the airport?

Do they charge for ..............

No, and when Son of Spirit does, it will make for an interesting reaction. This is Canada, we have winter. If they are flying x-Cda in January, and charging for carry-on, but there is barely any room with the coats and it's a struggle to cram a bag in, well wait for the hue and cry. Of course they could charge for putting your coat into the overhead, I suppose.

[CanadaEH]

They could charge for anything and everything - that's my point. If a typical YYC-YYZ fare is $159 (I have no idea what it is) who's to say new entrant couldn't charge $59 and ding with you a bunch of fees on top of that (1 check in bag, 1 carry on, seat selection, check-in at the airport, buy a can of pop)? Even if the fare ends up being 3/4 that ($119) it's the perception of a cheap $59 fare. WS and AC have priced to a point where a new entrant can come in and pick up the spilled traffic that both are leaving behind by charging what they are.

Any new entrant would do well to service East-West in summer and North-South in winter. Cherry pick the routes that will have the biggest impact.

[dagger]

They could charge for anything and everything - that's my point. If a typical YYC-YYZ fare is $159 (I have no idea what it is) who's to say new entrant couldn't charge $59 and ding with you a bunch of fees on top of that (1 check in bag, 1 carry on, seat selection, check-in at the airport, buy a can of pop)? Even if the fare ends up being 3/4 that ($119) it's the perception of a cheap $59 fare. WS and AC have priced to a point where a new entrant can come in and pick up the spilled traffic that both are leaving behind by charging what they are.

Any new entrant would do well to service East-West in summer and North-South in winter. Cherry pick the routes that will have the biggest impact.

I think there is a different element injected when a fee isn't voluntary. For many, a carry-on fee is a mandatory fee they can't readily escape. I pack light in a 20" carryon for convenience and to avoid any checked bag fees, but on anything but a day trip, I would have no option but to pay for one carry-on. Secondly, carriers like Ryanair charge for using a credit card, charge for using a call centre, etc. There is already a measure of consumer resistance to fees, just imagine the reaction against a drip-drip-drip number of extra charges. Ryanair and other European discounters do well using secondary airports further from the origin and destination cities. In some cases, Canada doesn't have a good alternative airport. YEG, YYC, YWG come to mind as well as anywhere in the Atlantic provinces. YVR has Abbotsford, Toronto has Hamilton. But beyond that, what are the lower cost secondary airports?