After years of turbulence, ultra-low-cost carriers could finally take flight in Canada

The allure of so-called ultra-low-cost carriers is clear to both passengers and airlines. For passengers, cheap flights have always been very attractive and evidence in the United States and Europe has shown that travellers are willing to undergo a fair amount of annoyance and discomfort, if the price is right.

For the airlines themselves, the appeal is also clear. Ultra-low-cost carriers (ULCC) are very profitable. Airline Weekly puts out an annual profitability scorecard for the industry and last year it showed that three of the four most profitable airlines in the world were ultra-low-cost operations: Allegiant, Ryanair and Spirit Airlines.

It is exasperating for Canadian airlines and airports when millions of trips per year are taken by Canadians crossing the border to Bellingham, Wash., Buffalo or Ogdensburg, N.Y., and then hopping on an American ULCC to other destinations.

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"Border towns in the U.S. have people with jobs and good economic development because five million Canadians a year go and spend their money from those airports," said Darcy Morgan, chief commercial officer with Enerjet, one of the four airlines looking to launch an ultra-low-cost carrier. "Baggage handlers and ramp agents and fuellers all have jobs in order to fly Canadians. Canadians should have those jobs."

So far though, the ULCC market has been a struggle for domestic carriers in Canada. For years, there have been multiple plans for various carriers. So here is a review of who is trying to get in the air and when it might happen.

Flair Air (formerly known as NewLeaf)

There was a lot of buzz around NewLeaf a year ago. It was offering $99 fares from seven secondary airports such as Abbotsford, B.C., and Hamilton. However, the launch was turbulent, and in its early months, NewLeaf hit bump, after bump, after bump, including some aggressive competition from WestJet.

NewLeaf was bought by Flair Air and the branding has changed. Those $99 fares are no longer widely available, and Flair is only flying into five Canadian cities. It's not clear if the airline is going to continue to compete in the ULCC market, or whether it will simply run as a regular, low-cost airline.

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However, Julie Rempel, a former spokesperson for NewLeaf who is working with Flair Air, thinks the company was able to prove there`s a market for no-frills flying.

"NewLeaf allowed people to visit the airports for the first time in years," she said. "And we knew this because of the questions we were answering on a customer service basis. Things that we, as more seasoned travellers, took for granted, like 'Yes, you need ID, yes you need this, no you can't do that.' So we knew we were capturing a market that didn't previously exist."

Enerjet — aka FlyToo

Enerjet, a Calgary charter airline that is run by Tim Morgan, one of WestJet's founders, has been working to turn itself into an ULCC for a number of years now. It has run into trouble raising sufficient funds to get off the ground.

Darcy Morgan, the CCO and brother of Tim, said that Enerjet tried on three different occasions to raise funds.

"We were always able to raise some money, he said. "But not enough to de-risk the project."

The shift last year in foreign ownership rules for new airline entrants helped the search for cash and Morgan said that there is smart money behind his proposed ULCC, which was once called Jet Naked and is now going to be called FlyToo.

However, while Enerjet got a green light to bring in more foreign money, there are other regulatory considerations,the Canadian Transport Agency (CTA) is weighing — whether the foreign investment leaves Enerjet under what's called Canadian 'control in fact.' The issue is whether, with the foreign money in place, FlyToo's day-to-day operations and strategy will still be controlled by Canadians.

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"While we take the steps to follow due process with the CTA, after seven months, we are anxious to have the privilege to move ahead," said Morgan.

Enerjet stopped operating its charter business in anticipation of launching a ULCC, hence the anxiety to get off the ground. The plan is to have 15 aircraft in the air by the end of the third year of operation.

"We are not proposing some mad scientist project here," said Morgan. "We seek to take the best practices of aviation, well proven in other jurisdictions and bring them to Canada, with a particular Canadian flavour."

Jetlines

​Jetlines entrance in the market has also been pending for several years, beleaguered by the same financial issues of raising operational funds. The airline now has an exemption from Transport Canada to bring in foreign money and has recently hired a new chief executive, Stan Gadek,  to rework the company's business plan.

"We're going to have a base hub in southern Ontario, either Hamilton or Kitchener," said Gadek. "Or maybe even both, so all of our flights will originate or terminate in southern Ontario on a daily basis."

Jetlines will pursue the hefty cross border market and will try to stimulate demand among people who do not fly regularly because of high prices. They also plan to go after a small piece of the market for Air Canada and WestJet leisure travellers.

"We're targeting June of 2018," said Gadek. "And then plan to grow in four to six month intervals. Next summer we are going to target domestic Canada. In the winter, Florida, and potentially some locations in Mexico and then expand from there. We want to have 12 airplanes in the air over a 24 month period."

Jetlines has yet to raise the capital it needs, and Gadek expects to hit the road in September to do so. He said that he is not worried about WestJet as competition because he expects Jetlines to win the day by having lower costs.

WestJet's ULCC a year away

WestJet is clearly the most likely entrant into the market. It has the capital and it already owns the planes that will be reworked to have the maximum number of seats. However, it too faces challenges, as evidenced by the fact that the launch has been delayed until mid-2018.

WestJet will have to create a new airline with different branding. Spirit Airlines may be among the most profitable in the world, but it is also the most hated airline in the United States, according to many polls. Flying on ULCCs is frustrating, often with additional costs that passengers aren't expecting, at least until they get used to the concept.

Given that WestJet's current brand is very cheery and customer-service driven, it will need to separate the two, something the airline certainly intends to do.

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"The idea for us will be to brand it very differently from WestJet," said Richard Bartrem, vice-president of communications at the airline. "The aircraft will look very different, the logos, etc., will not be reminiscent of anything to do with WestJet."

It will also need to hire a predominantly new staff, so that it can pay them the lower wages needed to underpin the ultra-low fares, particularly as the parent airline faces continued unionization.

So there are four potential ULCCs that could be operating domestically in Canada in the coming years, in a market that is notoriously difficult on airlines.

Bartrem acknowledges that Canada's smaller population will also be a challenge.

"The population density is a challenge — we're too big a country and not enough people," he said. "We believe that there is a market for ULCCs but I think the reality is that there won't be a market for four ULCCs in Canada, we're just not big enough."