Airline Insider-March/April 06

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Airline Insider-March/April 06

Written by Brian Dunn

CANADA’S NEWEST CARRIER
If everything goes according to plan, Porter Airlines, Canada’s newest carrier, will begin service next fall from Toronto City Centre Airport (YTZ) to about 17 cities in Quebec, Ontario, six American states and Washington, DC, all within 90 minutes flying time or an 800-kilometre radius of the airport.

Porter is a subsidiary of REGCO Holdings, a privately-held company owned by Toronto businessman Robert Deluce who ran Air Ontario before it was acquired by Air Canada. Former American Airlines chairman and CEO Don Carty is chairman of the new entity. REGCO has placed a firm order with Bombardier Aerospace for 10 70-seat Q400 turboprop aircraft valued at $250 million and options on an additional 10 aircraft for a total value of $500 million. It has secured $125 million in equity financing to support the launch.

Deluce had originally signed a letter of intent to acquire 10 Q400s in April 2003, but his plan to start a new service from YTZ fell through after the Toronto Port Authority (TPA) squelched plans to build a bridge linking the island to the mainland, to which it is now connected by a ferry service.

His plans were revived after the TPA recently announced the construction of a new ferry facility and the acquisition of a new ferry capable of carrying more vehicles and passengers.

“It’s a good time to start up a new airline due to a strong pricing environment,” says analyst James David of Scotia Capital in Montreal. “They’ve been circling for years and were attracted by the absence of Jetsgo. And turboprops have come back into vogue in a big way. The Q400 is a very quiet plane, rivalling some RJs, and it’s also very fuel efficient.”

To prepare for the new service, REGCO’s wholly-owned subsidiary City Centre Aviation Limited (CCAL) has started renovations of the terminal building which will employ over 500 people when completed. It plans to add electronic check-in kiosks, business work stations, a new departure lounge, upgraded wireless internet access and food and beverage concessions.

As a result of the construction, ACE Aviation’s Jazz Air is suspending operations indefinitely after receiving an eviction notice from CCAL. Jazz operated flights between YTZ and Ottawa five days a week and was planning to augment its service to Ottawa and resume flights to Montreal.

FRONTIER AIRLINES OF DENVER
Canadian airlines will see new competition coming from south of the border. Low-cost carrier Frontier Airlines of Denver has been granted regulatory approval to fly to as many as five Canadian destinations and is starting with service between Denver and Calgary on May 25. The twice-daily service will use 70-seat Bombardier RJ-700 aircraft through its Horizon Air affiliate. While the airline, with images of animals as part of its livery, wouldn’t identify its other Canadian destinations, they involve “the usual suspects,” says Frontier spokesperson, Joe Hodas which likely means Vancouver, Edmonton and Winnipeg.

Hodas added that Frontier would be interested in a codeshare agreement with a Canadian carrier, but it’s not an immediate priority.

Started in 1994, Frontier provides service to 48 destinations in 29 states and to seven cities in Mexico from its Denver hub. The airline is the second-largest jet carrier operating out of Denver International Airport with an average of 250 daily systemwide departures and arrivals. It operates a fleet of 49 Airbus A318 and A319 aircraft as well as nine RJ 700s through Horizon.

The entry of Frontier into the Canadian market should come as no surprise, said Scotia Capital’s David, who added that if it wasn’t Frontier it would have been another carrier.

“There will always be new competitors in the marketplace, especially with the exit of a deep discounter in Jetsgo. I don’t know what their strategy is, but codeshares create costs and low-cost carriers try to avoid adding more costs. There are other forms of less costly tie-ups they could look at.”

ACE ENDS YEAR WITH $258 MILLION PROFIT
After posting a loss of $103 million in the fourth quarter, ACE Aviation Holdings ended the year with a profit of $258 million, pretty impressive in the face of high fuel costs. It was the first yearly profit for Air Canada since 1999 and an eye-popping turnaround from the $880 million the airline lost in 2004. Revenue for the year was $9.8 billion compared to $8.9 billion in 2004.

Despite the turnaround, ACE is cutting 600 non-unionized jobs or roughly 20% of its non-unionized workforce as it struggles to trim costs. “We must renew our efforts to achieve a cost structure that will allow us to remain profitable in an environment of record high oil prices,” company boss Robert Milton said after announcing the cuts.

He said he was pleased with the results, considering that fuel costs jumped 37% and added an extra $592 million to expenses. He also noted the results were among the best in the airline industry. As for this year, Milton said 2006 looks promising based on customer bookings.

Air Canada ended 2005 with its flights operating at close to 80% capacity and expected to see additional capacity coming onto the market either from existing airlines or from new competitors. It believes it can still grow its 60% share of the domestic market and is forecasting capacity growth of about 5% this year.

Effective June 16, the airline will fly non-stop daily between Montreal and Denver using 93-seat Embraer E190 aircraft. Air Canada has also resumed service between Calgary and New York/JFK with daily non-stop service using the same aircraft. Flights between the two cities were halted in the mid- 1980s after oil prices fell.

On the international front, Air Canada is introducing non-stop service between Toronto and Shanghai effective June 16, using 286-seat A340-300 aircraft. It will operate three non-stop flights per week, complementing its Toronto- Beijing non-stop service and its daily non-stop flights to both Shanghai and Beijing from Vancouver.

WESTJET TURNS 10
Happy 10th birthday to WestJet Airlines, which began operations in February 1996 as a low-cost, single-class, point-to-point carrier with three Boeing 737-200 aircraft operating between Vancouver, Kelowna, Calgary, Edmonton and Winnipeg, and 220 employees. It has grown from $37 million in annual revenue to $1.4 billion today and operates a fleet of 51 nextgeneration Boeing 737s serving 23 destinations in Canada and 10 in the US. including Honolulu and Maui, and employs 5,000 people. In 2006, the airline will accept delivery of two 737-700s and 10 737-600s.

Like Air Canada, WestJet enjoyed a turnaround year, earning $24 million in 2005 versus a year-earlier loss of $17.2 million, partly the result of an accelerated replacement program of its fleet of 737-200s. Revenue increased to $1.4 billion from $1.06 billion.

The airline is spending a lot of money on advertising in Ontario in an attempt to grow market share, which will be much more difficult to do because Air Canada has a much more rigid customer base there than in the west.

HARMONY AIRWAYS TO LAUNCH CALGARY AND VANCOUVER SERVICE
Harmony Airways plans to launch a new service on May 14 between Calgary and Vancouver, competing head-to-head with Air Canada and WestJet with its fleet of Boeing 757-200 aircraft. Harmony will operate three flights weekdays and two on Saturday, timed to hook up with partners China Eastern Airlines’ and Japan Airlines’ services from Vancouver to Asia.

“Harmony recognizes the tremendous demand from cities such as Tokyo and Shanghai for destinations like Calgary and the Rockies,” said the airline’s president and CEO, Gary Collins. “We’re making the link between Asia Pacific and North America using Vancouver as the gateway.”

Harmony also plans to offer yearround service between Calgary and Hawaii. The carrier launched twiceweekly seasonal service between Calgary and Maui on Dec. 9, but demand was so overwhelming that it decided to make the route a year-round service. Twice-weekly service was to continue until the end of April, after which Harmony will offer Saturday-only service until the end of October. A second non-stop flight will be added again in November. The carrier already flies year-round from Vancouver to Maui.

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