Canada Jet­lines heats up bat­tle of ul­tra low-cost air­lines

Times Colonist - - Business -

MON­TREAL — The ul­tra low-cost air­line bat­tle is heat­ing up as fledg­ling air­line Canada Jet­lines pre­pares to take on WestJet’s ef­forts to re­gain its man­tle as the coun­try’s low-cost leader.

The up­start air­line’s chief ex­ec­u­tive told an in­vestor con­fer­ence Tues­day WestJet’s dis­count brand Swoop won’t be able to match its low costs, which will al­low prices to av­er­age at less than $100.

“This coun­try needs low fares. No doubt about it,” Stan Ganek told the Sco­tia­bank trans­porta­tion and aero­space con­fer­ence.

But he said WestJet’s cre­ation of a Swoop di­vi­sion just won’t cut it. “We all know that’s go­ing to be a tem­po­rary mea­sure and then when the com­pe­ti­tion is wiped out, guess what, the air­fares go right back up again. So who’s kid­ding whom?”

Gadek said Canada Jet­lines will min­i­mize costs by out­sourc­ing ev­ery­thing but pi­lots and flight at­ten­dants. Tick­ets will only be avail­able on the in­ter­net, which dra­mat­i­cally cuts dis­tri­bu­tion costs. That will en­able the air­line to fill its planes and make a profit on each de­par­ture.

By con­trast, he said Swoop will be fight­ing in­ter­nal re­sis­tance from peo­ple who are used to do­ing things a cer­tain way, along with higher costs.

“There’s one ob­jec­tive that Swoop has and that’s to elim­i­nate com­pe­ti­tion,” he told an­a­lysts.

“It’s not about bring­ing lower fares to Canada. It’s not about cre­at­ing more travel op­por­tu­ni­ties for Cana­di­ans. That’s baloney.”

He said Canada Jet­lines is pre­pared for a fight with WestJet and is pre­pared to take it to task for un­com­pet­i­tive ac­tions, as WestJet did when it took on Air Canada in 1996. WestJet coun­tered that it will re­main very ag­gres­sive in de­fend­ing its mar­ket share.

“Our DNA is low-cost DNA and we’re not go­ing to let some­body else come in and take a chunk of the mar­ket with­out them hav­ing to fight us for it,” CEO Gregg Saret­sky told the con­fer­ence.

He added that Canada hasn’t his­tor­i­cally sup­ported more than the equiv­a­lent of 2.5 air­lines.

Saret­sky said the plans for three new star­tups in­clud­ing Flair Air­lines and Canada Jet­lines, along with Swoop and Air Canada Rouge, will make for a crowded mar­ket.

“With one ULCC al­ready fly­ing [Flair] and two seek­ing cap­i­tal­iza­tion to start, that’s about two-and-ahalf times more than the coun­try can sup­port.”

Saret­sky added that WestJet won’t make Air Canada’s mis­takes in launch­ing Rouge in 2013 by en­sur­ing pas­sen­gers don’t get any nasty sur­prises. Flights will be booked on a sep­a­rate web­site, check-in will be at a sep­a­rate Swoop air­port counter and the uni­forms will be a dif­fer­ent colour.

Air Canada chief fi­nan­cial of­fi­cer Michael Rousseau also told the con­fer­ence the coun­try’s largest air­line is watch­ing the bat­tle closely and is pre­pared to ex­pand Rouge to com­pete, if re­quired.

Ganek coun­tered that there is enough de­mand in Canada to sup­port 17 mil­lion pas­sen­gers fly­ing ul­tra low cost by 2023. That as­sumes a lower mar­ket pen­e­tra­tion than has been achieved in Europe or the U.S.

He also said he has re­ceived in­ter­est from sig­nif­i­cant undis­closed air­line in­vestors out­side Canada to get the air­line fly­ing on June 1. The ini­tial fo­cus is for­eign cap­i­tal due to a lack of risk cap­i­tal in Canada, while Europe and the United States have ex­pe­ri­ence with the low-cost busi­ness model, he said.

The fed­eral gov­ern­ment has given the air­line an ex­emp­tion from for­eign own­er­ship rules that will al­low it to have 49-per-cent for­eign own­er­ship with no sin­gle in­vestor hav­ing more than a 25 per cent stake.

Canada Jet­lines plans to start op­er­a­tions from Hamil­ton, Ont., and will add Ab­bots­ford and Vic­to­ria in 2019 and hopes to fly out of Mon­treal down the road.

It will ini­tially fly four Boe­ing 737s, adding four an­nu­ally to reach 24 planes by 2023.

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