One of the most important factors in developing a successful business is identifying a gap in a particular market and formulating a plan to fill that gap. One of these gaps has been identified in the airline industry in Canada, and the race is on to fill it. Canada is the only G-7 country without a true Ultra Low Cost Carrier (ULCC) and Canada Jetlines Ltd. (TSXV: JET) is one of the companies with plans to change that.
Listed on the TSX Venture exchange by way of a business combination transaction with Jet Metal Corp., Canada Jetlines Ltd. commenced trading on March 7th, 2017 and currently has a market cap of $3.8 million. The company has stated that they plan to launch operations in the summer of 2017 with fares estimated at 30-40% lower than those offered by Air Canada and WestJet. They plan to do this by using the commercial aviation Ultra Low Cost Carrier model to attract new passengers with low airfares.
The ULCC model focuses on standardization of plane size and seating options generally using one type of aircraft, point to point flight patterns, and using lower cost airports. The model is highly profitable throughout the world and is growing in market share all the time. Currently there are two publicly listed ULCCs in the United States. Allegiant (NASDAQ: ALGT) had 2016 revenue of $1.2 billion posting a profit of $370 million and Spirit Airlines (NASDAQ: SAVE) had a net income of $264.9 million in 2016. There is really only one other company that has announced their intention to enter the space, but they haven’t made any other plans public other than the goal to enter the space.
Canadian carrier WestJet started out as a low cost carrier back in 1996 serving 5 cities with 3 Boeing 737 aircraft and added 3 more cities by the end of the year. They posted a profit of $2.5 million in their first 6 months and had revenue of $37.3 million in their first fiscal year (which was only 10 months long) posting a small profit. WestJet has since exited the low cost carrier space.
Canada Jetlines’ business plan calls for operating flights throughout Canada and providing non-stop service from Canada to the United States, Mexico, and the Caribbean starting with six Boeing 737 aircraft in its first year of operations. They got some good news from the government when the Federal Minister of Transport provided them with an exemption from the current foreign ownership rules for Canadian airlines. The company will be permitted to conduct domestic air services while having up to 49% foreign voting interests. This will allow the company easier access to foreign capital for the next steps in the development of the company.
On March 28th, the company provided an update on route plan development announcing that they have entered into an agreement with InterVISTAS Consulting Inc. to support the development of the Jetlines’ ULCC airline route structure for its first 15 aircraft, along with a defined start-up schedule for its first four Boeing 737s. InterVISTAS is a leading management and consulting company with extensive expertise in aviation, transportation, and tourism having successfully completed more than 2000 projects with over 500 clients in over 75 countries. They have staff that have previously worked at both Air Canada and WestJet as part of the network planning and scheduling teams and InterVISTAS has also worked with every major airport and airline in Canada across a range of disciplines.
Canada Jetlines has an aggressive timeline, planning to be flying by the summer of this year, but with a proven model and the government’s support by way of the exemption on foreign ownership, they should have a chance to access the financing they would need to make that happen. If they can get airborne and servicing the market they have identified as underserved prior to any competitors in the ULCC space, the sky is truly the limit.
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