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

[CanadaEH]

I am no expert on pricing or fees or consumer habits. Far from it. I'm not sure there is a desire to see that in Canada and I'm not sure what sort of business plan an ULCC would have, what routes they would serve, etc. but if I'm a betting man I'd say any new entrant would be drastically different from those currently operating. The biggest shock and awe they could do to drum up business is introduce extremely low fares with add on fees that we don't already see. There would be a natural backlash from the public when/if WS/AC tack on fees as a "competitive" response.

[dagger]

I am no expert on pricing or fees or consumer habits. Far from it. I'm not sure there is a desire to see that in Canada and I'm not sure what sort of business plan an ULCC would have, what routes they would serve, etc. but if I'm a betting man I'd say any new entrant would be drastically different from those currently operating. The biggest shock and awe they could do to drum up business is introduce extremely low fares with add on fees that we don't already see. There would be a natural backlash from the public when/if WS/AC tack on fees as a "competitive" response.

If the competitive response included tacking on fees like a carry-on charge, credit card charge, call centre etc, I would imagine a commensurate drop in fares. This would be different from a first-checked-bag fee which is the only add-on for current services I can see in the near-to-mid term. Charging for Wi-Fi, for example, is a different matter since it isn't a currently available service and likely wouldn't be offered by a ULCC.

[CanadaEH]

Agreed.

[Zan Vetter]

I think the incumbents should start referring to what is referred to as low cost as a la carte airlines. The costs are the costs, as someone said above and had been said thousands of times, so many of the airline business costs are fixed. Outside of cheap employees, which Sunwing, WestJet and AC (increasingly) have as well, the only difference is how you market. Getting in front of the inevitable onslaught of gouging accusations, a push to have the public think of the new entrants' pricing as a la carte, and therefore not representative of the total cost of travel at least fends off the perception of your own inclusive fares as overcharging. I'd like to grant the public at least a modicum of savvy, this isn't 1995 anymore and people are on average now are more aware that a $59 fare doesn't tell the whole story.

[Thebean]

There is so much more to keeping costs down than simply densing out aircraft and cutting flight crew wages.

There's a very good reason why UPS doesn't operate Ford, GM, Chrysler, Toyota, Honda and Mazda delivery vans of all shapes and sizes.....

If that is all it takes, then all the airline within an airline experiments that simply bulked up existing airframes and cut crew costs / improved productivity would have succeeded and we'd see Shuttle by United, Delta Express, Delta Song and a bunch other attempts still active in the marketplace today.

I am very familiar with a successful start up operation, which, during it's analytical phase was toying with bulking up capacity by 15%.

When we rolled the numbers through a comprehensive "bottom up" model, (the same one used to model a couple of successful airlines you'd recognize), it resulted in a 10.7% reduction in CASM. In other words, it is not a linear equation.

If total compensation / productivity of flight crews and flight attendants improved 30%, it would have cut overall costs by 2.3%. I would agree that it takes pennies to make dollars, but cutting overall costs by 2.3% isn't a sea change in overall cost structure.

Bulking up is the easiest tool in the toolbox to lower costs, just like improving the bullets in a machine gun. If everyone decides to use the same machine gun with the same bullets, the advantage disappears.

Yes, going to higher density would probably result in lower yields, but that applies to all who go down that path.

Although CanJet, Sunwing and Transat can't dense up their 737's as they are already maxed out at 189 seats, WJ, at 174 seats could, if they chose to do so, bulk up by 9% and cut unit costs overnight.

I don't buy into the "we were so successful, we shut it down" argument either, and won't until Apple decides the IPad is so successful, they completely end production later this year.

[acsidestick]

Ask the Irish about add on fees

[inchman]

The biggest problem for existing carriers when a new low-cost carrier arrives is that people expect, even after these companies crash and burn (probably not a good metaphor), that airlines should be able to fly from YYZ-YVR for $59.... and want 1980 Air Canada amenities and no add-ons, at least from AC.

I don't see what is confusing about some of the new-entrant business plans.

• Build up a quasi-reputation over a couple of years
• Keep the debt as high as possible while siphoning off all cash to other holding companies... usually airline support companies you own.
• Score lots of cash just before Christmas or march break
• After delivering people to their destinations, don't pay the fuel or resort bills and close the doors.
• Leave thousands of people and lenders stranded.
• Walk away with lots of cash.

... and again AC and WS will be expected to put on extra flights to get these people home and be lambasted in the press for charging realistic prices.

Who said there is no money in running an airline???

[Seeker]

The biggest problem for existing carriers when a new low-cost carrier arrives is that people expect, even after these companies crash and burn (probably not a good metaphor), that airlines should be able to fly from YYZ-YVR for $59.... and want 1980 Air Canada amenities and no add-ons, at least from AC.

I don't see what is confusing about some of the new-entrant business plans.

• Build up a quasi-reputation over a couple of years
• Keep the debt as high as possible while siphoning off all cash to other holding companies... usually airline support companies you own.
• Score lots of cash just before Christmas or march break
• After delivering people to their destinations, don't pay the fuel or resort bills and close the doors.
• Leave thousands of people and lenders stranded.
• Walk away with lots of cash.

... and again AC and WS will be expected to put on extra flights to get these people home and be lambasted in the press for charging realistic prices.

I agree completely! The biggest damage done by these fly-by-night start-ups is to lower the perceived "normal" price to fly from A to B. Long after they are gone the regular airlines are still dealing with the fallout.

[Boney]

Agreed...However, by they going bankrupt, fees from Nav Canada, Airports, Fuel Companies, etc, are not paid. Therefore, these agencies increase said fees to the remaining airlines to recoup their losses.

Saw that a few years ago.

[Super 80]

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?

I remain firmly of the opinion there is a fortune to be made in building austere airports on Indian reserves.

[dagger]

I remain firmly of the opinion there is a fortune to be made in building austere airports on Indian reserves.

Like getting your smokes at duty free. Too bad feds outlawed smoking on board, that would be a better marketing gimmick than cheap fares.

[Guest]

Just might be the right time for westjet widebodies for domestic, and international flying. 767, 777 md11, 787, who knows?

[Lakelad]

.

Unfriendly skies await proposed low-cost airlines Canada Jetlines, Jet Naked

Sat July 5, 2014 - Financial Post
Kristine Owram

Two companies are in the midst of raising money to launch ultra-cheap airlines in Canada, but it’s going to be a tough slog in a market that’s notoriously cruel to new carriers.

“They have a high risk of going under after a year or two,” former Air Canada CEO Pierre Jeanniot said in an interview.

“There are lots of examples of that in Canada. We just haven’t been able to support many low-cost airlines.”

Canada has never had a successful ultra-low cost carrier, but there are now two in the works: Jetlines and Jet Naked.

"It’s pretty tough to go head-to-head with big red and blue in this country"

The no-frills model was pioneered by Dallas-based Southwest Airlines and has since been picked up by several others, including Ryanair and AirAsia.

WestJet still calls itself a low-cost airline but it has steadily moved away from that model as it grows. It now offers perks like premium economy class and a frequent-flyer program and has launched a regional carrier called Encore. It even began its first transatlantic flights last month with service to Dublin. All these new services add costs and WestJet’s fares are now generally comparable to Air Canada’s.

The first of Canada’s proposed new airlines, Canada Jetlines Ltd., has announced plans to list on the TSX Venture exchange and raise $10-million through a reverse takeover. The company says it will need about $40-million to begin flying.

The other, Jet Naked, is the brainchild of Tim Morgan, one of WestJet’s co-founders and the CEO of charter airline Enerjet. The company said last week that it has retained an investment dealer to help it raise the $30-million to $50-million it will need to launch.

Both airlines promise to offer low fares through bare-bones service. Ultra-low cost carriers tend to charge for extras like reserved seating, checked baggage and on-board service. They also tend to offer less legroom and use non-unionized workforces.

But can Canada support one ultra-low cost carrier, much less two, in a market that’s already dominated by Air Canada and WestJet?

“It’s pretty tough to go head-to-head with big red and blue in this country,” CanJet Airlines President Stephen Rowe said in an email.

“The two incumbents are 400-pound gorillas in a cage. They will be pretty rambunctious if somebody else enters the marketplace,”

.

[Thebean]

I'm absolutely fascinated by Jetlines assertion that there are under served routes in Canada that are sufficient and robust enough to support a fleet of 130+ seat airframes operating 12+ hours a day.

It's a nice line to trot out to an unsuspecting media and dumb investors, and use Allegiant's activity in smaller markets in the US as an example of a reproducible model.

I've never seen a start up try to finance itself in this fashion. These guys have been at it for well over a year and this is as far as they've gotten? There's more to starting an airline than trotting out the same "we're gonna cut fares by 40%" story every 8 months to gullible media looking for a story.

WJA raised the first $8m in less than a month, and when the time came to raise the next $20m, that was in the bank within 8 weeks. There's lots of high quality capital out there for a solid, defensible business plan.

The difference in Canada is Allegiant's "small markets" in the US typically have a cachement area the size of at least Saskatoon. Canada's "small markets" are 1/3 to 1/4 that size. Apples and Oranges.

In order to have a hope of surviving, (and that's a distant hope IMO), any ULCC would have to go after core markets, precisely the ones Jetlines says they plan to avoid.

Virtually all the ULCC tricks are easily adoptable by WJ. What's left over would leave a very modest stage length adjusted casm differential, likely not enough for a new operator to be able to survive over the rotten 200 days a year. If a ULCC is to succeed in Canada, they'd have to execute the plan to absolute perfection. There'd be virtually no margin for error.

Investors must have the confidence in both the plan, and those responsible for executing the plan before any real money is raised.

Thus far, that has not occurred.

[manwest]

I'm absolutely fascinated by Jetlines assertion that there are under served routes in Canada that are sufficient and robust enough to support a fleet of 130+ seat airframes operating 12+ hours a day.

It's a nice line to trot out to an unsuspecting media and dumb investors, and use Allegiant's activity in smaller markets in the US as an example of a reproducible model.

I've never seen a start up try to finance itself in this fashion. These guys have been at it for well over a year and this is as far as they've gotten? There's more to starting an airline than trotting out the same "we're gonna cut fares by 40%" story every 8 months to gullible media looking for a story.

WJA raised the first $8m in less than a month, and when the time came to raise the next $20m, that was in the bank within 8 weeks. There's lots of high quality capital out there for a solid, defensible business plan.

The difference in Canada is Allegiant's "small markets" in the US typically have a cachement area the size of at least Saskatoon. Canada's "small markets" are 1/3 to 1/4 that size. Apples and Oranges.

In order to have a hope of surviving, (and that's a distant hope IMO), any ULCC would have to go after core markets, precisely the ones Jetlines says they plan to avoid.

Virtually all the ULCC tricks are easily adoptable by WJ. What's left over would leave a very modest stage length adjusted casm differential, likely not enough for a new operator to be able to survive over the rotten 200 days a year. If a ULCC is to succeed in Canada, they'd have to execute the plan to absolute perfection. There'd be virtually no margin for error.

Investors must have the confidence in both the plan, and those responsible for executing the plan before any real money is raised.

Thus far, that has not occurred.

What happenned to all the low hanging fruit you like to talk about.? Has it now dried up?..

[Don Hudson]

In all this lead-up and how it unfolds, let us hope that the "Jetsgo experience" does not visit itself upon the flying public in Canada ever again. I hope that the regulator is watching this closely to ensure that SMS principles are adopted and adhered to. I know from experience now that when and where it is unconditionally supported by owners and their senior management by being appropriately resourced and internally enforced, that SMS can be done successfully.

Let us hope too, that this new organization embraces flight data analysis as a prime safety component of their operation. It is a proven tool and while not legally required by Transport Canada, ICAO anticipates that all carriers will have a data analysis program.

Airline passengers must realize and accept that price is not the only thing that makes a happy pocketbook; we know that there is such a concept as value.

[Seeker]

Let us hope too, that this new organization embraces flight data analysis as a prime safety component of their operation. It is a proven tool and while not legally required by Transport Canada, ICAO anticipates that all carriers will have a data analysis program.

Airline passengers must realize and accept that price is not the only thing that makes a happy pocketbook; we know that there is such a concept as value.

Will SMS add one cent to the ticket price? (Not required) + (costs money) = (not gonna happen).

A rational mind knows that value is the most appropriate measure to make buying decisions but a sort-by-price mentality makes it unlikely to happen.

[Fido]

What happenned to all the low hanging fruit you like to talk about.? Has it now dried up?..

Low hanging fruit can only be picked by WestJet.

[Thebean]

Low hanging fruit can only be picked by WestJet.

And people thought Southwest was a "point to point" airline with no connections and no through traffic..........

[Super 80]

I'm absolutely fascinated by Jetlines assertion that there are under served routes in Canada that are sufficient and robust enough to support a fleet of 130+ seat airframes operating 12+ hours a day.

I think when you look at the amount of air travel in Canada compared to other geographically large and wealthy nations there is something to that argument. There is an enormous amount of travel that either doesn't happen or goes by car because of the disasterous aviation policies in this country.

Now, that obviously becomes a question of price elasticity but that is at the heart of the ULCC proposition. I know nothing of either proposal but find no fault with the concept that the market is underserved from the perspective of where it should have been without decades of sabotage by Ottawa.