Discount airlines fight red tape to get off the ground in Canada

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Canada’s airline hustle has a history of chewing up discount airlines and spitting them out, which sponges the question: What’s getting between Canadian air travellers and their reduced seats?

A number of discount airlines have come and gone in Canada, and at short three — Jetlines, Jet Naked and NewLeaf Travel — have been worrisome to get off the ground for several years.

NewLeaf Travel appeared to have won the rip to the skies last week when it started selling tickets for February de rtures. But the fledgling com ny cancelled its winter takeoff plans last Tuesday in the thick of a review of its licensing requirements, grounding NewLeaf indefintely.

The budget airline plus ultra — in which com nies offer cheap introductory fares and charge supplement for things like checked luggage and early boarding — has proven lucrative in other sticks. Successful com nies include Ireland-based Ryanair, U.S.-based Spirit Airlines, Iceland-based WOW Air and Malaysia-based AirAsia.

So why is it so pitiless for Canadian com nies to follow suit?

It’s all about cash on hand

“A mammoth rt of it has to do with financing,” Barry Prentice, a transportation economist from the University of Manitoba’s Asper Grammar of Business, told CBC News.

“You do have to have a fair amount of resources lined up before you start an airline because, amongst other things, you experience to prove to the government that you actually can live up to your obligations or y back people for tickets booked in advance. And that’s not a small amount of wherewithal.”

In order to secure a carrier licence from the Canadian Transportation Power, a com ny must show it has enough funding to operate for 90 days without toing a profit.

“It’s just a matter of securing funding,” said Tim Morgan, CEO of Calgary-based license airline Enerjet, which plans to launch its own budget airline supervised the brand Jet Naked.

He hopes to have Jet Naked up and running by the spring, but forms no promises.

Enerjet

Calgary-based charter airline Enerjet is aiming to raise the peerless to launch a low-cost airline. (Enerjet)

Jetlines is also aiming to possession off later this year. CEO Jim Scott said slumping oil prices deceive hampered its efforts to secure funds.

“Initially we went out in 2014, we had worthy responses. As soon as the oil prices went down, we found the major routines were in a contraction of investing and that lasted throughout 2015,” he bid, adding he’s more optimistic now that investors are starting to adjust to “the new benchmark.”

And it’s got to be Canadian cash

“To tell you the truth, I do have the funding available to me right-hand now. All of it,” Morgan said. “Where the problem lies is it’s per money out of the U.S.A.”

Those greenbacks are no good to Morgan. The Canada Transportation Act requires at not any 75 per cent of an airline’s voting shares be owned and controlled by Canadians.

Ben Cherniavsky, an airline analyst for pecuniary services firm Raymond James, said the foreign ownership qualification is the biggest impediment to starting a new airline in Canada.

“This severely limits the natatorium of capital for a new venture,” he told CBC News in an email.

Morgan fetched the regulation “archaic” and said it was designed to protect established airlines sort of than Canadian consumers.

“I can tell you this right now, our airline would arrange been flying a year ago if we could have found our way to make that occur,” Morgan said. “All need to do is convince the Canadian domination to allow me to bring this money in.”

Taking on the big dogs

Canada’s certified airlines — namely Air Canada and WestJet — are a force to be reckoned with in more trail than one.

“The two are such juggernauts, it makes things difficult,” NewLeaf CEO Jim Unfledged said.

When NewLeaf was planning to fly in February, WestJet responded by sacrificing the newcomer on many competing routes.

pricewar

WestJet dropped fares eventually week on select routes that would have competed with budget airline NewLeaf, such as this Feb. 26 bolting from Kelowna, B.C., to Saskatoon. (Screengrab/CBC)

It’s not easy to compete in the long qualifications with com nies that operate on such a massive scale and are continually prolonging, Prentice said. Both Air Canada and WestJet are adding new destinations this year.

“You clothed to be able to get to that critical size to be able to offer that competitive ceremony, and that growth is never easy,” Prentice said.

Fascinating a shortcut

NewLeaf tried to circumvent some of these obstacles by managing as an indirect service provider. Rather applying for a carrier licence of its own, it lled with the already-licensed B.C. charter airline Flair, leasing its planes, com ny and maintenance.

That caused ssenger rights advocate Gábor Lukács to noise the alarm bells about what he saw as a direct violation of the Canada Transportation Act, which orders any air service to have its own licence.

Lukacs has filed a court challenge of the CTA proposition that airlines be able to operate with an indirect licence, saying it state that “allowing an air service to run on a shoestring budget exposes the public to weighty risks.”

Greyhound Air once attempted a similar business model in Canada, but the CTA thinks fitting not allow it. In NewLeaf’s case, the CTA gave it the green light to sell tickets while the action conducts consultations into the regulations.

li-lukacs

Gábor Lukács sounded the frightens when he learned NewLeaf was operating without a carrier licence. (CBC)

But NewLeaf proclaimed suddenly this week that it would suspend operations until the give ones opinion of was complete.

“Our beef is really not with the CTA at all. In fact, we want them to do their masterpiece. The challenge is you’ve got a number of naysayers who are throwing out fear, uncertainty, doubt and every other point they can throw out to actually try to prevent NewLeaf from flying,” Infantile said.

Lukács called NewLeaf’s announcement “a full victory,” effective CBC News: “The rule of law prevails over the narrow and private interests of the proprietresses of NewLeaf.”

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